#290 - Bob Knakal - Head of the NY Private Capital Group @ JLL - The $24B Broker

Chris Powers: Welcome to the Fort podcast. Thanks for joining me today.

Bob Knakal: Chris, great to be with you. I was looking forward to this one, and let's get to it.

Chris Powers: Let's get to it. All right. I had so much fun preparing for this because you have an incredible story, and I want to tell that today. So let's start with how did you grow up?

And you said you wanted to be a stockbroker and investment banker, and that's different from the route you took. So how did you become a broker? So how'd you grow up, and how'd you become a broker? 

Bob Knakal: Okay. I grew up in a tiny town called Maywood in northern New Jersey, in Bergen County. Maywood had about 14,000 people when I was growing up and just a small-town childhood.

Still have seven buddies, and we all went to kindergarten together to get together and play poker once a year. And those are the only friends I have that are not in the real estate business, so many old friends, good friends, and folks not in real estate. My only friends, not in real estate, grew up, played baseball and sports growing up as a kid.

I went to the Wharton School at the University of Pennsylvania. I've played baseball there. And my first year, I wanted to be the next Gordon Gecko; like every other Wharton kid, I wanted to be a Wall Street guy. Drove around during my spring break that first year, dropping my resume off at every commercial bank and investment bank I saw, trying to get a summer job that would look good on the resume.

I come out of a Payne Weber office across the hall. I see Coldwell Banker. I walk in there thinking the place is a bank. Give them my resume. They called me later that day, and set up an interview for the next day again, 1981, no internet. So I go to the library that morning to look up this bank, see it's a real estate company, and almost don't go on the interview.

I'm like, and I want to avoid getting into real estate. But they were the only ones hiring college kids for the summer. They took the job and spent the summer doing market research, driving around Morris County, New Jersey, and logging buildings for CB's Data Bank. I returned my next summer, ran that summer program, returned my third summer, got my New Jersey broker's license, and was an assistant to an industrial broker showing industrial space to tenants.

And then, when I got out of school, I started with CB in Manhattan. So got into the business entirely by accident, but the luckiest break I ever got.

Chris Powers: I love that story. All right. Bob is the most notorious investment sales building sales broker with over 24 billion in sales. So I want to say that because the rest of the conversation is a buildup to how we became and got there.

So you graduate, let's start. Did you know you were any good when you first started? What were the things you started to lean on early in your career? I'm pretty good at this and can make an extensive career out of this.

Bob Knakal: I don't know. There was an aha moment like that, Chris.

I loved the business, and I loved it from that, that first summer job driving around looking at buildings and writing down information. And I just, I, always was attracted to the city as a young kid, even though we lived in Jersey, my grandparents lived in Manhattan, so we'd come into Manhattan once every month or two, and always we looked up at the significant buildings, and it was a cool thing.

I just wanted to get into the city. And I knew that I was going to work hard at it. I always worked hard at stuff, whether it was athletics. I was doing academics and just started working. I remember the first eight or nine months; I worked seven days a week.

I didn't take a day off. And in those days, it wasn't like you did some work from home. You got into the car and came into the city because you couldn't work from home. We didn't have computers. We didn't have cell phones. So you came into the office seven days a week, and it was eight or nine months.

I didn't miss a day and loved it from the beginning. And I started mid-July, I forget July 16, 15, or 17th of 1984. We closed our first deal in March of 85. I'll never forget that first closing. I had the most incredible feeling ever, like a similar feeling when I got my first econ exam back in my first year in college.

I was like, Hey, I got a B I can do it. I can do it. And this is the same way that I felt pumped about that; I felt pumped up that we got this building sold, 1421 Third Avenue, sold for 3,180,000. And it was the most incredible feeling in the world. And then it was just onto the next one. And it's just been great.

I still love the business as much today as I did when I started. 

Chris Powers: I have to ask you, you sold that in 1984 for 3.1. What would that sell for in 2023 today? 

Bob Knakal: Okay, that was that was about 20,000 feet. So today, probably worth about 16 17 million bucks. And it was nine March of 1980-85, 3 million, 180.

Chris Powers: Okay. So we talked about the kind of work from home and how things have changed, but you've taken a senior leadership role. You see a lot of young folks coming in. Is the playbook still the same to be successful in this industry? Is there something that you're telling the folks joining your team at a college or from another career on how to make it in this industry that's changed over the years? Or is it still working hard?

Bob Knakal: Yeah. Chris, the real estate brokerage business, has mostly stayed the same. I view reality as a blocking and tackling business. It's not rocket science. It's a lot of fundamental, fundamental things. It requires passion to work hard enough, even through tough times.

Cause no matter how good you are, you'll have tough times. But it would be best if you had the passion to work hard. And then it requires discipline to do the things we must do daily, week after week, month after month, to succeed. Making cold calls, staying in touch with people, focusing on market presence, building relationships, and following up with people are all things that are not ground-breaking but the simple fundamental things that must be done.

We look for people who have passion and discipline and can grasp the concepts of our business. And I tell people, you'll learn 80% of the business in your first year from a technical point of view. You'll spend the rest of your life learning the other 20%.

Because I'm still learning things every day, you have to be very focused and disciplined and do what needs to be done every day to ensure you are doing what you need to do to succeed in this business. 

Chris Powers: How do you define market presence? You said you got to keep up with your market presence.

What does that mean? 

Bob Knakal: Yeah. Market presence is if you express that in real estate, especially in private capital real estate, you're dealing primarily with private individuals and folks who are investing their own money. It's not who you know; it's who knows you. And if you look at that phrase, Getting people to know you depends on your market presence.

Are you making your phone calls? Are you sending out emails to people? Are you sending out hard mail? Which is a very underrated tactic for building a market presence. Are you sending out texts? Are you meeting with people face to face? Are you going to networking events? Are you giving speeches?

Are you out in the public talking about real estate? All of these things lead to market presence. And, of course, social media today. I'm a recent adopter of social media, and that's another way to have a market presence to do things that will make you top of mind. 

So here's why being top of mind is essential. If you look at Manhattan as a microcosm of New York in Manhattan, south of 96th Street, there are 27,649 buildings. The average turnover rate of that stock of buildings has been about 2.6% over the last 39 years. And if you assume half the stuff that goes on the market will trade, that means at any one time, about 5% of the stock is on the market, which tells you a couple of things.

One, it tells you there are only a few properties for sale. Number two, it tells you that, on average, when someone buys a property here, they own it for 40 years before they sell it. So it's not as if you're calling people and every time you call them, I say I'm interested in selling or doing some deal.

So you have to be there. When do people decide to sell? It's the old reliable death, divorce, taxes, partnership disputes, etc. But it could be that somebody just made a new lease, or there's something that triggers a desire to sell. So you have to be top of mind. Because if you think about all the people that own properties and there's that one moment where they decide, you know what, maybe I should sell my building.

