More details have emerged about embattled residential real estate firm Citi-Spaces since The Real Deal reported closure of its East Village office yesterday.
Company founder Israel Horowitz revealed today that the company has faced serious cash-flow problems, including bouncing checks to agents, and has closed not one but two offices in recent months.
Horowitz confirmed yesterday that Citi-Spaces had closed its biggest office, in the East Village, but revealed today that it also closed its corporate offices at 55 West 39th Street several months ago. The company has been widely rumored to be ceasing operations, which Horowitz has denied.
The headquarters housed Horowitz’s office and his assistant and three other staff members, who were moved to other locations when the office closed in February, he said.
Horowitz also acknowledged that the company encountered a serious shortage of liquidity in January, which caused it to bounce agents’ commission checks.
“The market crashed on us,” he said. “We ran out of cash.”
He attributed the problem to the fact that brokers’ fees had begun being paid by landlords or owner of the apartment rather than the renters, a common incentive in the troubled economy. But while renters pay brokers fees upfront, it often takes landlords several months to pay the broker.
“We were trying to pay the agents on time — we just didn’t have money,” he said. “It happened so fast. Instead of getting commissions at lease signings, we had to wait a month or two. And we still had to pay all of our bills.'”
One former Citi-Spaces
agent, who preferred to remain anonymous, said there was one week where
everyone in the company had their checks bounced, and that Citi-Spaces
bounced a refund check to the source’s client. The source said employees suspect that the firm improperly commingled agents’ commissions and customers’ deposits with company funds, using the money to pay other bills.
“We brought the commission in, but the money was floated to pay off other things that [Horowitz] didn’t have the money for,” the source said.
Horowitz acknowledged that commissions and company funds were not kept in separate accounts, but said the company quickly recognized the problem and reorganized the way payments are made in order to rectify it. Agents are now paid only in certified checks, he said.
“We realized we had to change the way we do business,” he said. ‘There was a problem and we addressed it.”
The Better Business Bureau reported two complaints filed against Citi-Spaces in the past 36 months, one for “refund or exchange issues” and one for “service issues,” according to the bureau’s Web site. Both complaints have been resolved.
Horowitz denied bouncing checks to customers, saying the problem was limited to agents, and said everyone who is owed money by the company has now been paid.
But that may not be the case.
Greg Bibens, a former Citi-Spaces agent who is now a sales associate at Barak Realty, said he is still owed a small amount of money by his former employer, though he said it’s not a large enough amount to justify filing a complaint or going to court.
Bibens said Citi-Spaces is likely facing financial difficulties because “it expanded too fast, too soon.”
Many real estate firms in New York “were riding on the over-inflated market,” he said. “When it comes down to the reality of everything, those that have the skills will last. Those that don’t won’t make it.”