The Real Deal New York

Brokers share their best and most bizarre tales [more]

Real estate circles these days are bullish, but nobody has a crystal ball.

The effects of a sudden downturn are a subject rarely acknowledged. Market watchers and real estate veterans call it the elephant in the room, or the dead horse in the bathtub. But dodging the question doesn’t mean it’s not hovering on the edge of the horizon.

While experts believe there is no imminent likelihood that the current ripe real estate market will sour, they have a few ideas about what might happen if it did.

Some believe that the wave of gentrification sweeping certain neighborhoods of Manhattan, Brooklyn and Queens might be stymied, especially in areas that have only just gotten cachet as undiscovered hot spots, even in Manhattan.

“It’s not really about where,” said Fred Harris, AvalonBay Communities senior vice president of development. The company is currently building apartments on the Lower East Side and in Long Island City. “I’d say it’s about timeline. It tends to be the more recently ‘hot’ areas that are more vulnerable.”

Other market watchers agreed.

“If the neighborhoods are just at the beginning, if the big projects haven’t yet started, it’s easy for people to back away,” said Barry Hersh, associate director of the Steven L. Newman Real Estate Institute at Baruch College. “It’s never the Upper East Side that gets slammed. It’s some place that is viewed as a frontier of some sort.”

Some pundits believe that people are moving to Brooklyn and outlying areas simply because they can’t afford Manhattan, despite hype that proclaims that these areas are “destinations.”

Still, not all experts believe that a sagging market would halt expansion there.

“I think it’s all relative,” said Andrew Gerringer, managing director of Douglas Elliman’s Development Marketing Group. “If there’s a 5 to 10 percent correction, it’s not going to help that many more people to afford to be in Manhattan, so they’re still going to buy in Brooklyn.”

Quality of the housing stock in emerging neighborhoods might protect them, said Christopher Wilson, senior vice president and director of project marketing at Stribling Marketing Associates.

“If what you’ve got, regardless of location, is a high-quality residential product that’s in high demand and limited supply, you’ve got a blue chip investment,” he said. “Hence the preference in New York at times for prewar, because they’re not making them any more.”

Many emerging neighborhoods in Manhattan and Brooklyn are solid enough that they would survive, said Richard Grossman, director of project marketing at Halstead Property.

“They could be vulnerable, but most of them have matured enough as neighborhoods that I wouldn’t say you’re going to see that,” he said.

For example, Brooklyn’s Williamsburg, long a haven for hip renters but still in the early stages of a condo construction boom, would probably keep its appeal for buyers, though that is a recent development, said Grossman.

“If you go to Williamsburg on the weekends, it’s full of 20- and 30-year-olds, and these are buyers who have good jobs in the city,” he said. “They want to live there in a young, vibrant community; on weekends, it’s like being in San Francisco.”

David Wine, vice chairman of The Related Companies, one of New York City’s biggest developers, agreed that in a fizzling market, outlying areas may continue to do just fine. The company’s project on Roosevelt Island, which has been selling at a good pace since it went on the market a month ago, would appear to be invulnerable despite not being in Manhattan.

“I don’t think it’s going to be affected, because it’s still perceived as kind of a new opportunity,” Wine said.

In fact, Wine said, if the markets in outlying areas consist of mostly first-time buyers not so dependent on reselling their properties, that may help sustain emerging neighborhoods.

But when it comes to the future, nothing is ever written in stone. Grossman said he believes the bottom may fall out of the lower-end marketplace first, as the upper end always has cash and is unaffected by rising interest rates, while middle-income people always need a home.

Gerringer disagreed, and said the high end will go first.

“It usually happens from the top down,” he said. “The more expensive properties slow down because those are discretionary purchasers.”

But many market watchers feel there is a middle-to-high level range encompassing $2.5 million to $5 million units now selling for about $1,000 to $1,500 a square foot that may be the first affected by any market collapse.

“I think the most corrected in a downturn will be luxury’s new rich people nouveau riche will be the most affected,” said Asher Alcobi, co-founder and president of Peter Ashe Inc.

Hersh agreed, theorizing that those neighborhoods most likely to experience irrational price inflation while not being as established, like SoHo and TriBeCa, might suffer from the biggest downturn.

