In this episode, Hal and Richard discuss what you need to know about the Commercial Rent Tax in Manhattan (not to be confused with real estate tax escalations). Andrew Stein and Bert Rosenblatt of Vicus Partners talk about how they started their own firm and how they found a niche with recent charter school deals.

Transcript

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Hal Coopersmith:             Welcome to Broker’s Angle. I’m Hal Coopersmith. We have a great episode for you where we give you pointers about the Commercial Rent Tax and our 30 minute or less interview is with Andrew Stein and Bert Rosenblatt of Vicus Partners who say some wonderful things including this.

Bert Rosenblatt:               I find that people are inundated with marketing stuff, but if you can present them with information that is timely and is pretty unique to what they’re dealing with, then they tend to stand up and listen to that more than they would the million other things that they’re getting bombarded with every day.

Hal Coopersmith:             But first Broker’s Angle is sponsored by the law firm of Coopersmith & Coopersmith, a boutique real estate law firm specializing in commercial and residential real estate for over 87 years. This, of course, is attorney advertising, so we are obligated to say prior results do not guarantee a similar outcome.

Richard Coopersmith:              But Hal you have already eclipsed your father and grandfather.

Hal Coopersmith:             That is very kind of you, Richard. So a lot of brokers are familiar with real estate tax escalations, but one thing that can be an additional cost to a tenant that brokers should know about is the Commercial Rent Tax, which is separate from real estate taxes. And if a tenant is paying more than $500,000 per year in rent in Manhattan, South of 96th Street and above Murray Street, they should know about it.

Richard Coopersmith:              So what is the Commercial Rent Tax? It is a tax of 3.9% imposed upon tenants paying a rent of $500,000 or more just for the privilege of renting a commercial space in Manhattan.

Hal Coopersmith:             The privilege of renting a commercial space in Manhattan.

Richard Coopersmith:              Yes, that’s it. And in 2017 New York City amended the law so that it affects tenants in that zone you just referred to and others that have more than $10 million in net income per annum.

Hal Coopersmith:             So we’ve already said a lot here. To summarize, it’s a tax of 3.9% if a tenant has a privilege of paying over $500,000 per year in rent in Manhattan, or has a net income of over $10 million.

Richard Coopersmith:              And Hal the tax is only payable in a certain part of Manhattan, South of 96th Street and North of Murray Street. Accordingly, it doesn’t apply to Brooklyn, Queens, the Bronx, or Staten Island.

Hal Coopersmith:             So what’s important here is that if tenants could be subject to the Commercial Rent Tax, a broker should advise a tenant ahead of time. And if you consult a lawyer before an LOI is executed, there could be ways to reduce the Commercial Rent Tax burden and that would make tenants very happy. So with that, let’s go to our 30 minute or less interview with Andrew Stein and Bert Rosenblatt of Vicus Partners.

Hal Coopersmith:             So we’re speaking with Andrew Stein and Bert Rosenblatt of Vicus Partners. Welcome to the podcast.

Bert Rosenblatt:               Thank you.

Andrew Stein:                   Thanks Hal.

Hal Coopersmith:             So how did you two guys meet?

Andrew Stein:                   We were working for another broker, guy named Richard Schlesinger, who had a boutique tenant rep shop. He was extremely successful and extremely smart, and I think we both landed there because we were inspired by him. And Bert was a big shot with an office and I was starting out in the bullpen and I just basically sat there and listened to what Bert said and did on the phone and figured out how to do the business pretty much by listening to him from the bullpen.

Hal Coopersmith:             Bert what were you doing that made you a big shot?

Bert Rosenblatt:               Well, I would hardly call myself a big shot,

New Speaker:                    But Andrew just did.

