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The US District Court for the Western District of Kentucky has handed a victory over to the commercial real estate industry. As GlobeSt.com reported in September, what amounts to a more-than-two-year battle between the Kentucky Real Estate Commission and industry practitioners over the ability of out-of-state brokers to represent clients in the Blue Grass State was decided last month with the Court handing down an injunction against the commission, essentially freeing brokers to provide national clients continuous representation in Kentucky real estate transactions. But Kentucky is only one of eight so-called turf states (the others are Nebraska, New Hampshire, New Jersey, Missouri, Oklahoma, Pennsylvania and Utah), so while the battle has been won, the war is not yet over. While local brokers joined the skirmish in Kentucky, Encino, CA-based Marcus & Millichap lead the charge, and president and CEO Harvey E. Green sat down recently for an exclusive interview with GlobeSt.com to discuss the implications of the ruling.

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

Green: You build a relationship of 20 years with a national client, and when that client looks at an asset in another state, they’ll naturally ask for representation by those who know how they negotiate, what their parameters are and how they do their due diligence. In many instances, there may be local representation involved as well because you need to be licensed in that particular state. We found that in certain jurisdictions, brokers outside the state couldn’t be involved in any way, not even is an advisory capacity. You could only refer the client to someone who was local. The problem is that that client may not want to deal with a local broker whom they don’t know. Plus, with the way the real estate commission wrote the laws, outside brokers couldn’t even take a referral fee.

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

Green: This is not about commissions. This is about representation. We weren’t doing what the client wanted and we weren’t representing sellers in Kentucky in a fair way because they weren’t being exposed to the entire marketplace.

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

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

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

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

GlobeSt.com: Over what specific transaction?

Green: It wasn’t generated by a particular transaction or specific situation. After we opened an office there and had agents on the ground, we started to promote the state to investors in Chicago, California, Florida, New York and other major markets with a large population of investors who look for secondary-market investment opportunities. That’s when we began to run into the limitations imposed by the state and the situation became limiting to more and more of our clients. So we determined that action had to be taken.

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

Green: Two and half years ago.

GlobeSt.com: And you’ve been in litigation all this time?

Green: First we tried to deal with the real estate commission directly. We’re not litigious. We brought them examples of doctors or lawyers who can enjoin with professionals in other states to represent a client. It fell on deaf ears. This is an interstate commerce issue and constitutionally a state can’t prohibit another state from doing business there. Those are the grounds on which we pursued this issue.

GlobeSt.com: And when did formal procedures start?

Green: About a year and a half ago. We had clients who were ready to testify to the fact that they were being impaired in their business practice. I want to make it clear that we understand the need for local licensing and representation. We’re just talking about cooperation.

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

Green: Absolutely, of course we do.

GlobeSt.com: Did any competitors join in?

Green: Later on some local commercial brokers joined us because they felt their clients or properties weren’t being represented on a national basis.

GlobeSt.com: But none of the big boys?

Green: No.

GlobeSt.com: Why not?

Green: I suppose because of the political ramifications of the situation. You never know when you do such things what the outcome will be. We did it because we thought it was the right thing to do.

GlobeSt.com: Do you expect the commission to appeal?

Green: I can’t comment on that.

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

Green: Yes, in the sense that now it has caught the attention of turf states and they’re looking and reviewing their local laws And it sets a precedent for a lawsuit if someone wishes to do so. It also caught the attention of lawmakers on the interstate commerce issue–both on the state and federal level.

GlobeSt.com: Are you challenging those other states?

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

GlobeSt.com: It’s been said that the law is there to protect the consumer. . .

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

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

Green: It hindered consumers because it didn’t give them the exposure that could lead to higher prices. In other words, if you have a small group of local buyers looking at real estate as opposed to a national platform, the probability of getting the highest price diminishes.

GlobeSt.com: At the end of the day, what’s the impact here?

Green: We’re moving toward portability of license or national licensing for real estate professionals. We totally understand the need for very tight control in the residential market. But when you’re talking about sophisticated investors across many markets there should be some sort of national license or portability. Whichever way we go, we’re moving in the right direction and away from turf-state protection. We’re moving away from violating laws unintentionally.

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