The savvy in real estate circles should be “looking around and seeing where there is an excess of [inventory] relative to the market’s requirements,” Wilson said.

That may be a clue to which submarkets may flag if the market heads south. It’s hard to predict what might happen, but investigating former market downturns might help. Gerringer says the last time real estate deflated in the late 1980s and early 1990s, the market was very different from the current one.

While investors comprised the market then, it’s now dominated by end users. Smaller, investor-oriented units were popular in that era and became overbuilt.

Now many market watchers agree there is no sector that is overbuilt, but most are watching the product pipeline for clues about sectors that could be at risk. A shortage of suitable development sites may help insulate this market, Wilson said.

Currently, the boom is in residential and not commercial, Hersh said, and the residential market tends to be more resilient.

But as a word of warning, there is always the looming risk of overbuilding in the office market, said Seth Weinstein, a principal at Hannah Real Estate Investors.

“There is a market for new office product, but I don’t think it’s very deep,” he said. “If there’s another run at speculative office construction, which there seems to be developing, that could be vulnerable.”

Observers say downturn unlikely as economy picks up [more]

Guests at the Plaza Hotel probably didn’t look twice at the flags flying in front of the New York landmark the night of Oct. 14. Casual observers saw the display of Israeli, Saudi, Singaporean and Canadian standards above the doors of the slightly careworn, but iconic hotel as further evidence that this city is the crossroads of the world. But the principals of the recently concluded $675 million sale of the property knew better the collection of banners proved that a slick and spendy deal crosses all borders.

For this kind of money, it’s no surprise.

Elad Properties, the North American arm of Elad Hotels Ltd., an Israeli hotel and development group, swooped in over the summer and quickly agreed to buy the Central Park South building, turning a 107 percent profit for Plaza owners, a partnership between billionaire Saudi Prince Al-Waleed bin Talal and Millennium & Copthorne Hotels, who bought the storied building from Donald Trump for $325 million in 1995.

While the owners could rest assured that the hotel’s storied reputation was enshrined, the tourism and travel downturns following the Sept. 11 terror attacks in 2001 pummeled its recent performance. The Plaza lost $1.8 million before taxes last year, according to published reports, and insiders called that a vast improvement from its 2002 figures. Analysts suggested it needed at least $100 million in capital expenditures by 2009, just to stay competitive.

“It was tired,” says Scott Latham, executive director of Cushman & Wakefield’s recently assembled capital markets group, which handled the sale. “It was losing money or was a marginal operation at best.”

But Latham and Yoav Oelsner, a director on the C& team, took a few murmurs of discontent and turned them into a blockbuster deal.

According to Latham, the transaction wouldn’t have happened without the exact confluence of interests, personalities and negotiating styles that saw Eloise’s storybook home change hands.

“The property was not officially on the market,” Latham said during an interview in his Midtown office. “We had heard from a couple of separate sources that Al-Waleed was talking about selling the property, and we made some calls.”

Those calls resulted in seven frantic weeks of deal-making that livened up a torpid summer, at a time when the brokers were ready to exhale after closing a $125 million deal for Elad, finishing negotiations to buy the Gift Building at 225 Fifth Ave. in a whirlwind 48-hour stretch.

The most important call Latham made was to Singaporean hotel magnate Kwek Leng Beng, whose Millennium & Copthorne group owned half of the Plaza. The hotel is managed by Fairmont Hotels and Resorts, a Canadian company in which Al-Waleed has a 16.5 percent ownership stake.

Kwek was guarded but receptive to Latham’s overture, which prompted Oelsner to contact Miki Naftali the only potential buyer they thought they needed. Naftali, the public face of Elad, has been a good client, and, according to Latham, “one of the most decisive, focused real estate professionals I’ve ever worked with.” Though the ink on the Gift Building deal was barely dry, the brokers felt they knew their man well enough to decide Naftali would embrace another opportunity.

“This was the kind of situation where you have one shot, and you go to your best guy,” Oelsner says.

Naftali set up shop in New York in 2000, specializing in condominium conversions. Besides the Gift Building, his portfolio includes 71 Murray St., 21 Astor Place and 160 West 86th St., a new construction project.