You have to be top of mind. Because of the probability that you'll call people on that exact day when they decided we should sell. Very unlikely. So you want to have people know of you, what you do, how you do it, and always be in front of them so that when that moment happens, and they say, you know what? We should sell; the first thought in their mind is, yes, let me call this guy because he is; he's been all over me for so long.

Chris Powers: Okay, so I'll ask the question. You're a broker in Manhattan, but arguably the most prolific of all time. How do people know you? What do they know you of as a broker? There are a lot of brokers in Manhattan, but what do they know you for? 

Bob Knakal: One of the things that we always were very focused on, and let's go back to the beginning because that's when it all starts, correct?

We always thought it was fundamental; you get an exclusive listing, set up a setup, and send that out to the market. We did that by hard mail back in the old days. It was even before fax machines were around. So it was just hard mail. And you'd put an ad in the classified section of the New York Times, which was like the multiple listing service back then.

But we created content. We were writing market reports back then. We were doing a newsletter back then. We were creating things so that, when we started, our value proposition was straightforward. We only sell buildings. We only represent sellers. We only work on exclusives, and we only work in your neighborhood.

And that was, look, I said that in 15 seconds. That was very easy to understand. So it wasn't we're equity placement intermediaries, no none of this. Most people write and talk at a fifth-grade level. That's not a disparaging comment in any way. That's a fact that people tend to communicate at a fifth-grade level, and that's okay.

But you have to appeal to make it easy for people to understand what you do. People always say what do you do for a living? And I sell buildings, right? I, that's what I do. So we would always beat the drum. Hey, we work in your neighborhood. We know every owner of every building in the territory.

We track every sale. We know every zoning change. We know what new developments are going on. And when we would go into the pitch business, we may have only sold three buildings in our career. But we'd pitch against people with a lot more experience, and we'd go into an owner, and they'd say, why should we hire you?

Say, look, we know everything that's going on in this area. And yes, we've only sold three buildings, but one was down the Street, one was right across from your building, and the other was right next door. And we know this neighborhood better than anybody, and we'll be able to be a better advocate for you in terms of commencing a buyer and why they should pay more for your building.

And that got traction for us. So we were two young kids with only a little track record or experience, but we had a value proposition that resonated with people. And we went out, and just, it started to snowball. And then, we had two small geographic territories we worked in. We put somebody north of us, south of us, east of us, and west of us, growing it like a jigsaw puzzle.

And it started with just the two of us; Paul and I started Massey Knakal in 1988 after four years at CB. And it started just the two of us with the secretary, and we had 250 people in four offices when we sold the business to Cushman in 2014. 

Chris Powers: That's unbelievable. Oh, I have so many. Okay. Only represent sellers. Was that a conscious decision you all made as opposed to only representing buyers? Was there a reason you chose sellers or is that, in hindsight, just how it shook out? Was there an intention about sellers?

Bob Knakal: No, it was a conscious decision. We think that seller representation is a higher probability business than buyer representation.

And I'll explain why. And there's not; there shouldn't be a surprise to anybody. And again, not a disparaging comment about sellers, but overwhelmingly, people who own property think their property's worth more than it is. And generally, they become educated about the market when they've had a lot of activity, offers made on their property, et cetera.

And when that seller gets to the point where they're ready to accept a market clearing price, three or four buyers usually would pay that market clearing price. And so if you're a buyer rep, you might have somebody willing to pay the highest price in the world, but there are three or four other people there, so you have a 25% or a 33% chance of making the deal.

It was a higher probability business to represent the seller. We also would only work on exclusive listings. And that's something I tell people as much as I love this business. I would do something else if New York State outlawed the exclusive listing. Working on open listings is so against what I've always done and how I do things that I wouldn't continue doing it.

And I even tell people, I say, look if I meet with a seller just thinking about selling and they owned a 12-story purple building on the corner. They won't give me an exclusive, and the next day at 10:31 buyer walks into my office and says, Bob, I need to buy a 12-story purple building on the corner.

Do you know anything? I say, no, I don't. And the reason is that no matter what, that sounds like a perfect scenario. It will take tens of hours to finish that deal, and somebody may come in at the last second and outbid you. It could be a better use of time. If I bring that one buyer to that seller, they will never give me an exclusive listing because they're going to say, Hey, if Knakal has a suitable buyer, he will bring them over.

I don't have to give him an exclusive. So it's been something I've always done; it's higher probability brokerage representing sellers exclusively instead of working on available listings or representing buyers and not looking. I know plenty of brokers who very successfully do buyer representation.

They sell properties; sometimes, they're the seller of the property because they own it. Sometimes they're the contract vendee; they're flipping their deal. A lot of people make money in a lot of ways. I like to keep things simple for a couple of reasons. One, I don't like conflicts of interest.

If you're only representing one side of the transaction all the time, you never have conflicts of interest. And secondly, I only want to remember what I say to everybody. So if I'm saying the same thing to everybody all the time and just trying to maximize the price I'm getting for the stuff I'm selling, it makes life very simple.

Chris Powers: Bob, I was already a fan of you, but you are making me more of a fan as we go. Okay? We're going to role-play for a second. Hey Bob, we're buddies. I've got a 12-story purple building. I don't need an exclusive with you. Why? What will you tell me if I'm on the hunch that this will be a deal breaker, that you've convinced thousands of sellers over the years why they need to sign that exclusive? Why should I sign this thing? 

Bob Knakal: Why wouldn't you? First, I expect you to sign the agreement with me, Chris. If I tell you everything, I will do it for you first. So number one, I want to look at your building. I'm going to put together a report for you. Come back in a week, and I will go through that report. Going to tell you what we think the property is worth, why we think it's worth that, and then what we'll do for you.

I expect you to give me an exclusive once you've heard everything I will do for you regarding representing your property. And if after you've heard all these things, you still say, I don't want to give you an exclusive. No harm, no foul. But allow me to explain why you should hire somebody in your best interest.

Chris Powers: If I sign the exclusive, what am I signing up for?

What are the terms that I am signing up for? 

Bob Knakal: Generally, the agreement will spell out the duration of the agreement, what the commission agreement is, and the duration. We always give clients the right to cancel the agreement on 30 days' notice. And we do that because invariably, the number one reason people are hesitant about signing an agreement is that, typically, our agreements are for six months, and the base term is a six-month agreement.

But if people feel uncomfortable about that because they haven't worked with us before, had a bad experience with another broker, or a variety of reasons, we say, look, you can fire us on 30 days' notice. I can remember less than five times in 39 years when a seller has opted to do that. And we're willing to do that because people say, oh, that's interesting.

