The downtown Manhattan rental firm has closed all of its offices, changed its business model and scaled back its brokerage activities
Kevin Ellerton and 48 Wall Street (building photo source: PropertyShark)
Real estate firm Blackstone Properties — once a major if controversial player in the downtown Manhattan rental market — has now closed all of its offices, changed its business model and scaled back its brokerage activities.
Founded in 2008 by 20-somethings Kevin Ellerton and David Yomtobian, Blackstone Properties quickly grabbed a large marketshare in the Lower Manhattan rental market. At its peak, the firm had some 80 agents in five offices, and Ellerton estimated in The Real Deal that about half of all brokered rental deals in the Financial District and Battery Park City were done by Blackstone agents.
Now the firm has only 18 agents and no offices, The Real Deal has learned.
According to Yomtobian, Ellerton is now in Thailand and Blackstone has undergone “a major strategy change,” starting in March 2010. The company has a new business model where agents receive higher-than-average commission splits of 70 to 99 percent, he said. Since the firm, which was once paying $30,000 per month in rent for its five offices, has much lower overhead, it can now afford to give higher splits and charge clients lower broker fees, he said, which is especially important in a slower market.
“Basically, paying $30,000-per-month in office space rent creates a structure where agents get paid smaller commissions, and ultimately the clients, who are trying to get the best deal, have to shoulder the cost,” he wrote in an e-mail to The Real Deal.
Blackstone closed its last office, at 48 Wall Street, in October, said Gage Rand, an executive vice president at the company, though the firm still receives mail there. Agents now work from home, but have access to the company’s website, databases and e-mail system.
Because of the reduced overhead, “we’re operating at a much higher profit margin,” despite the smaller number of agents, Rand said. He added: “we’re working with a lower number of higher-quality agents, and because of the higher profit margins, we can offer clients lower brokerage fees.”
Still, the company is undoubtedly a much smaller player in the rental marketplace. Blackstone is on track to do 700 rental deals in 2010, down from 250 per month at the company’s peak in 2009, Yomtobian said.
In a weak real estate market, the firm is also diversifying its activities, Yomtobian said. Blackstone has been investing in stocks and putting “seed investment into start up firms and silent partnerships,” he said, and is also doing residential sales and commercial deals in addition to the rentals.
Most industry sources declined to go on the record about the firm, but many said they believed Blackstone had closed. Before leaving for Thailand, sources said, Ellerton had been attempting to sell the company’s client list.
“Basically, they’re closing and they don’t want to admit it,” said one industry veteran.
Yomtobian denied that Ellerton was attempting to sell the company’s assets, saying it was a misunderstanding. Ellerton still owns part of the company but has a “minimized role,” Rand said.
At the height of its success, Blackstone was known for blanketing Craigslist with listings. Ellerton told The Real Deal that in the firm’s first year, it spent around $1 million on Craigslist ads.
But competitors complained that Blackstone posted multiple unique ads for the same apartment and engaged in duplicitous marketing tactics. At the time, Ellerton responded the complaints were unfair, claiming that placing multiple ads for the same apartment and other tactics were common in the industry.
Ultimately, developer TF Cornerstone banned Blackstone from doing deals in their new development rental projects after receiving complaints about the company.
The ban came with “no warning, no explanation,” Rand said. It was a blow to the firm, because suddenly, “we weren’t able to show our clients the best buildings in the area.”
Rand said he has never gotten a clear answer on exactly why Blackstone was banned, but he feels it’s unfair and he hopes the firm will be reinstated. “We have a great amount of respect for [TF Cornerstone heads] the Elghanayans, and we would be honored to sit down with them,” he said.
TF Cornerstone declined to comment.
After the ban, many Blackstone agents left the company to start their own firms or work for competitors. Some were fired, Rand said.
“I wish all of them much success, and a fulfilling real estate career,” Yomtobian wrote. “I’m thankful to each and every agent who has ever helped me further my goals (whether for a day or several years) and shared in my passion. I’m eternally indebted to them and all the developers for their incredible support and help.”
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