Elad also recently purchased the former SIR Studios site at 310 West 52nd St., where there are plans to build a 42-story apartment tower, as well as buying the largely vacant (except for stores) seven-story 650 Sixth Ave., which will be converted to condos. About 500 of Elad’s 1,300 planned New York condos are complete.

“He was the only guy we went to, and he said, ‘I’m all over it. Go get it for me,’” Oelsner recalls.

Latham said initial negotiations were tricky. Since the sellers weren’t officially sellers, the buyer wasn’t necessarily in the market and the property wasn’t formally available.

But the initial contacts with Millennium & Copthorne were promising enough that in early July, the brokers joined Naftali and Hong Wen Rong, the hotel chain’s joint chief executive officer, in a 15th floor suite at the Plaza, overlooking Central Park in the full bloom of summer.

“These were super-highly confidential discussions,” Oelsner recalls. “This was not a regular scenario. It wasn’t like Miki was going to call up the Sunshine Group or Douglas Elliman to get comparable values on Central Park properties.”

Hong held back in the initial discussion, not even offering Naftali a floor plan, says Latham. He did, however, get negotiations going with a question: “How much do you think this room is worth?”

The brokers say Naftali didn’t miss a beat, and asked for a few minutes to look around. After a 30-second tour of the 1,500-square-foot suite and some back of the envelope calculations, Naftali suggested that $4.3 million would be a fair price.

The next day Naftali and his brokers were rewarded with a floor plan of the 15-story building and a request for its likely market price.

“It was a process of extrapolation for valuing the rest of the property,” Latham says, adding that pricing information from Millennium was a hard slog.

At the same time, negotiations with Prince Al-Waleed were progressing on a parallel track, but they remained shadowy and less focused than discussions with Kwek and Hong, who likely saw Naftali’s partial condo conversion plans as a way to boost the entire hotel’s fortunes.

“Kwek is really the hotel guy,” Latham says of the partnership. “Al-Waleed is more of a finance guy. The Plaza’s losses may have been cyclical, but they both knew that they would, in effect, have to double down [on capital improvements] to revive it.”

Offers went out to Al-Waleed at $550 million, and at an unspecified but higher price to Kwek. The offer to Kwek, sent out on a Friday, yielded an e-mail invitation Monday to discuss the deal.

In Singapore.

“We came into the office to a message that said: ‘I’m prepared to meet with you Thursday at 4 o’clock,’” Latham says.

“We didn’t know what we were going for,” Oelsner recalls. “At this point we don’t have a deal, we don’t have an acceptance of offer, we have an invitation to meet.”

Latham, who has done several deals with Asian investors, understood that the invitation was neither given lightly nor optional. While Americans tend to rely on contracts and the letter of the law, he says Asian business places a greater emphasis on personal bonds and that what remains unspoken is often as important as what gets spelled out.

“It’s just a different cadence and tempo for doing business in another part of the world,” he says. “The bottom line is, we made those plane reservations to fly to Singapore.”

As the brokers describe it, the meeting with Millennium & Copthorne’s top management started at 11 a.m. and ended with a handshake and a signed letter of intent to purchase the Plaza at 7:30 that evening, followed by a frantic dash to Changi Airport, where Naftali nearly missed his departing flight.

Three weeks later, the purchase contract was signed for $675 million, which comes out to $838,000 a room.

“It happened very fast by any standard,” Oelsner says with wry understatement.

Much remains unclear about the future of the Plaza. Though Elad has retained Fairmont, the operator of posh resorts and classic hotels such as the Chateau de Frontenac in Quebec, to run the Plaza, it’s still unclear how much of it will go condo.

Emma Thompson, a spokeswoman for Fairmont’s U.S. properties, said the group will take its orders from Elad.

They’re obviously studying plans for the upgrade and re-energizement of the property It is up to them how we would be involved,” she said.

With luxury hotel residences commanding stratospheric prices in New York hedge fund mogul Martin Zweig listed his triplex at the Pierre Hotel for a whopping $70 million in October the planned condos will surely generate interest in the high-end market.

It will also perk up the Plaza, which could benefit from the recent upswing in New York tourism just as the new owners take control.

Jan Freitag, a director with the consulting group Smith Travel Research, says New York is ahead of the national surge in hotel occupancy and revenue rates.