Bert Rosenblatt:               He was being nice, but I think what happened was I was at Newmark prior to being with this company and so I had a little bit more visibility into real estate and I was always good on the phone, so basically I was good at getting hired. Then what really sort of clicked for me was that Andrew was better at executing than I was. And so it spawned this decades long friendship/partnership where we would have this pretty potent one, two punch where I could get us in the room, he could help us get hired and then he could get the thing over the finish line, which is no small feat. And we’ve done that,several hundred times in the last 20 years, but I think that the main takeaway that we got from that small shop was that you can do it. You don’t have to be CBRE or Cushman and Wakefield or JLL, that, it’s just at the end of the day, it’s about meeting somebody at the right time, and getting them to like and trust you. Those are really the most important factors. Trust is everything in this business. But I also think that you have to like your clients and they have to like you. And if you don’t like at a baseline, it’s problematic. I’m not saying you can’t do business but it makes it a lot harder.

Hal Coopersmith:             And Andrew, what were some of the things that you observed from the bullpen that Bert was doing that kind of passed off to you?

Andrew Stein:                   Bert just had a way of being incredibly clear with strangers on a cold call of the value that, that he can add the value that we can add. And he was really fearless in terms of presenting it and putting it out into the world. And then also his clarity about what the value of a tenant side broker was, was something that we both believe to be true. And it’s hard to get on the phone with a stranger and it’s like, all right, go, tell me why this is important. And he just really had pretty unique ability to jump right in and do that and articulate that in a way where people would go, okay, I got it. That makes sense. Let’s sit down for whatever, 10 minutes, a half an hour and talk further.

Hal Coopersmith:             And Bert, what were some of those techniques that made you good on the phone?

Bert Rosenblatt:               I think it’s a lot of the stuff that’s been written about, but it’s a funnel, right? So the basic concept is a

Andrew Stein:                   Don’t, don’t give away the secret sauce, what you said, but I think I’ll, I’ll jump in because it’s sometimes easier not to talk about yourself. I think that what he was able to do was really get to the heart of what the issue is. And so you’re kind of doing two things when you’re trying to have one of these first conversations, you’re trying to break through the barrier of, you’re calling me, you’re interrupting my day, my life. I don’t want to talk to you. And Bert just had a way of getting through to people and presenting what he had to say in a way that made it both fun and informative.

Hal Coopersmith:             Or it’s a burden. I’m going to turn it to you to say something nice about Andrew. What makes Andrew so great at execution?

Bert Rosenblatt:               I think the thing that Andrew brings to the table, which is really unique, is he can just, a master chess player can see whatever it is now. Now a computer is better than any human, but, you know, it used to be, if you could see you know, five to seven moves ahead, you were just like a total rockstar savant. And I just feel like what Andrew brings to the table is he can just smell things that other people can’t. And I think the example that we always give is, 10 years ago, we met this guy named Jake Schwartz who is just graduating from Wharton. And the three of us, Andrew, Jake and I all sort of had a bromance and we started a separate business called OfficeSpaceGuys.com, which was essentially a lead gen site for real estate. We probably made $1 million off of that over the last 10 years. I wouldn’t call it a huge success,

Andrew Stein:                   It only cost us a million five.

Bert Rosenblatt:               Right. And pay per click and Facebook ads.

Andrew Stein:                   But we made money from it.