When we started doing that, we made it; part of our standard agreement was we said, look, we're so confident in what we'll produce for you. We know you won't fire us, but we will only do something for you if you sign this agreement. So sign the agreement. And if people, too, change their minds, fire us.

But we're so confident that we will produce great results for you that we'll give you the ability to terminate the agreement for any reason or no reason at your will. And that usually gets over a lot of the objections. But I need to know your objections to get you to agree, hire me, or hire me.

And that's the biggest issue. It is because a lot of objections are not objections. I don't like exclusives. My mother-in-law told me not to sign as an exclusive agent. My attorney had a bad experience. I heard exclusives are bad. Those are not objections. You cannot overcome any of those. But when somebody says I don't want to give you an exclusive because I hired an agent once, and they didn't send the information out to other brokers, that's an objection.

You can address that. I don't want to hire an exclusive agent because the last guy I gave an exclusive, I signed the agreement didn't hear from him for two months. You can overcome that objection, but drilling down to understand what the objection is really, is the key to getting people to hire you.

Chris Powers: And to confirm, the real may be value in the exclusive is, let's say, okay, I'm signing the exclusive with you on my 12-story purple building on the corner. You bring me a buyer. And I'm like, no, I'm good. The listing agreements over the exclusive, and a week after, I call that buyer up and say, all right, let's make a deal.

What protection should a broker have? Maybe it's just like in general that this exclusive, what kind of security does it bring you, Bob, or folks that you're training up in the business? 

Bob Knakal: That's a relatively easy one. There's a tale in all of our agreements that if you sign a contract with anybody that we brought to you during our agreement if you sign a contract with that person within six months, we still get paid.

And we'll send you a written status report at least every one or two weeks. And it will articulate everybody we've spoken to, who's seen the property, and what offers we've gotten. And so, when To have coverage on the folks that have made bids or been interested during the agreement term.

It takes minimal effort because we're summarizing the last marketing report we sent to the client. Here's our list. And it is evident that those people we engaged with it's very black and white. Either They're on the list, or they're not on the list. You have the protection period, and most people are very well-intended and tend to do the right thing.

Some people have agreements and contracts because of the bad actors that exist everywhere in different markets, and that's why you have written agreements. But most of the time, people are good about doing the right thing.

Chris Powers: There are bad actors in real estate. I've never heard of that. Every once in a while. Every once in a while. Okay. The second thing you said, which I know you're going to have some thought about here, is that We're in 2023. We have ai; we have text messaging. We have social media, and we have crypto. But picking up the phone and cold-calling someone might still be the most effective form of business.

Let's talk briefly about cold calling and how you've thought about it as it's helped build your career.

Bob Knakal: Yeah. I'll make one correction, Chris, and there's no replacement. The best form of interaction with somebody is face-to-face. Nothing takes the place of that.

But how many people can you meet face to face in a day, and how many can you call in a day? So from an efficiency, Perspective, cold calling is the best way to get to people most efficiently. But there, there's no replacement for face-to-face interaction. And that's why networking is so important also.

But, the key to the brokerage is canvassing and prospecting on the phone. And I block time out, always two weeks in advance. I block out two-hour and three-hour blocks of time where I will make my calls. I have at least 10 to 12 hours blocked out every week. If you don't block it out two weeks in advance, your calendar will be so packed that you won't have time to do it.

But what is prospecting on the phone is the gasoline that goes into the car's engine. And if you're not prospecting, I don't see how you get very far, or at least let me, let's say this, you need to maximize. What your potential is, you could make 10 million a year and not a prospect.

If you prospected and you're that ten million-a-year producer, you could make 20 or 25 million yearly. So no matter how good or well you do, you get by without prospecting. If you added prospecting to your mix, you would do that much better because it's highly effective in getting in front of opportunities.

Chris Powers: You said something, and maybe it was an article when I was doing research, and you said the prospect that hangs up on you might be the most valuable prospect rather than the seller that always takes your call. Will you explain what you meant by that? 

Bob Knakal: Absolutely. So let's say I'm making cold calls to people, I call somebody, and I'm talking to them for the first time.

They don't know me, I don't know them, and they spend 20 minutes on the phone with me. Aren't they spending 20 minutes on the phone with everybody who calls them? So if I call somebody, I'll give you Harry Macklowe as a great example. Harry today is an excellent friend. My wife and I socialize with him and his wife.

I've done 17 deals with the guy over about $400 million of business. I called him for two and a half years before he would take my call. And I tried to get in and left a message. In those days, we wrote everything down in log books. I had pages and pages of nothing but left messages.

So one day, about two and a half years in, I called his office at, I don't know, six o'clock or seven o'clock at night. The assistant had left. He picked up the phone; we have an investment sales division, Mr. Macklowe, and Bob Knackle from CB. I want to talk to you about what I know about you; you're the guy who always leaves me messages and sends me a mail.

What can I do for you, Bob? And it started from there, and he was a tough guy to get into, but he became one of my best clients. So when you have somebody that's very tough to reach, and you eventually can break through, that's a great client because they're talking to you, and they'll be hanging up or not speaking to other folks.

So hangup or the more difficult person to get to is a much better prospect than somebody who will talk to anybody who calls them.

Chris Powers: Don't you also think they have a high level of maybe respect? Mr. Macklowe respected you more. He knew who you were.

He knew you had been calling, and by the time he let you in, or at least for the call, there was maybe an admiration. Maybe he didn't admit that on the first call, but there's a certain level of respect for this guy who's been showing up for a long time. I'm successful. I know what it's like to be successful.

This guy probably sees something in you that he saw in himself. You might find that from people that are hard to get a hold of. 

Bob Knakal: Yeah. It may have resonated with him, and he started his career in real estate as a broker. Maybe he admired that.

We've never spoken about that. But, there are statistics on this. You get through on the first call a tiny percentage of the time, and as you get up to the sixth or seventh call, the probability of getting through goes way up. And so you must establish your base of folks you will go after.

I always tell people the best way to explain real estate brokerage is, let's say you and I would go to Iceland and start a business selling rocks. I don't know anything about Iceland. You may have been there, but we'll hop on a plane, Chris; we'll go to Iceland and start a rock-selling business.

Okay? What are we going to do? We're going to make up a list of everybody that owns rocks, make up a list of everybody that buys rocks. If the list is too big of people who own rocks, we're going to take the top thousand or 1200 owners of rocks, and we're going to try to establish relationships with them. So they hire us to sell the rocks when they want.

And then when they hire us, we will talk to the people that buy rocks. It's that simple. That's real estate brokerage. 

And when you have that thousand to 1200 people you've identified, you won't get through on the first call to them. You'll have to work hard to get through to some of them, but if you've identified them as one of the people you want to do business with in the future, you must keep hammering away and hammering away.