Nationally, revpar, or occupancy and per room revenue, was up 7.5 percent for the first three quarters of this year compared to the same period in 2003. New York revpar jumped 20.6 percent over the same time.

“I would assume the buyer is very much aware of these fundamentals,” he says. “And the Plaza has a built-in marketing machine in its reputation. I assume they will be able to reap their investment back rather quickly, especially with the condo piece.”

Geoff Davis, president of Denver-based investment advisor Hospitality Real Estate Counselors, says a partial condo conversion will change the revenue profile, but probably bolster performance.

“In most parts of the world, that would probably be a very high price per room, but this is a one-of-a-kind, irreplaceable asset,” he says.

“The condo-hotel concept has been around for a long time, and from an ownership standpoint, it does take some of the risk away. You’re trading short-term profits for long-term profits. The Plaza would be a proverbial slam dunk.”

Push for members follows listings change [more]

It was a tale of two diverging office markets – a “roaring” Midtown and a suffering Downtown – that left the October Manhattan vacancy rate at 10.5 percent, unchanged from the previous month.
After hitting a two-year low in September, vacancy rates stayed constant, according to research by Grubb & Ellis.

While Midtown leasing “roared through the month” with activity up 62 percent from the September total of 1.25 million square feet, according to CB Richard Ellis, Downtown Class A vacancy rates jumped to their highest level in 17 months.

Consolidations at Prudential/Wachovia put about one million square feet on the market in two locations, driving the vacancy rate to 14.5 percent, according to Colliers ABR.

That was the highest level since March 2003, when 15.3 percent of Downtown Class A space was vacant, Colliers reported.

Other reports said the overall vacancy rate increased, including the Colliers study, which saw vacancy for class A space rising to 10.5 percent from 10.1 percent the month before.

Brokers expect the New York market to pick up at the end of the year and tighten further in the first quarter of 2005.

Jordan Berger, an associate in the corporate services group at The Staubach Company, said rents and vacancy rates are set to move in directions that will once again make it a landlords’ market.

The financial services industry, a major force in the commercial leasing market, is gearing up for prosperity, he said.

“Big financial institutions are going to be adding jobs, one, two or three years down the road,” he said. “They’re taking space while it’s still available and terms are somewhat favorable because the market is starting to move.”

Midtown

The strong Midtown activity cited by CBRE involved nearly two million square feet of leasing, a 57 percent increase from the five-year monthly average of 1.27 million square feet.

Year-to-date activity of 15.4 million square feet surpassed figures from 2000, which the report said was the last cyclical peak, when 14.8 million square feet were leased in the same 10-month period.

Colliers characterized Midtown activity differently, reporting that the Midtown Class A vacancy rates stayed steady at 9.3 percent in October, the same as the previous month.

Robert Sammons, research director at Colliers, said the arrival of 193,000 square feet of space at 1330 Avenue of the Americas after a move by Universal and another 114,000 square feet vacated by Turner Broadcasting as it moved to the Time Warner Center contributed to keeping the total vacancy rate unchanged for the month despite a pickup in activity.

Big leasing transactions included consultants McKinsey & Co. renewing 297,000 square feet at 55 East 52nd St., and the Canadian Imperial Bank of Commerce (CIBC) renewing its lease on 133,000 square feet at 425 Lexington Ave.

The Colliers report saw a rise in average rents for Midtown Class A space, to $56.88 from $55.78 the month before.

But CBRE said average asking rents for all classes of space decreased 32 cents to $49.90 a square foot.

Midtown South

The Midtown South market saw further improvement in October, with availability at 11.7 percent, down 0.5 points from the month before and at its lowest level since March 2002, when availability hit an 11.6 percent low, according to CBRE.

The CBRE report said the 571,000 square feet leased in October was a 28 percent increase from the five-year monthly average of 444,000 square feet.

According to Colliers, class A vacancy rates also dropped, hitting 7.3 percent in October, down from 7.8 percent the preceding month.

Top transactions included New York Cardiologists’ 40,000 square foot renewal at 275 Seventh Ave. and Smart Design’s lease of 40,000 square feet at 601 West 26th St.