Bert Rosenblatt:               It was mildly profitable. But the real value that came out of was that Jake then became the CEO of General Assembly and we ended up doing about 100,000 feet of leasing deals with them and it wouldn’t have happened. It’s sort of like, an ideal test case for how we work together. So, I was able to meet Jake and was just really clear that he was somebody special. I introduced him to Andrew, Andrew agreed and then we got hired. They signed our exclusive to do like space number one. And it was essentially like, okay, I had this signed piece of paper with these four young Ivy league guys with the, as far as I knew, a dollar and a dream. I didn’t know how they were going to make the thing go and I basically turned to Andrew and I said, look, I said, we got hired, I don’t know what to do. I said, well, you go meet with these guys. So he said, sure. So he goes down to meets him at the ACE Hotel and he meets the four founders and he came back and he was like, this is a thing. And I was like, what do you mean? He’s like, this is real. And I think that there’s a lot of reasons for that, that he’s able to kind of figure that out. But I think that he’s just an incredibly good judge of character and he can tell when somebody is a winner. And there was also other information that I didn’t know and Andrew found out at this meeting about who some of these founders ‘ family was and who they were connected to, which sort of made it seem like, okay, this is a thing. Because at least we knew there was real money there. But it was a really a team effort to get that first space done. And then within four months, everybody in the tech world knew about these folks. And then it was just, we’ve got to hang on and we were fortunate enough to hang on and then everybody on the street wanted them. And we were fortunate enough to hang in there and hang in there. So that’s I think the reason that Andrew is so good and he’s repeated this literally dozens of times, most recently, and I don’t know if you want to get into it, but with this whole charter school business that we’ve started and now that we’ve become pretty well known in. And that was really all Andrew, you know, there was a relationship through an attorney that we knew, that we liked, but who was a former Edison schools, in house counsel type guy. And he had this this charter school in the Bronx with no money and seemingly even less prospects. And Andrew just spun it into a 45,000 square foot development deal. That’s spitting out, continues to spit out a pretty substantial commission every year to us. And then that was the beginning of it. And then it’s just snowballed from there. So now we’ve got charter schools that are just calling us unsolicited. So it’s a little niche, but I think that the key to it and why I sort of highlight it for Andrew is, is that it’s really complicated, not easy to do these sorts of deals. Most brokers shy away from them. And I totally get why. I mean, it’s, they’re not easy, you know, it’s a heck of a lot easier to represent Gibson Dunn and renew their lease on Sixth Avenue or whatever it is, or move them from point A to point B then to do a deal like this. But the difference is there’s not as many people that are chomping at the bit to get that work and there’s more hair on it. There’s more, what I would call barriers to entry in terms of knowledge that you need. And as a result,, if you can get in there, it can be a very lucrative niche.

Hal Coopersmith:             Well, I wanted to actually talk about charter schools, so I’m glad that you brought that up. You had that opportunity with a charter school. What were the steps that you needed to learn and then you mentioned hair on the deal. What sort of the hair on the deal and how do you develop a niche like that?

Andrew Stein:                   Well, I think that it really started with a relationship like many things do. We were in a Regus-like, co-working space. We’re sitting next to a guy who became a friend who has an extensive charter school practice. He was working, he was representing a school and they had a need and they were having a lot of problems getting their deal done. He knew what we did and we sat down and he said, essentially, Hey, will you help me figure this out? And I looked at it and I thought they need a lot of space, they have a defined geography where they need to be and my friend is their advisor. So yeah, of course we will. So we sat down with them and there’s a lot of minutia that matters in charter school deals. The charter school landscape has changed significantly since we started, there’s now revenue, streams for rent that didn’t exist back then. So when we did the first one, charter schools had to figure out how to pay their rent out of their per pupil allocation, which is inherently unfair, but it was what it was. So it was understanding, it was finding the needle in the haystack of the building that was zoned appropriately, that was vacant. That was, there was nothing built appropriately. So you had to, in addition to those two things, find find an owner with the wherewithal to spend the money to build out the space, which was a significant amount of money to do that and get them comfortable with the risk, which it’s both great and it’s not great. It’s great in that charter schools get renewed every five years. So there’s always the chance that they won’t get renewed. And that’s really bad if you’ve just spent millions of dollars building out a space and the risk is palatable if you understand what’s involved in a school being renewed or not being renewed. And so part of what we had to do was really find the landlords who were even open to having a conversation with us about it, and bring in the appropriate people to walk them through what it looks like to deal with the authorizer, what would have to happen for schools not to be renewed, who the leadership of the school was, both academically and financially and just a lot of moving parts and get them comfortable with all of that. And I mean, it’s a lot of minutia and people’s eyes might be glazing over. But I looked at that and I thought, this is more detailed and more interesting and as it becomes complicated and less of a quick, easy hit, there’s going to be less people chasing it. And so I spoke to my friend and, and I remember going into Bert’s office and sort of downloading with him of this is a possibility. What do you think? And we’ve probably done a dozen of these since.