Chris Powers: If you're in Iceland and own rocks, don't be surprised if Bob and I come knocking on your door. All right, we're going to move into development. You put up a tweet the other day that I have not stopped thinking about, it was a war room of maps, and it said something to the degree that you had spent hundreds of hours and mapped the whole city.

Will you describe what you've put together, what work went into putting this together, and why you did it? 

Bob Knakal: Sure. Absolutely. A prominent keystone that started that whole process was that everything was geographically oriented when I started when Paul and I started our company, and that geographic orientation was because the availability of public data was very poor back in the eighties.

Today, you can go online and get somebody's home address, cell phone number, shoe size, or whatever you wanted, somebody; you can get so much information available. Back then, there wasn't. Understanding all of the dynamics of a neighborhood was very important. Today, product specialization is more important because of the nature of publicly available data.

So increasingly, my practice over the years has, I've been a generalist my whole career. Increasingly it's been more narrowly focused on development sites and multifamily, although doing less and less multifamily and more development. When we analyze development sites, a significant factor in determining value depends upon the supply pipeline coming to the market.

And what we found is it was very opaque data about what was being developed. Indeed, the hotel, office, and rental apartments needed more data about what was actually in the pipeline. The most robust data set came from residential brokerage firms that will track what condo supply is coming to the market.

But even with those residential reports, the data had significant variances. Because each company had its definition of what they were including, not what size buildings were and where your geographic parameters were, I needed help understanding the actual pipeline. So for about ten years, I've wanted to count all the buildings under construction physically.

Great idea. Who the heck has time to do that? When you're so busy, when the traffic, it takes you 45 minutes to move five blocks in the city with the way traffic is, but all of a sudden, on March 12th, we're told to go home for two weeks, and there is this pandemic that's going to happen, and two weeks later you come back to work, everything will be fine.

And lo and behold, we're out for the pandemic for a long time, and the city's a ghost town. So now would be a perfect time to look at all those buildings under construction. So I spent about 220 hours in the field with sections of maps and highlighters, highlighting every building under construction, potential development site, and assemblage site.

And in New York, very few empty parcels are waiting to be developed. You usually have to buy up a bunch of small buildings, demolish them, and create a piece of land. But I went out into the field, did all this highlighting, went back to the office, had the team investigate what these properties were, and then at the end of the process, I ended up taping all these pieces of the map together.

And that map now is 24 feet long and 12 feet wide. And it has every property being developed or could be developed on it identified. And since we did that work out in the field, we've been tracking every demolition permit that's been filed, every new building permit that's been filed. So we, in terms of the pipeline that exists for hotel rooms, office space, rental apartments, condo apartments, and then we have a fifth bucket that's miscellaneous properties, which are properties being developed for healthcare purposes or education purposes or anything that doesn't fit into the main four buckets.

We have a 99% accurate list of everything in the pipeline to be delivered to the market. And also have now, because development is such a big part of my practice, I have information on all 649 development sites in Manhattan, south of 96th Street, and those are the folks that I prospect to.

I'm constantly calling them, giving them information on the market, and trying to get hired to sell their development site. 

Chris Powers: Was there something you learned? You've been in the market at that time for almost 40 years. Was there something you learned after doing all this that you couldn't have ever learned had you not gone through this?

Is there something you came out with besides knowing where everything is and there are many development sites? What else did you learn that maybe you could have never learned any other way?

Bob Knakal: Number one, walking the streets is the best way to know real estate. It would help if you did not go on Google Maps all day.

You don't get that sense of having. The real estate is under your fingernails like you do walking it. And so back in the old MK days, we encouraged our brokers to actually live within the boundaries of their territory and walk home a different route every day so that you'd see different things; hey, you say, Hey, this tenant just left, or this building just got boarded up.

Or, Hey, what's going on? That building's being demolished, and you get in the way of information that way. But the two most significant impacts on me doing this, number one, having lived in New York for so long, I thought I knew every Street in Manhattan. And there were 25 streets that I was on that I didn't even know existed, which was interesting.

The second thing that has been very helpful with my writing about my real estate career is seeing the vast amount. Of the land owned by the city on which public housing sits. That is a massive misallocation of resources, an underutilization of a precious asset, and it is a shame that none of our policymakers have been able to figure out how to use this unbelievably valuable resource and maximize it.

The lot coverage on publicly owned housing is probably in the 15% range, whereas in private housing, it's probably 70%, and we could do so much more with our resources if policymakers would use some common sense. So that's it. It was shocking to see how much land the city owns and how few people, I, relatively few people, live on that land relative to how many people could live there.

And how much more tax revenue could we collect, how many more jobs could we create, and many positive things could happen? And I'm talking to people within the city now about trying to do something about this. But those are the two most prominent streets I have never heard of.

And the fact that we have a tremendous asset in the city in terms of land owned by the city can be used much more effectively. 

Chris Powers: Yeah. It's funny you say that. I went to Manhattan in February, and there's an app called Land Glide. You may have heard of Land Glide, but it's fantastic because it has mapped the entire country, and you can go into any city, plugs into their appraisal district, and see who owns every parcel.

And as we were walking around, I remember telling my partner that same thing. I'm like, man, the New York Housing Authority owns everything, and they own these huge pieces with two or three-story buildings instead of, so it's funny you say that is the map. You created something that, over time, you can continue to update.

Bob Knakal: Update it almost every day. 

Chris Powers: Okay. Let's talk about a specific deal, or we can just be broad, but how does selling development sites work in New York? Suppose a lot of people are listening to this. In that case, they're investors and have capital spend, but they need to fully understand how much work goes into buying a development site, especially in a jurisdiction like New York.

We could start from day one. You've found a site and maybe a seller that wants to sell. What all happens? Who's involved, and what's at risk? Let's break this down to describe to someone the magnitude of what happens when one of these enormous buildings comes out of the ground.

Bob Knakal: Sure. And it is complicated, but not that complicated. One of the great things about the New York zoning framework is that we are an as-of-right jurisdiction, which means that every property is entitled already. In 1961, the city updated. Its zoning and zoning resolutions tell you three things about every parcel of land in New York City.

It tells you, number one, what type of building you could build there, commercial or residential and manufacturing, what have you. Its floor-to-area ratio tells you how many square feet of building you could build for every square foot of land. So in an F A R of 10, for every one square foot of land, you can build four 10 square feet of building.

So on a 10,000-foot lot, you could build a hundred thousand-foot building. And those FARs range from as low as 0.2, 0.2 up to 33. So there's an extensive range. And then the third part, which gets a bit more complicated, is the contextual aspect of the zoning. What setbacks do you have to have from property lines or neighboring properties?

What shape can that building have? And something referred to as the zoning envelope. Which is a framework within which you can build, but you can stay within that envelope. And the best example is if you look at some office buildings built on Park Avenue in the 1950s and sixties that look like wedding cakes.

