Grabbing a cup of coffee has long been a staple of doing business in commercial real estate. Now a high-profile lawsuit looks at whether that get-together can also violate the law.
As a case involving two capital markets brokers who left Cushman & Wakefield for rival JLL winds through a Dallas County District Court, an issue emerging is whether a coffee meeting is about making friends or pursuing deals. That's because the pair signed a non-compete clause with their former employer, who argues having coffee at a commercial property is inherently dealmaking and off-limits under that agreement.
The case spotlights the importance of face-to-face chats, and how real estate brokers say a personal relationship often mixes with the professional. In this case, brokerage Cushman & Wakefield argues that Mike McDonald and Jonathan Napper violated their nonsolicitation and noncompete agreements when they went to work for Chicago-based JLL last year. Cushman says the duo is legally banned from "directly or indirectly and in any capacity engaging in services or providing assistance to any person or entity providing services" related to U.S. real estate brokerage activity, including informal restaurant or coffee shop chats that could involve a deal.
A Dallas judge recently ruled on the matter, giving his answer. Real estate professionals say it can often be difficult to distinguish whether a meeting is social or the start of a business relationship.
Just ask Mike Geisler, the founding principal and managing partner of Dallas-based Venture Commercial, a 23-year-old retail brokerage, who has built the real estate services business with the help of his other partners at the firm and the relationships he's fostered along the way in and out of real estate.
For Geisler, the act of grabbing coffee or lunch with someone is about building a meaningful relationship — regardless of if it turns into a business opportunity.
"It's not about getting business from people, but getting to know them," said Geisler, who does that by heading to White Rock Coffee, a coffee shop known for being a laid-back alternative to rival Starbucks down the street and an inviting place to build relationships in Dallas. "Sometimes coffee can be a part of dealmaking, but it's more about catching up with someone or meeting up with somebody to get to know them."
Change of Venue
To establish a bond, Geisler said he needs that change of venue — like a coffee shop or restaurant — to get a reprieve from the distractions of the office and incoming phone calls and the sharp ping on his computer notifying him another email needs attention. That way, he can focus on building relationships.
So, when is coffee just coffee? And when does it lead to what one might consider a deal-making activity?
In answering the question with a question, Art Buser, a hotel investment broker with more than four decades of experience, said, "Would you do business with someone you don't know or trust?"
Buser, a founding partner at Dallas-based Goodwin Advisors, said he can attest to the importance of face-to-face communication in building that trust in the commercial real estate industry. Anyone who swings by Flying Fish in Dallas' Preston Center can see the significance of a breakfast meeting in the industry, he said.
"Brokerage is all about solving problems," Buser told CoStar News. "If your job is to be an intermediary, not everyone shows up to the table being transparent with all their wants and needs. It takes meeting over time to not only gain that trust but read their body language. Are they crossing their hands? Leaving perspiration on the table? You take all those non-verbal cues and sensations into consideration. People who put together large deals do so over time."
The meetings offer an opportunity to do some due diligence on the people behind a would-be deal, he said, adding he could just be a "dinosaur," who's a bit old-fashioned. In this last economic expansion, Buser said, he noticed some aspects of due diligence, such as even walking a property, weren't always taken by rivals. But he expects that will change with the current economic uncertainty resulting from rising interest rates and high inflation.
"There's no substitute to seeing the real estate and meeting people eye-to-eye," he said. "Those historical tools, such as meeting face-to-face will come back and be even more important given what's going on in the world. The age of the dinosaur is back."
Face-to-Face Matters
Randy Cooper, one of Dallas' top office tenant brokers, said the importance of getting coffee cannot be overstated in commercial real estate, and it's grown in importance after the pandemic hit.
"Any opportunity, whether that be coffee, a business lunch or any opportunity to break bread, is a big deal for brokers," Cooper, a vice chairman of Stream Realty Partner’s office tenant representation division, told CoStar News. "People have fallen in love with Zoom and Microsoft Teams because they are so efficient, but social contact is so incredibly important. You get to see body language and eye movement, which is missing in phone calls and is masked on video calls."
As a veteran of the in-person meeting, Cooper said, video calls can really throw him off his game. The real estate executive is known for his success in finding office space for some of the nation's largest companies, including Fannie Mae, State Farm Insurance and Nokia.
"People do business with people they know," he said. "It's hard to get them to invest the time in getting to know us, but coffee and business lunches are during business hours, so you are never asking for someone's personal time."
Grant Pruitt, co-founder, president and managing director of Whitebox Real Estate, said that with two young children at home, grabbing coffee is the most efficient way to get to know clients because he doesn't have time to play golf with would-be clients or tackle any meetings outside the business day.
"We just hope they hire us for the great job we do and how we can help solve their business problems," he said.
Friendship and Serendipity
Meanwhile, Venture Commercial's Geisler said he's getting ready to close a deal that started in a face-to-face encounter. The opportunity arose after a "chance lunch meeting with a friend" where, while catching up, he found he could help the friend buy some real estate.
Like other lunch or coffee meetings, Geisler said it was an opportunity he wouldn't have known about if not for the meeting to catch up on life.
"It means more today to have lunch with somebody, and I don't take it for granted," he added. "It's not about getting business from them but getting to know people and to truly care about them. It makes for a richer experience to put aside the pressure of building a business and really getting to know someone as a person."
Why brokers want to get to know someone is at the heart of the court decision about getting coffee. Judge Dale Tillery decided to extend a temporary injunction that prevents the brokers from U.S. dealmaking until Sept. 15, or until the completion of a trial or summary hearing on the merits of the case or a final judgment. In response, the brokers said they temporarily suspended their real estate licenses and will honor the terms of their noncompete contracts with Cushman & Wakefield.
But their former employer also argued that the ruling should mean no coffees. Having coffee with someone in real estate, as well as grabbing lunch, often precedes a real estate deal, Carlo Barel di Sant'Albano, Cushman & Wakefield's former chief executive of global capital markets and investor services, testified in the case earlier this year. He argued these acts to build trust and relationships could violate the noncompete and nonsolicitation agreement covering the brokers.
In the end, it came down to Tillery to give a King Soloman-like ruling on the issue of having coffee. He ruled the brokers can still grab coffee and lunch. But they need to steer clear from making any U.S. deals until litigation is resolved. If their chat turns to sales, then their coffee meeting becomes a violation of their legally binding non-compete agreement, he said.
While it may be a largely coffee-free summer for the two brokers involved, other real estate professionals say they are looking forward to discussing the issue — over coffee.