Hal Coopersmith:             You mentioned that there are fewer people chasing those sorts of deals. After you did the first deal, how were you able to leverage that to other deals?

Andrew Stein:                   You know, I think it’s like anything, whether it’s a real estate deal or getting to know your people in your office, you got yourself out there, you connect with them afterwards and one thing leads to another and you meet more people in this world.

Bert Rosenblatt:               I think we’re always trying to figure out how to market ourselves more efficiently. The interesting thing about being a commercial real estate broker is it’s still kind of done the same way it was done 30 or 40 years ago. It’s basically relationship-based clients, making referrals, trusted advisors, friends making referrals. I think that what happens in these little niches, which is really good for people to be aware of, is that if you start to dig into these niches, everybody knows each other in these niches. And so, real estate is a spectator sport in New York. Everybody’s talking about real estate and everybody wants to know somebody that thinks they can solve the problem. And when you start hearing our name, two or three times by different people, it starts to get a lot easier to get traction. I think the other thing that we did do was on one of these deals, that Andrew principally was the person pushing the boulder up the hill and getting it over the finish line, we got nominated for Most Ingenious deer of the year award at Rodney and we wrote a piece that was pretty well written, that was pretty well received and we did send that to people and we got a bunch of calls because of that. So the fact based selling I find that people are inundated with marketing stuff, but if you can present them with information that is timely and is pretty unique to what they’re dealing with, then they tend to stand up and listen to that more than they would the million other things that they’re getting bombarded with every day. So I think those two things are good. We did do a mailing that we started talking about, some of the deals we’ve done. And so there have been some what I would call traditional marketing efforts, but mainly it’s been word of mouth. But we’re always thinking of ways to change that and to throw kerosene on it. One of the issues with our business is probably in the same as the laws that you have these clients that they just grow really rapidly. We have clients, it’s like, in two years they’re a hundred million dollar business and it’s just not the nature of being a service provider that you can grow like that. But we’re always trying to figure out like, well somebody’s going to figure it out, right? Somebody’s going to figure out how to scale this thing through technology, but we haven’t cracked the code by any means.

Hal Coopersmith:             And you started Vicus Partners in 2007.

Bert Rosenblatt:               Yes.

Hal Coopersmith:             So what made you guys think we should do this on our own and start our own firm?

Bert Rosenblatt:               I mean, that one was really easy. Basically what happened was Andrew and I got lucky in that our boss retired in ’07 and so as brokers now, one of the big concerns when you’re moving firms is, am I going to get paid on all the deals that I have that I’m working on or that I’ve made? And so at the time, I was just having my first kid and my boss owed us collectively over $300,000. And we were like, how’s this all going to play out? And he paid us every penny because he was retiring and this was happening on his terms to a certain degree. So it was essentially this very, very short moment in time where we both had enough money and we had enough sort of traction in the business to be able to do this without really a lot of thought. And then the other thing was that I think did make it easier for us as, you know, we weren’t at CB or JLL, so we didn’t have this brand behind us. And what we find is, is that there’s just an incredible amount of kind of anxiety among brokers at bigger shops that they have to be at one of these big shops in order to be able to do what they do. We don’t believe that, but there’s just an incredible amount of brainwashing for a better way, to a lack of a better way to say it that goes on at these places that makes folks feel like they have to stay in places where they’re really not that happy. But, so that was really it. We just got, we had enough money and we had this moment of time where our boss was going to let us go, pay us, he wasn’t going to hold our feet to the fire with respect to non-competes. And the way we looked at it was, look, we’re making this guy $2 million a year and we were going to give ourselves a big raise because instead of giving him a half a million bucks a year, we can just rent a Regis and pay $5,000 a month. So the math didn’t seem so scary and we called all our key clients and we’re just like, Hey, would you care if we started our own firm? And every one of them was like, go for it. We didn’t work with you because of the brand, we worked with you because of you. So at that point, and we always say this, we felt like we were actually being risk averse by starting our own company because we could control a lot of the, uh,

Andrew Stein:                   The unknowns.