They go up and in and up and in and up and in. Some angles determine if you drew a line straight up the side of the building and then a line connecting the peaks of all of those setbacks. It creates what's called a sky plan exposure. And so in, in our zoning district, we have these FARs, but one of the exciting things is that let's say you have a 10,000-foot parcel of land, so you, and in 10 f an r district so that you could build a hundred thousand square feet.

The zoning envelope may accommodate 180,000 feet. Of building, but you only based on your property, you can only build a hundred thousand. The city guidelines say you can buy air rights from your neighbor if you have at least 10 feet of the contiguous property line.

So let's assume that on that 10,000, let's say you have a 10,000-foot parking lot, you're going to build a hundred thousand-foot piece of land, and next door, your neighbor has a 10,000-foot parcel with a one-story building sitting on it, 10,000 square feet, but they also have a hundred thousand buildable feet.

Think of air rights as one-foot Lucite cubes that each square foot cube and that neighbor has 90,000 cubes sitting on top of their one-story building. And as long as you have 10 feet of contiguous property line with that neighbor, you can buy their cubes and stick them on top of your building.

So, in this case, where you have a hundred thousand buildable feet, as of right, and your envelope can hold 180,000 feet, you couldn't buy 90,000 feet from your neighbor, but you could buy 80,000 feet from your neighbor. And you have unlimited height in some juris, zoning jurisdictions, and districts.

So that's why you see these buildings that are a hundred stories and don't have a height restriction. So if you could buy up air from adjacent properties, because if you, and I hope I'm not getting too granular here. Let's say you bought the air rights from your neighbor. Then that enables you to buy air rights from their neighbor,

And their neighbor, And their neighbors. You go down the Street if you have a contiguous chain of these air rights you're buying. There are some sites where maybe your, as of right, zoning would allow you to build a hundred thousand feet where there's a 500,000-foot building because you've also, not only have you bought air rights, but there are bonus programs you can take advantage of.

By buying, If somebody creates an affordable housing building somewhere, they have these transferable rights that they can get. And then there are other programs within the city. Suppose you're in a particular district, like within the theater district, to preserve the old landmark theaters in the theater district in New York. In that case, those theater owners can sell their air rights to somebody next door to them and anywhere within the theater district.

So they're very transferable. And that dynamic also exists in other areas of this city. But we're getting very granular with zoning. But let's say the owner of that 10,000-foot lot dumps me. Bob, I want to sell. The first thing we will do is look at opportunities to expand the site.

Does the site qualify for any bonuses? How do you acquire those bonuses? What do you have to pay for those bonuses? Are there air rights from neighboring properties that can be purchased? Or are there neighboring properties that could be purchased? That one-story building is sitting on the parcel next door; maybe that owner wants to sell to take advantage of the massive amount of building rights they have.

You try to increase the size of the site as much as you can because there are a lot of parcels in the city that are in high-density zoning districts that are only 20 by a hundred or 25 by a hundred. That's the very standard lot size in New York. You typically like to build on at least 10,000 feet of land, if not 20,000 feet, and those are tough to find.

So often, you have to assemble—a bunch of smaller properties to create a large enough site. But you look at all those possibilities; then we tell the owner what their property's worth. And then, before bringing the site out to market, we want to do a couple of other things. One, we want to have an environmental report done to see if there were any adverse environmental conditions on that property.

Were there oil tanks that leaked? Was there some adverse condition with asbestos? Often, there are issues that. Properties have to deal with from an environmental perspective. And then it's challenging to figure out this aspect of the contextual zoning where you have this envelope and sky plane exposures and everything.

So we have we often encourage owners to hire someone to do a formal massing study to understand what you can and can't do, what setbacks you have to have, how much you can build, how many, and what's the maximum potential a site has. And so you need to do a lot of homework concerning that kind of thing to know what it is that you're selling.

And then we also have tenants to deal with. We often have tenants that have; they're protected by rent regulations that need to be bought out. I just sold a 13,000-foot development site on the Upper East Side. That had two rent-stabilized tenants in the corner. The property of this was four properties that make up this site.

One property had two rent-stabilized tenants in it, and the developer ended up paying them 10 million to leave. So these things have several moving parts, but they're fun. They are brain teasers. You must ensure that you address all of these different issues, or you can waste a lot of time as a broker, but it all comes down to knowing what you're selling.

Chris Powers: Okay. I want to go back real quick to air rights. Because this is something that New York deals with, most markets don't have to deal with it. I've never heard anybody talk about air rights in Fort Worth, Texas. Is that typically something that property owners know they have?

Does that trade? Do air rights ever trade if there's no development going on? If I sit here going, I have a billion dollars to invest in the world; what would be long-term valuable? I recommend air rights in New York. I'm not a developer, but I would like to own them.

How do they trade? Usually? 

Bob Knakal: Yeah, the usual air rights are valued if you're selling the air, and there's no land attached to them; they typically sell for about half of what those rights would sell for if they were attached to the land. And, often in an air rights transaction, Chris, there are there, there's only one or two potential buyers.

So a lot of it comes down to who wants it more. If you think about it, there's an argument that you could make that the air rights, you should pay more for the air rights than you pay for the base. Think about the example I gave you where you have a 10,000-foot parcel, you can build a hundred thousand square feet, and I'm going to buy my neighbor's air rights and stack those on top of my building.

There's an argument that says the stuff that you're adding, the higher you go, the more valuable that space is. As you go higher in the building, the value goes up. So you should pay me more for the air rights. If I'm the seller of the air, you should pay me more because you're adding space to the very top of your building.

It's more valuable than your first a hundred thousand feet. Then there's the argument that says I'm the only one who can buy your air rights because the property next to you on the other side is overbuilt. You can't buy your air. The property behind you needs to be built more. They can't buy the air.

I'm the only buyer, so you should take 10 cents on the dollar from me because if you don't sell them to me, you can't sell them to anybody else. And so there, there were times when a co-op or a condo owns a little bit of air rights, and somebody will say, I'm going to pay you a meager price because you can't sell them to anybody else.

It's found money to you. You're never going to use those air rights. Take this little bit of money, and you can beef up your reserve fund or do something with the money which you'll never be able to monetize with anybody else. So there are arguments to be made on both sides that it could be much less than half or much more than half.

But typically, the air rights end up trading. For about half. And to answer your question, yes. People buy air rights from Land Bank. Most famously, an investor bought the air rights associated with Grand Central Terminal, which are being sold off to different investor groups taking advantage of them.

But yeah, absolutely, People landbank them. And the nice thing about it is that I don't think there are real estate taxes associated with those air rights because they can't produce income because they, although they used to do leases on air rights years and years ago, you can't lease them anymore.

