GlobeSt.comreported

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GlobeSt.com: What lead up to the suit, Harvey?

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Green: You build a relationship of 20 years with anational client, and when that client looks at an asset in anotherstate, they'll naturally ask for representation by those who knowhow they negotiate, what their parameters are and how they do theirdue diligence. In many instances, there may be local representationinvolved as well because you need to be licensed in that particularstate. We found that in certain jurisdictions, brokers outside thestate couldn't be involved in any way, not even is an advisorycapacity. You could only refer the client to someone who was local.The problem is that that client may not want to deal with a localbroker whom they don't know. Plus, with the way the real estatecommission wrote the laws, outside brokers couldn't even take areferral fee.

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GlobeSt.com: To get down to brass tacks, at least therevenue would go to the same firm, Marcus or whomever, correct? Itwas only the outside broker who was out in the cold.

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Green: This is not about commissions. This isabout representation. We weren't doing what the client wanted andwe weren't representing sellers in Kentucky in a fair way becausethey weren't being exposed to the entire marketplace.

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GlobeSt.com: But there were still revenue implicationsfor the broker, no?

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Green: Well, Kentucky was protecting local brokercommissions, but at what cost to their clients on the sell side andto what cost to the import of capital on the buy side?

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GlobeSt.com: What was the specific incident thatbrought the suit about?

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Green: The Kentucky Real Estate Commission startedsword-rattling about us being in violation of Kentucky law, andthey were going to prosecute some of our people.

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GlobeSt.com: Over what specific transaction?

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Green: It wasn't generated by a particulartransaction or specific situation. After we opened an office thereand had agents on the ground, we started to promote the state toinvestors in Chicago, California, Florida, New York and other majormarkets with a large population of investors who look forsecondary-market investment opportunities. That's when we began torun into the limitations imposed by the state and the situationbecame limiting to more and more of our clients. So we determinedthat action had to be taken.

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GlobeSt.com: When did it come to a head?

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Green: Two and half years ago.

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GlobeSt.com: And you've been in litigation all thistime?

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Green: First we tried to deal with the real estatecommission directly. We're not litigious. We brought them examplesof doctors or lawyers who can enjoin with professionals in otherstates to represent a client. It fell on deaf ears. This is aninterstate commerce issue and constitutionally a state can'tprohibit another state from doing business there. Those are thegrounds on which we pursued this issue.

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GlobeSt.com: And when did formal proceduresstart?

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Green: About a year and a half ago. We had clientswho were ready to testify to the fact that they were being impairedin their business practice. I want to make it clear that weunderstand the need for local licensing and representation. We'rejust talking about cooperation.

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GlobeSt.com: Because, for the record, you do supportthe concept of licensing.

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Green: Absolutely, of course we do.

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GlobeSt.com: Did any competitors join in?

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Green: Later on some local commercial brokersjoined us because they felt their clients or properties weren'tbeing represented on a national basis.

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GlobeSt.com: But none of the big boys?

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Green: No.

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GlobeSt.com: Why not?

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Green: I suppose because of the politicalramifications of the situation. You never know when you do suchthings what the outcome will be. We did it because we thought itwas the right thing to do.

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GlobeSt.com: Do you expect the commission toappeal?

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Green: I can't comment on that.

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GlobeSt.com: Is it a slam-dunk win for you?

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Green: Yes, in the sense that now it has caughtthe attention of turf states and they're looking and reviewingtheir local laws And it sets a precedent for a lawsuit if someonewishes to do so. It also caught the attention of lawmakers on theinterstate commerce issue--both on the state and federal level.

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GlobeSt.com: Are you challenging those otherstates?

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Green: No. We're tying to do everything we can toeducate them on what's in their best interest. We're trying toeducate them to the fact that it brings more revenue into the stateand it gives the clients in the state national exposure.

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GlobeSt.com: It's been said that the law is there toprotect the consumer. . .

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Green: I can't answer that. I really don't know.I'm not sure what the driver was.

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GlobeSt.com: . . . Fair enough but let's assume itwas. Does it in fact leave them unprotected?

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Green: It hindered consumers because it didn'tgive them the exposure that could lead to higher prices. In otherwords, if you have a small group of local buyers looking at realestate as opposed to a national platform, the probability ofgetting the highest price diminishes.

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GlobeSt.com: At the end of the day, what's the impacthere?

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Green: We're moving toward portability of licenseor national licensing for real estate professionals. We totallyunderstand the need for very tight control in the residentialmarket. But when you're talking about sophisticated investorsacross many markets there should be some sort of national licenseor portability. Whichever way we go, we're moving in the rightdirection and away from turf-state protection. We're moving awayfrom violating laws unintentionally.

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John Salustri

John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.