Bert Rosenblatt:               The unknowns.

Andrew Stein:                   We also, I think this is true for Bert, but I definitely for a long time had wanted to start my own thing. I wanted to be in charge of my own destiny and have my own company and the idea of I just didn’t want to do it alone. And so, I just got really, really lucky when I met Bert and the partnership that developed and, and the synergies of how we work and that we have different skill sets. And so I think that when that moment in time came up and our old boss really gave us his blessing and support to go do this, it was just a no brainer. It was such a exciting moment to be, to look at what was in front of us and say, Hey, wow we can really go do this and it was, I can’t imagine working for anybody else again at this point having, having done this.

Hal Coopersmith:             And how many people are with the firm now?

Bert Rosenblatt:               So we have 20 people and we’re trying to structure the business going forward is a little bit more of a consulting practice. We’ve started to get some consulting assignments and so we’re really trying to focus more on operations than on necessarily pure brokerage. We don’t have a brokerage firm in the sense that we have 15 young guys sitting in the bullpen cold calling everybody humanly possible. The business is really sort of flowing in from the partners and then it’s really just a matter of executing as effectively as humanly possible. And what we found, interestingly enough is if you hire smart young people and you pay them a salary, you’re probably better off doing that than having a young broker that’s desperate for money and is maybe looking to cut some corners. What we really want is we just want the final product which is our service to be as good as humanly possible. So that’s kind of the differentiator Is that it’s not a heavy duty sales shop in the way that other firms are. I mean sales is definitely a component, but we want, we really hire for smart and then just figure out where to plug them in.

Hal Coopersmith:             What was it like with that first hire, the first few people that you were bringing onto the team?

Bert Rosenblatt:               We made a lot of mistakes. I mean, like everybody does we made a lot of mistakes and tried to learn from them. Well, I think one of the mistakes that brokerage firms in general make is that you don’t pay these people and so you sort of feel like, well, what the heck? You know, I don’t pay him. I wouldn’t want to have a beer with him, but maybe he can make me some money. And we just think that’s the wrong answer, you know? We did make that mistake a few times and we really tried to course correct. So I think that’s a big one is they have to be a cultural match. You have to really, it’s sort of, again, like going back to the thing about your clients, you have to, on a base level, like your clients. And I think on a base level you have to like everybody in your business. If you don’t, it’s not good. I think that’s it. I think the only other thing that is really sort of unique about us, Hal is that we do also have practice groups. So we’re really only a tenant rep firm and then what we’ve built out over the years is these practice groups. So we have recovering lawyer, I say that tongue in cheek, that is running the law firm division.

Hal Coopersmith:             No offense to this current lawyer.

Bert Rosenblatt:               Right, exactly. You don’t need to recover from anything, you’re killing it, but for the rest of your brother and out there and we have a former hedge fund guy that’s running our finance division. We have a former advertising mad men type guy running our advertising division, a former nonprofit person running our a nonprofit division. We have the former head of the Brooklyn Navy Yard running our Brooklyn office. So, that’s again, just going back to niches, like what we found Andrew and I early on was that the typical broker, at least when I got in in the nineties, the idea was, okay, you want to go and you want to canvas the biggest tenants in New York so you want to call Goldman Sachs and BlackRock and Facebook and can’t even call Facebook. Who are you going to call But, the idea was that’s where the money was. But that what we found was, is that actually the opposite of that. Where if you’re widdling around the edges, where our income started to go up exponentially it was when we just forgot about that, which we call the fat side of the plate. And we just started widdling around the edges and doing smaller deals, which is really how we cut our teeth. Two to 10,000 square foot deals and doing a lot of them. And now we get business from many other brokerage firms that we would consider competitors, but their business model doesn’t make sense for them to do those size deals. So it’s really the wiggling around the edges and then…

Andrew Stein:                   And then a lot of those smaller companies have grown. We’ve grown with them and average deal size has grown. So it was a great way to launch into it.