Chris Powers: You just answered my following two questions. You can't tax them, and you can't lease. You can't do a 99-year air lease. Are they just filed at a title company? How do you know who owns the air rights?

Bob Knakal: It's the air rights typically ride with the property. They have to be attached to a lot.

So if you're going to hold air rights and not own the land beneath it, you must create a fee above a plane and create a separate lot for those rights. And, once those air rights get attached to a piece of land, they're taxed. 

Chris Powers: So that enormous building at Central Park South, it's a hundred and something stories.

The tallest building in New York, that's probably FAR 33, plus an assemblage of many air rights. 

Bob Knakal: It is. The maximum FAR there is about 15. The 33-density FAR is over in Hudson Yards. But it's 15 there. But it included the building you're talking about, built by Gary Barnett, probably the city's most prolific land assembler.

And I am still determining exactly how many, but they're probably 6, 7, or 8 different air rights transactions that went into making that building possible. 

Chris Powers: And if we're talking about that building, how much time do you think from the day he bought the first piece of land to the day they started selling condo units? Is that a decade?

Is that five years? How long do these massive projects take? 

Bob Knakal: Yeah, it typically takes a long time. I don't know the duration of that particular deal, but I can tell you that land assemblage is not for the faint of. And, often, you're buying things you know you may not be able to use immediately.

You have to have the intestinal fortitude to stick it out. But if you can put those sites together, they are tremendously valuable. 

Chris Powers: All right. You said there were 649 development sites that you mapped. Is that the most there could ever be, or could there be more, or will it only become less?

Bob Knakal: It could be a lot more. Those 649 are my primary prospecting targets. Those are single-parcel, single, owner sites. Hundreds and hundreds more would need to be created by buying multiple parcels. And those are the assemblage opportunities. So on my map, everything that's orange is that single parcel development site.

Based on the zoning, the existing building is built to less than 25% of its maximum potential. But then there are hundreds and hundreds more highlighted in yellow that are potential assemblage opportunities where you'd have to buy 1, 2, 3 – 10 properties to create a site. And those are much more challenging to do.

And so a lower quality opportunity from a brokerage perspective. 

Chris Powers: Okay. And then to wrap up the conversation, so it again I'll be the site owner, and we've gone through, and you've we say, okay, we're going to go to market with the site that I owned, and we've understood all the nuances with it.

How long does a typical contract take? I know it's deal by deal; some are harrier than others. But in Texas, we don't have blanket zoning similar to what you said, where much of it's already put into play. I sold a lot of land assemblages earlier in my career that took two years to sell because it was contingent upon all these entitlements.

How long did contracts take in New York? Again, is it just deal-by-deal, or do these happen quickly once there's a buyer in place?

Bob Knakal: The marketing process is likely a two to three-month process. It's a little longer with market conditions the way they are today.

But once you identify a buyer and agree on the price, The deposit amount, and the closing period. That closing period is typically 60 to 90 days after the contract is signed, and that contract is almost always non-contingent. Because of this, as of proper jurisdiction, you have no entitlement to go through.

So it's a great process from a brokerage perspective because you can get the whole deal done from start to closing in six to seven months. 

Chris Powers: It's fascinating. Okay. We can go this way. We don't have to. Is there a deal that you remember that was like a deal that you love to work on?

A big one, A hairy one. Something interesting is there one deal that stands out? I know you've done thousands to date, but is there anyone you'd like to share? It was just an interesting one.

Bob Knakal: Yeah, one of the interesting ones is the Real Estate Board of New York Awards, a most ingenious deal of the year every year.

I’ve won that twice. And one of the deals I won was a minor deal, a little 25 by 105-story mixed-use building on 47th Street between Fifth and Sixth Avenues, which is the Diamond District. Almost every retail shop and tenant in every building is diamond or jewelry related. And an owner there, Andy Brown, owned the Gotham Bookmark.

It was a bookshop in the middle of all these diamond buildings. And he ran the shop out of the first two floors and had some apartments above. And he owned the building in a C-corp. And wanted to sell it, so he converted to an S-corp and had to wait ten years for the S-corp benefits to kick in.

But the whole time, he told people, yeah, in 10 years, I’m going to sell my building, and the following year, nine years, I will sell my building. And so on. And, of course, as it’s getting closer to the time when he could sell, everybody is coming into him, offering him all kinds of deals.

And his head was spinning because this was a guy who loved books and didn’t know much about real estate. And he owned the property in my territory. So I called him all the time. He is Bob; come on over; I need to talk to you. These people are driving me crazy. Everybody’s coming in here, walking into the shop, wanting to buy the building.

I want to hire you to represent me. Go through the process. And it was interesting. I got a call from the jeweler because all the interested people were in the Jewel business. And one potential buyer would call me, Hey Bob, we’d like to offer X dollars, and we want to also give the owner some cash under the table.

Go to Andy; this is what they proposed. Oh yeah, that guy came to me offering me the cash too. But forget about him—next guy. Hey, we want to pay X on the books, and we’ll give some gold. As part of the consideration, I go, Hey Andy, this guy wants to give you some gold. He’s, yeah, he’s offered me that.

Another guy with diamonds. All these crazy proposals were being made. And then also it was interesting, we’d get an offer for 4 million, and then an hour later somebody would come in offering 3.8, and we sensed that people had shills. Bid for them to make their offer look better.

They’d have somebody call up and bid just below what was just made. And then all of a sudden, it’s like people were saying, Hey, we know Fred’s bidding, but I’m a better buyer than Fred. Don’t sell to Fred; sell to me. And there was so much awareness of what was happening in the market, we’re like, what the heck is going on?

And so we said, look, we have so much interest. We had 36 38 bids, a ton of bids on the property. And I told Andy, look, we have to set a bid deadline and have people come with their final, highest, best, and final bids. And people would send me bids, I’d fax them over to Andy, and he has lunch the day bids are due.

He goes over to Burgers Deli, having his pastrami sandwich for lunch. And the cashier tells him, oh, Mr. Brown, I understand your bids are due today. I heard your highest bids will be five and a half million. Oh my God. So, end of the day, I’m talking to Andy; we have two bids, and two high bids are five and a half million.

Two different people were paying an employee in the bookstore to read the faxes as they came in and give him information on who was bidding, what they were bidding, and who thought this could happen, right? So I’m like, Andy, I can’t fax anything to you anymore.

We have to do everything with sealed bids. And so is Bob; what do we do? We have people who know what’s happening, and the cashier knows what the high bid will be. So I said, look, we don’t have a high bid because two people are offering five and a half million. I said there’s too much information that’s being shared with everybody.

I tell you what, let’s go back to tell your attorney to start working on a contract. Because we’ll have to send a contract out to somebody at some point, and we need a high bid. You tell everybody you were not the high bid right now. Even the two bidders at five and a half million weren’t the high bid because we had another bid at that price.

