Mike McDonald is in love.
And it's not just with the new trendy restaurant, Georgie, an upscale Dallas spot in which he has an ownership stake. He's come here to talk about his new role leading a broker team overseeing office deals at real estate services firm JLL. But first, he gives a nod to the bartender, putting in his usual cocktail order as he takes a seat on a Mad Men-inspired russet-hued barstool. He urges his drinking companion to order the place's namesake drink served with a fancy Instagram-worthy bubble atop the beverage, a trick from the bartender.
McDonald has been running deals for the past 18 months after a yearlong hiatus since leaving his old firm and joining JLL, where he is now part of the leadership team. His post gives him a say in fostering his new firm's culture and helping important clients strategize.
"I love this platform," McDonald tells CoStar News, as he reflects on the new gig.
McDonald is on the road throughout the United States these days, traveling to meet clients and show off high-profile properties. The real estate executive, who splits time between Dallas and Atlanta, is headed to Nashville to oversee bids on the high-end Gulch Union office tower. He's also bouncing to Durham, North Carolina, to show off office space in a building adjacent to the city's baseball stadium.
Such dealmaking wasn't always happening. McDonald was banned from brokering transactions for a year after being sued by former employer Cushman & Wakefield in a move seeking to protect a non-solicitation and noncompete agreement he and his business partner, Jonathan Napper, signed when joining the rival firm.
Lawyers for Cushman & Wakefield told a Texas judge that even having coffee with industry peers could be a violation, because such meetings were often a prelude to dealmaking. McDonald and Napper argued against that strict interpretation and told the judge they had at no time violated the agreements with their former employer.
The judge ultimately upheld the original agreement, and no one exactly walked away as a so-called winner, except for attorneys who represented the parties. The six-and-a-half-hour deposition McDonald endured questioning his integrity still weighs on the real estate executive today.
"I kept thinking, I know what you're trying to accomplish here and you're not gonna do it," he said, adding that about 99% of his personal friends also happen to work in the industry. "I can have coffee or cocktails with somebody in our business and I'm not breaching our agreement."
For McDonald, closing deals is simply part of who he is, and after helping to market and sell 701 Brickell, a prominent Miami office tower, in a $443 million deal last fall, he's feeling confident about the future of the office investment market in the United States.
"We had capital come in from all across the globe and we ended up going back to three groups and did a sealed-bid process," he said. "Everybody moved their number, and we closed for all cash at $443 million.
"And all the three groups could have done it, and it was then when I knew the office sector was really back to having depth," he added.
For McDonald, the return of U.S. office deals comes at the end of a long road for him and Napper, who was also hired by JLL in September 2022. The duo upheld its agreements with Cushman & Wakefield until September 2023, when McDonald, in true Mike McDonald fashion, celebrated his newfound freedom with his family in Germany at Oktoberfest.
The experience of being sued by a former employer took its toll. For McDonald, it felt like an unnecessary attack on his integrity.
"It was tough for my family to see me go through this," he added. "It affected me. It hurt."
Getting to work
McDonald's move to JLL has removed some of the sting. He's been inspired by the leadership of his new boss, Mark Gibson. McDonald jokes he'd "run through a brick wall" for the JLL capital markets leader.
"He's the hardest working guy at the company, he's tied up all day and is out in front of clients," McDonald said. "If he's working hard, I'm working hard. I can also get him anytime I want. He's responsive and helps set the tone. There's nobody in the business like him."
In Gibson, McDonald has found a kindred soul. A self-described Type A personality, who hasn't used an alarm clock in three decades, McDonald said he has continued to wake up between 4 a.m. and 4:17 a.m. during his hiatus, after going strong on either calls or dinners late into the night.
"I'm a big believer in doing the right thing and working harder than anyone else," said the broker, who has more than three decades of experience. "I run hard. I get up before anyone else and I go to bed after them."
McDonald's work schedule tends to be tight during the week before he relaxes into the weekend with date night plans with his wife or dinner plans with friends. The downtime helps him recharge for a week where he's not only showcasing a specific property, but a city, its history and under-the-radar points of interest. While showing the office building at 555 S. Mangum St. in downtown Durham, North Carolina, for instance, McDonald also made sure to take potential investors to a Durham Bulls baseball game adjacent to the office building.
"I'm not just spending the 30 minutes I have with an investor at the building," McDonald said. "I'm orchestrating their entire experience from when they come to town."
He added that "they are investing not only in the building they are viewing, but the fabric of community too."
Plotting a comeback
During his forced time off, McDonald strategized on what he would do when the shackles came off.
"From late 2023 to early 2024, I met over 200 different investors from all across the globe about the U.S. office sector," McDonald said. "I was traveling to Seoul, I was in London, I was in Germany, talking to capital about coming to the United States. Those talks began to pay dividends starting in April 2024."
Rather than having a "woe is me" attitude, he wanted to get ahead of the next real estate cycle and understand how things might be different.
Gradually, he began to form a new thesis around the changing office sector. The investor profile, he realized, has changed in recent years from pension funds to high-net-worth individuals and overseas investors. With little new construction and "supply hitting a brick wall," he expects there to be a run on good real estate in the coming years.
"I personally believe that more money will be made in the office sector in the next five years than any other sector," he added. "Logistics and multifamily properties are priced to perfection and office is priced to correction — and it's already corrected."
Making his pitch
For McDonald, the beginnings of a presentation on office investment can evoke the start of an AA meeting, as he tells would-be investors, "My name is Mike McDonald, and I admit there are bad office buildings. But there are also good office buildings."
The bifurcation of office space is shown through tenant demand, he said. There might be little demand for 1980s-vintage behemoths spanning more than a million square feet of ubiquitous space tucked into some central business district U.S.A., he said. However, investors still value well-heeled, amenity-filled properties in gateway locations, places where people want to come to work.
"Office has a PR problem, we should really be calling it daytime housing," McDonald said. "We shouldn't even be saying office."
The sentiment is catching, with office trades picking up. McDonald said his team is estimating about $65 billion of office properties to sell this year as more institutional capital comes back to the market, up from the $43 billion CoStar counted last year.
"We're seeing debt formation around the office sector, which is really important, and we see capitulation from sellers, all three of these factors are coming together to create an environment for transactions," he added. "This is the first time in my 32-year career when all of these factors are coming together and are really strong."
For less desirable offices, which McDonald refers to as "dark matter," the future will probably focus more on converting the space to some other use. He said he expects up to 300 million square feet of non-competitive office space to be removed from the nation's inventory over the next four years from conversions, tear downs or other redevelopment.
This adds another real estate fundamental not many real estate executives are talking about: The disappearance of these "zombie buildings," he said.
"I think as much as 35% of the office market are these underwater buildings that are not competitive," McDonald said, with brokers not even bothering to tour tenants at these properties and owners no longer investing in the property upkeep. That makes them ripe for conversions — taking them out of the office equation, he said, and adding another layer to the fundamentals of creating an "environment for really strong performance in the office sector."
McDonald's optimism is palpable as the longtime U.S. capital markets broker, dressed in a sports coat with a pocket square matching his collared shirt, talks about the prospects over drinks at Georgie. With the restaurant's windows open to the buzz of the sidewalk and the view of an active construction site beyond with workers helping shape the next new office building in Dallas — it's clear, this is where the action is.