An ominous email went out Thursday evening summoning Eastern Consolidated’s 140-odd brokers and staffers to a company-wide meeting the following morning. Some knew what it meant; most didn’t.
At the meeting, Peter Hauspurg and Daun Paris revealed that after 37 years, the commercial brokerage would be shutting down in late July. The founders said they had hired the investment bank Kimberlite earlier this year to review acquisition offers from other companies, and after months of considering the move, decided none of them were tenable.
“It costs millions to shut down a business,” said Brian Ezratty, a vice chair at Eastern and the firm’s top investment-sales broker. “Our monthly overhead is big, but the best move was end it now rather than wait another six months.”
The move to cease operations comes amidst a period of significant challenges to the commercial-brokerage industry. Smaller firms have found it difficult to fend off challenges from the full-service institutional behemoths that have grown even bigger after a wave of acquisitions fueled by the capital markets. Over the past five years, the playbook for mid-sized firms such as Eastern has been simple: sell.
“It’s getting tougher for small companies to compete with the big nationals in terms of global reach and investment in technology,” said Eric Anton, who spent 14 years at Eastern starting in 1998 and is now at publicly traded Marcus & Millichap.
Talks of a sale were said to have occurred off and on since 2014. Sources familiar with the negotiations said that in recent months, Meridian Capital Group, Newmark Knight Frank and other firms were all in discussions with Eastern. Those firms did not immediately respond to requests for comment.
With no terms that worked for Hauspurg and Paris, however, it was time to bow out.
“This was an incredibly difficult and complicated decision to make, as Eastern has been a huge and incredible part of our lives for nearly 40 years,” they said in a statement, first provided to the Commercial Observer. “We’ve had tremendous success, worked with many talented people, and the deals we’ve done have helped transform the New York City skyline.” Eastern declined to comment further on the decision to shut down.
Hauspurg and Paris said Eastern will pay severance to all its employees. As independent contractors, brokers can’t avail of that.
“With the brokers, they’re offering them time,” said Eastern’s Andrew Sasson. “So they don’t make a rash decision about the future.”
Instead of an immediate closure a la Town Residential, the firm will keep the business going until the end of July, operating out of its roughly 20,000-square-foot office at Rudin Management’s 355 Lexington Avenue. It was not immediately clear what will happen to the office space.
Some firms have had better luck finding the right suitor. Retail specialist RKF, for example, is being acquired by Newmark, and, in 2015, when the investment sales market was going gangbusters, Massey Knakal Realty Services sold to Cushman & Wakefield for about $100 million.
“You have to be more than just a group of brokers going after the same things. You need a dominant market position or a strong niche, or you’re out,” one high-level source at a competing firm said. “Building volume is down and, for a mid-market company, that’s particularly damaging.”
After record highs in 2015 and 2016, the city’s investment-sales volume fell nearly 40 percent in 2017 to $34.9 billion, according to Cushman data. Brokers, creatures of commission, took a hard hit: Eastern’s total dollar volume dropped by 60 percent, to $622.4 million, putting it 10th on The Real Deal’s annual investment-sales firms ranking.
“It’s an incredibly challenging market,” Ezratty said. “Most owners will only consider selling if they get a crazy price.”
To the Eastern brokers actively working deals, the news was especially shocking. Chad Sinsheimer, who missed the morning meeting due to a doctor’s appointment, said he was “blindsided by the news.”
“Investment sales isn’t the strongest sector right now,” he said, “but I never saw the signs that Eastern was in such need of capital.”
Adam Hakim and James Murad, who lead the firm’s capital advisory division, said they have already begun talking to other companies about joining. James Famularo, a principal in the retail leasing division, said he received calls from several firms since news broke and would look to bring his team wherever he sets up shop.
And many talent hunters will be looking at Ezratty, who is a free agent for the first time since joining Eastern 33 years ago.
“I never paid attention to the noise outside,” he said. “Until now.”
David Jeans contributed reporting.