So their bid was different from the high bid. So it was not lying with being a little creative. And I said we’ll go back to everybody. Say you weren’t the high bid, and we’re drafting a contract. And I said, Andy, let’s just shut up, not say anything to anybody and see what happens. So-called everybody up the next day.

You weren’t the high bid. We’re drafting a contract, waiting to hear something for a few days, then we get a call. I did 4.9 million, or what’s the status? Said We’re drafting a contract. Does he say what happens if I would bid 5.7 million? And I said I don’t know. I’ll submit it to the owner.

See what he says. Two days later, another call from another guy, Hey, I had bid 5.4 million. What’s his status said? We’re drafting a contract. What happens if I bid 5.7 million? 5.9 million? I said I’ll submit it and see what they say. We kept this up for three weeks and ended up at seven and a half million, and that is a typical New York story of people with the gold and the diamonds and the paying off of the kid and the bookstore to read the faxes and get it just was a crazy deal.

But that was not a big one, but very memorable. 

Chris Powers: I love it. All right. You’ve been gracious with your time. We’ve got a few more minutes. Let’s talk about the market right now. And I just wanted to start it with, we don’t know what’s, we don’t have to compare it, but the last kind of cycle ended in oh eight and oh nine.

So, a place to start was your experience coming out of 809. And then I want to finish it with what you see in today’s market and some things that are top of mind to you. So let’s start with oh 8, 0 9. What did that look like for you?

Bob Knakal: Yeah. Oh, 8 0 9 was challenging, but that 8 0 9 was not nearly as bad as the SNL crisis in the early nineties that I remember as horrible. Oh, 8 0 9 was challenging. And yet people were running around opening up $250,000 bank accounts because they didn’t know what bank would fail next.

It was a challenging time, but the market recovered relatively quickly. It wasn’t; it only got terrible into eight, and by 2010, we were already coming out of it. So it was short-lived, impacted all sectors simultaneously, and all sectors were heading in the same direction to varying degrees.

And this is the fourth. The correction I’m living through is the savings and loan crisis in the early nineties, then the recession in early two thousand, then oh 8, 0 9. And the most significant difference that I’m seeing is that in New York anyway, different sectors are moving in different directions.

And that’s the reason for that is twofold. One, we’ve been in this, in a correction state since October of 2015. But it’s been tough for a 12-month period where things were getting back on track: the second half of 2021, the first half of thousand 22. The sledding volume has been down; the Value’s been down.

And if you look at the different sectors today, we see that the retail sector is a bright spot here. But that’s because rents were going down for five years, and they finally stopped going down, leasing activities picking up. And for the first time in five years, we’re getting calls from investors that want to buy retail.

So that retail’s a bright spot. So we have that as one condition. Also, we have the externality of policymakers. And I’ve never seen a higher correlation between public policy and how the real estate markets function. Particularly relative to our residential housing stock here.

Every piece of legislation that has been either implemented or ignored since 2018 has done nothing but exert upward pressure on rents. And we have a situation here where things could be better economically. But residential rents will increase by 10 or 15% this year because no new supply is coming to the market based on policy.

So the residential market is a relatively healthy landmark. It is because of a lack of a tax abatement program, which has expired as we’ve had for a long time. So the construction of rental apartments is virtually nonexistent. And there’s no incentive for a seller of a piece of land on which rental apartments could be built to sell because the Value is shallow because of no abatement program.

So you have this upward pressure on rents, and then there’s still some condo land being sold because of rate increases. The cost of construction loans is way up, so that’s exerting downward pressure on land values, and there’s still some trading in that space. But every product type is performing and reacting very differently to what’s going on, and that’s the most significant difference that I see today versus the corrections we’ve had in the past.

Chris Powers: And if you can answer this one, like what is going to happen to a lot of the office, which you could make an argument, at least when I was up there, it seemed that’s obsolete. Do these become development sites that once weren’t, or what will happen to the 40% sublease of Class B kind of office that needs to be better?

How do you see that?

Bob Knakal: Yeah, that’s a great question, Chris. Great question. I think. Looking at the office sector here, you have new construction class A that is doing well. If you built a new office building in Manhattan that was in a non-traditional office area, it would lease you’d get triple-digit rents per square foot, and they’d be a significant demand for it.

And then there’s everything else. The issue with these older buildings is there’s only so much you can do to an older building to make it competitive with new construction. Today, for instance, you can keep ceiling height the same. Really. You can’t take columns out, so it is challenging to make those buildings competitive.

And so, every owner of an office in the city is looking at their building and deciding, does this building have a future as an office building? Does this building have a future like some other type of building? Can we convert the use, or is this just going to be? A not-so-great office building for the foreseeable future.

And what’s happening is that there is, there’s a lot of talk about converting office buildings to residential. We desperately need residential housing at all levels of the economic strata. And unfortunately, these buildings’ pricing has not reached the point where that’s economically feasible in many cases.

So we need help nine 11; the nature of the financial district in Manhattan changed dramatically, mainly due to a program that actually started just before nine 11 but changed the nature of the market afterward was a tax abatement program. We called it the 4 21 G tax abatement program that incentivized converting office stock to residential.

On nine 11, we had about 1800. Dwelling units in the financial district today, there’s almost 30,000. And most of those were created under this tax abatement program. I’ve suggested that the governor and the mayor implement this 4 21 G program citywide to incentivize the conversion of many older buildings into residential ones.

We need that financial support to help make it happen. Getting to your question would be great not only for the housing market because it would create housing, but it would eliminate a lot of the overhang of our vacant office space. And then the Value is getting to the point where, you know, these buildings that would have sold at the peak of the market would’ve sold for eight or $900 a foot are getting down.

A lot of them are priced at 400 today and need to sell. And those, the couple that has traded, are in the three hundred. Converting to an alternative use becomes more feasible once you get that price down to 300 or below 300. Number two, if you assume that the demolition cost for that building is 75 to hundred dollars a foot and you’re buying it for under 300, you’re buying it pretty much at land value.

Somebody might buy it, demolish it, and build a new building on that site. So that is something the city will have to deal with. It’s very topical. Some have happened less than we need to happen, but we need policy support to incentivize that dynamic to happen.

Chris Powers: And are most of these buildings owned one-off, or do they tend to be owned? The same owner owns lots of these, and I know that the New York Real Estate families and dynasties of New York tend to own a lot, but when you specifically segment this part of the market out, are a lot of these folks, people that have already owned it 30, 40 years, maybe their basis is deficient, and they can afford to hang on.

And just generally speaking, how are they owned? 

Bob Knakal: Yeah. Generally, folks own more than one building. There are a bunch of people that own one. People generally have 2, 3, or 4 buildings, and some own dozens. But if you looked at the median ownership, it’s probably three or four buildings.

