What are the top lessons learned from lawsuits and how to avoid potential litigation in the future? Where is NYC going with regards to tenant laws? What are some of the best hiring practices in order to grow a company? Top commercial broker in New York, Bob Knakal, Head of New York Private Capital Group for JLL, shares his insights.
What have been the top three lessons learned from lawsuits that you have seen out there? How can we avoid potential litigation in the future?
The number one advice relative regarding litigation is don't get into litigation. Nobody wins except the lawyers. Even lawyers will admit that in litigation, nobody wins. Avoid it, it would be my number one lesson to learn from.
Number two, avoid litigation. The easiest is with full disclosure. The brokerage law in New York requires that the broker convey to a buyer what they know, or what they should have known. You can't say, I didn't realize that there was a hole in the roof, even though all the apartments on the top floor are flooded every time it rains, because you didn't know that you should have known that. Was there a fire in the building two years ago? Was there some condition that you either knew or should have known? Do you have to convey that to the parties?
Also, in New York, if you're representing a buyer and a seller, disclose who were you getting paid by, if you're getting paid by someone, let the other party know. You will eliminate many potential issues relative to litigation by being an open book, being transparent, communicating, over-communicating. That's something that's generally good in real estate, to over-communicate rather than under-communicate. Having a lot of transparency avoids a lot of potential problems.
What do you see as the future for multifamily in NYC?
We’ve had our rent regulation system in place since 1984. And it seems like over the years, the system has gone further and further against property owners. There are a tremendous number of rules and regulations that have to be followed, your rent increases are caped, and there was a very draconian change to rent regulation in June of 2019, which has essentially created an inability to extract the upside potential that's built into rent-regulated units, it's problematic.
But it seems like, looking at it from a 30,000 feet, many other states are starting to adopt these types of rules. It's becoming more commonplace. And at the same time, most of the politicians that are endorsing these types of policies are missing the boat on what's important when it comes to housing and providing reasonably priced housing affordable housing.
The solution to all housing problems comes on the supply side, if there's enough supply, rents will be affordable for people. Look no further than the pandemic in 2020 - 2021, we saw vacancies increase dramatically as people moved out of the city, that increased the number of available apartments, essentially an increase in supply, and rents dropped by 30%. I tell all politicians, there are many things that you can do to increase the supply very easily, I won't get into the minutiae of it here, but five or six things that you could easily do to increase the supply of apartments. And if we have more apartments, those apartments will be more affordable for people.
And yet, every piece of legislation that has either been implemented in the last five years, or ignored in the last five years, has done nothing but exerted upward pressure on rents in New York. And because of that, if somebody who rents an apartment in New York feels like you're paying too much, turn around and blame your local politician, because it is their fault. Every politician says they want rents to be affordable for people, that they don't want people to have to pay too much. But yet, everything they do has the opposite effect.
What are some of the best hiring practices? What do you look for not only from the brokers that work with you, the agents that work with you, but also from the rest of the team that supports you?
Real estate is a very competitive business, and it's also very team-oriented. We enjoy talking to people that played team sports growing up. We also like to talk to people who exhibited excellence in some type of competitive area, whether it was captain of the debating team or president of the school newspaper, or something that was a competition where they excelled.
Secondly, we looked for people who didn't necessarily have the best grades in the world or the best education, but were very motivated. We used to joke around that we would only hire PhDs. And those were folks who are poor, hungry, and driven because they were going to work hard. But besides being hungry and driven, they must have passion for the business. We have people who had a passion for real estate, not that they thought they could make a lot of money, but did real estate resonate with them? That was a big part of what we thought led to success in the business because no matter how good you are, you're still going to have tough and challenging times. But what enables you to get through that challenging time is that you love the business. And we looked for that passion, the most important of them all.
We told our HR people all the time, if you interviewed somebody who looked great on paper, they were captain of the lacrosse team, or the water polo team, or they were the valedictorian of their college, but if after talking to them for a half hour, you didn't feel like, I'd love to go have a beer with this person, or I couldn't have lunch with this person. If you didn't have that connection, we couldn't offer them a job.
And that was because real estate is very much a people business. We're dealing with people all day long, people have to know you. We always said you didn't have to be the most brilliant real estate mind in the world, if the aptitude scale in real estate is from zero to 10, with 10 being a brilliant person who knows everything and can calculate internal rates of return in their head, you didn't have to be a 10, you couldn't be a three or a four. But if you were a solid seven, or an eight, and people liked you, you had good people skills, you would get hired over people who maybe had a higher real estate aptitude than you, but weren't that personable. Personal skills, people skills, likability, those are things that resonated with us. And that was a very good hiring practice to make sure that we hired only people who we felt we would like to hang out with and spend time with.
With the real estate investing mindset, is there anything else that is important for our audience to know?
A broker should specialize in one thing really well. Investors should do the same. Pick an area of town, a city or region, a type of property, a type of transaction, or a type of something where you can know that particular thing better than others. This ability gives you a competitive advantage.
Also, be good to brokers. There's an expression that says mean what you say, and say what you mean. Don't lie to brokers, don't mislead us. Treat us with respect. And that's a two-way street. Take the time to understand what you do, focus on a certain niche of the business, be good to the brokerage community, be good to your lawyers, be someone who is honest, straightforward, and transparent. Those things will go a long way toward creating bonds. There's plenty of opportunity out there. It's a matter of finding the right ones.