Bert Rosenblatt:               And then the practice groups is just an outgrowth of that. Again, it’s just if you get really super niche, if the pitch is I was you, I’m a former executive director of a non for profit and I’m meeting with an executive director of a non for profit, there’s value in that. There are not that many of them doing commercial real estate in Manhattan right now. So that’s a differentiator. So that was the concept. We didn’t know if it would work five or six years ago, but it has. And like anything else, it’s all about the person you have in that role. You can have somebody that looks great on paper and then in reality it’s not working, but the idea works, that pitch works.

Hal Coopersmith:             As you’re training these people who you’re bringing on to the different practice groups, how do you get them within your culture and how do you teach them to do what you do?

Bert Rosenblatt:               We’ve looked into this a lot and I’ve hung out a lot with some of the people that do all the training at the big shops. And the really interesting thing is, is that I don’t think training really works in our business. I know that specifically with CBRE, I think that it’s less than 10% of the people that they train actually end up making it. I know that, and obviously we’re not in finance, but I know that if you’re at Merrill Lynch and you’re in their training program, I think it’s less than 5% that make it. So it’s really I think, not something that you can teach in a classroom setting. The only way that we’ve been successful training brokers, and I think we have a lot higher percentage than the big shops, is by hiring people that are smart, putting them on deals, essentially giving them money, which most places don’t do, giving them an opportunity to learn the business and then over time, some of them, not all of them, and it’s probably a minority, some of them start to originate their own business . And that’s the reality, that’s sort of the Holy Grail. And the problem is, I just don’t think you can teach somebody to be a great salesperson, I think that, in many respects these people are, or who they are. And I always say you know you’re going to be a good hunter. Or if you were like that kid that always made friends in the sandbox or just always always throwing the parties and that’s sort of the skill set that you’re solving for. But interestingly, you think you might have the right kid and then you get them in that situation and it’s just, and I guess I’ll just end on this note. The great book, Liar’s Poker, you know about Solomon Brothers. They got the best and the brightest. And I just remember Michael Lewis always making this comment that was fascinating that after the training at Solomon Brothers, you would have to go onto the trading floor. And when you went onto the trading floor, there was always at least one kid per class that couldn’t get out of the elevator. And so what the kid would do is he would ride in the back of the elevator hiding from the world because he didn’t want to go onto the trading floor. And a trading floor is a very intimidating place. They were breaking phones, they were acting like lunatics. But, I think that’s the moral of the story, is that you can train, you can train, you can have a good resume, but can you get out of the elevator? And that’s the X factor. And I just don’t think anybody’s been able to figure that out, us included. But I think that the reason we have a higher percentage of keeping people is because we have work and it’s easier to find people that are good at doing work than getting work.

Hal Coopersmith:             Well, that’s a great note to end things on. But I do want to ask this one question to every single guest. Best piece of advice you would give to another broker.

Bert Rosenblatt:               I would say always tell the truth. You know, we’re in a much maligned industry, but I mean I just feel like, and maybe this sounds hokey, but I really believe that we make more money because we’re honest and I think that your reputation is everything in this business. And I think that everybody knows who the bad apples are. Brokers are message passers-oners and we love to gossip and everybody knows what this one’s reputation is and what that one’s reputation is. And I really think that stuff matters.

Andrew Stein:                   I would say you have to put the what’s best for the client in the forefront. It’s all about solving for the client.

Hal:                                    Andrew Stein. Bert Rosenblatt, thank you for being on the Broker’s Angle.

Bert Rosenblatt:               Thanks for having us.

Andrew Stein:                   Thanks. Hal.

Hal Coopersmith:             That wraps up our interview with Andrew Stein and Bert Rosenblatt. For more visit Brokersangle.com or follow us on social media  @BrokersAngle and please feel free to email us at angle@brokersangle.com.