But the issue with many of these, and again, I said, you know that the average in New York when somebody buys a building, they own it for 40 years. So half the buildings have been owned for more than 40 years. There are a lot of buildings that have been owned for many decades where two or three folks got together and bought the building years and years ago.

Today, they’re in the third generation, and 30 people are getting checks from that building, many of whom are passive. And the buildings are older. If you want them to be competitive from a leasing perspective, you must put a lot of money into the buildings and renovate the lobby, the elevators, the windows, HVAC, bathrooms, et cetera.

And folks are used to depositing checks rather than writing checks. And so those are almost zombie buildings because you can’t lease them. After all, they’re not upgraded. And you can only upgrade them if the owners want to put the money in. And so what happens to that building? That’s a real issue for a lot of people who are trying to figure out what to do, and they may have to sell a partial interest in the building or do a long-term master lease to somebody that’s going to put the money into the building.

So many folks are now dealing with that kind of issue with that type of property. 

Chris Powers: All right, I’ve got two more questions. And then a gentleman called you right before we started, and I know you got to call him back. What happened? Why did the market start to tip in 2015?

I’m shocked you said the New York market started shifting in 2015. Was it just because it had run up too much, or was there something that happened in 2015?

Bob Knakal: No, we noticed the overnight shift in the last week of September going into October. In 2015, we saw land values being impacted.

We saw the bids on development sites that we were selling down about 15-20% lower than anticipated. We also saw hotel cap rates expand by 75 or 100 basis points. Those are the two markets that we look at for shifts in direction in the broader market because hotels have leases for one day.

So highly reactive to shifts and land indicates what people believe market conditions will be three or four years from today when what they’re building will come online. So when we saw those shifts happen, we knew that the party was over, and it was just a matter of time. The reason for that was that the condo market had run up.

So substantially, residential rents had been going through the roof. Everything was just so overinflated. And part of the reason, if you look at the upmarket, really started in 2011 with Value appreciating. And by the end of 15, that’s only five years. That’s a relatively short cycle.

But because real estate had become such a favored asset class relative to other asset classes, so much money got dumped into the market that it sped up. And so, a typical cycle that might be seven to 10 years occurred in a much shorter period. And then, 2016 was the quintessential year in which your market changed direction.

If you look at that, one year is a year in which real Value is. And comparable sale values are different from each other. And there to explain that the market perceives that there’s an issue. Most people will not bid what they would bid previously. Some do; when you look at the transactions that do occur, they take place at the old Value, and the sellers who can get the old Value to transact, the sellers who don’t get the old Value, don’t transact.

And so in that transition year, which happened in 2016, Value is going up even though real Value is going down. Value is going up based on what’s sold. But transaction volume falls off the table because most sellers don’t transact. And that’s what happened in 2016. And then, from October 2015 through February 2020, the correction and investment sales mainly were on the volume side.

The dollar volume of sales dropped 56% over that period. The number of properties sold dropped 54% over that period. March of 2020 comes along. Covid converts this primary volume correction into a value correction in Manhattan. We had three asset classes, land, hotels, and retail, lose about 50% of their Value from the peak.

And then again, end of. 2021 or the end of the first quarter of 2021. The first quarter reports from the residential firm showed upward pressure on rents. There was good absorption in the condo market for the first time in years. Those first-quarter reports led to folks wanting to get off the sidelines from the pandemic.

Within two or three days after all those reports came out, I got called by 13 private equity shops saying, Bob, we want to get off the sidelines. We want to invest. Who’s building? Who can we give money to? And that’s why the second half of 2021 and the first half of 22 were excellent. And then the Fed starts raising interest rates in March.

It impacts the market in August or September. But then, the increases started to impact lending spreads significantly in September. And then, we started to have the downward pressure applied to values again. 

Chris Powers: when I looked at your baseball card, I noticed that your number one year was 2014.

You did 2.4 billion that year. And that coincides with what you said, the volumes, if you look at that baseball card of yours trend, Dave, with precisely what you just said.

Bob Knakal: Yeah, it was, you know what, 2014 was the best, yet in New York City, 5,534 buildings sold in 2014, a record by more than 10% at the time.

It’s still a record. And so people think Paul and I were so brilliant that we sold our company in 2014, but we decided to look into selling in 2014. In 2007. Because we were approached by an extensive global firm in oh seven almost. We talked to them very seriously about selling.

For a variety of reasons, that didn’t happen. But what became apparent to us was that if we did sell the firm at some point, we would be on five-year contracts with whomever the buyer was. We looked ahead and saw that Paul was turning 55 and 2015. Our perception was that the five-year contracts would be viewed as having more Value if we were in our fifties than in our eighties.

So we said, look, in 2007, we said in 2014, if the market’s not in the tank, that’s when we really should look at selling the company—beginning of 14 market’s chugging along. We hired an investment bank. It turned out to be the most incredible year in the past 39. And just totally by luck. It was based on Paul’s age, not on why we were brilliant.

Chris Powers: Life’s like that sometimes. It’s not a straight line. All right. My last question. How would you invest that if I gave you a billion dollars and you had to invest it around New York City? 

Bob Knakal: Yeah, I would buy land in Manhattan, and that is an extraordinarily self-serving comment because I sell land in Manhattan.

But let me explain why it’s a great buy. If you look at the peak of every successive cycle for the best pieces of land in Manhattan, each peak has dramatically exceeded the prior peak. So I’ll take you back to 1986-87 best sites in New York were selling for $125 a buildable foot go to 97-98. It was 350, 06, 07, 750, 15, 16, and up to 1100.

Then during the pandemic, 2020 values were down in the three hundred. And in the first half of 2022, it rose to about 500 again and then started declining when lending spreads inflated. And so, at the next cycle’s peak, the best sites in Manhattan will be selling for 13 or $1,400 a foot.

That will likely happen 26, 27. And you can buy those sites today for four or 500 a foot. So it’s a two x, three x, maybe four x on your investment and buy the land, demo the buildings, put up a wall around it, and get your real estate taxes down based on the demolition of the buildings.

And there’s no management; there’s no headache, no nothing. And that’s what I would do with the billion dollars. And I will look at all the land sold in Manhattan in 2023. Then look at what all those sites are worth in 2026, and you’ll see a massive increase in Value.

Chris Powers: I hope you’ll join me in 2026. We’ll do a round two and start that conversation with where these sites ended up trading. That’d be a fun way to start. Bob, thanks so much for your time today. I’ve enjoyed getting to know you; this was a pleasure.

Bob Knakal: Yeah, Chris, great to be with you.

Fantastic stuff. Keep up the great work; I love your podcast and following you on social media. It’s excellent getting to know you.