The CBRE report said average asking rents continued to increase in October, by 8 cents to $32.56 per square foot.

The Colliers report agreed, saying class A average asking rents increased, from $28.86 per square foot to $30.09 per square foot.

Downtown

The Prudential/Wachovia consolidation that drove the Class A vacancy rate to 14.5 percent gave Downtown its worst numbers for that category since March 2003, with a vacancy increase of 1.3 percent from the month before, the Colliers report said.

The Prudential/Wachovia space put on the market included 606,000 square feet at One New York Plaza and around 400,000 square feet at 199 Water Street.

“More than anything, it was those really large blocks of space that hit the market last month,” Sammons said.

The CBRE report also saw a jump in availability, with an increase to 15.3 percent, up 0.6 points from the month before.

Leasing remained strong, according to CBRE. The 534,000 square feet leased in October was 9 percent above the five-year monthly average of 492,000 square feet.

In big deals, Thomson Financial expanded its operations at 195 Broadway and leased an additional 92,000 square feet. The law firm White & Case renewed on 40,000 square feet at 100 William Street.

Asking rents dropped slightly, down 5 cents to $30.44 per square foot, according to CBRE.

Colliers saw asking average rents for class A space drop more significantly, to $33.35 from $35.03 the month before.

Berger said reduced Midtown inventory would send some tenants Downtown within the next few months, and that the area was poised for improvement.

A stretch of Atlantic Avenue once known for its junk shops has moved upscale, and may soon be a magnet for national retail chains, according to eager commercial brokers in Brooklyn.

The storefronts of bric-a-brac that lined the artery from Hoyt Street to Third Avenue are gone, replaced by upscale boutiques. The shift has been noticed by more than the neighbors, with a recent New York Times story celebrating the upgrade.

But retail brokers have their eyes on commercial space in an overlapping area from Bond Street to Fourth Avenue where the storefront properties of 5,000 square feet to 10,000 square feet are large enough for national chain retailers.

“There are at least four sites that I know of today that have a large enough footprint to fit the criteria for a national tenant,” says Eric Brody, director of development sales at Corcoran Group Brooklyn. “People have called me looking for space.” He declined to specify which national chains are in the market.

Currently, Two Trees Management Co. is marketing a 9,000-square-foot retail space with a 3,000-square-foot mezzanine on the corner of Atlantic Avenue and Court Street, about four blocks west of the area under consideration. The company is negotiating with a national chain to fill that space, said Two Trees representative Scott Fletcher.

Brody said these spaces are underutilized, but many of them aren’t yet on the market. One, a borough medical center, has signs indicating its availability.

“These sites will certainly be developed over the next few years,” he said.

A Mobil gas station now sits a block east of Court Street, at the corner of Atlantic Avenue and Boerum Place. The site was recently purchased by a developer who wants to convert it to a residential property with retail on the ground floor, said Candace Damon, president of the Atlantic Avenue Local Development Corporation.

“I think whatever is done at that site will be national, as well,” Damon said.

The three blocks from Bond Street to Fourth Avenue could be where a large chain bookstore like Barnes & Noble or Borders could find a home, Brody said. There is already a Barnes & Noble on nearby Court Street, as well as a Starbucks and Blockbuster, but the additional demand is there, Brody said.

“If you look to Boerum Place, if you look to State Street, you’re talking about heavily residential streets with professionals, and those brownstones are extremely expensive,” Brody said.

“That same demographic would be well served by a gym, since the closest ones of any size are near Boerum Place,” he said.

Another national outlet could be in the cards for Atlantic Avenue and Smith Street, where Boymelgreen Developers plans to develop condominiums and a boutique hotel with 11,000 square feet of retail space.

Residents clamored for a grocery store, Damon said, but that is unlikely to be a national outlet.

“It’s very unlikely [the whole space would] be developed as a national chain, unless it’s a national hotel chain, and in that case, it would be a franchise, because the floor plate is so small,” she said. “The community was very anxious to see a food store, but the developer wasn’t sure the floor plate supported that.”

Brody and other brokers are now seeing a future for Atlantic Avenue that’s a far cry from trendy boutiques and tacky junk shops. If plans for an arena for the Nets basketball team come to fruition, it will be a destination for sports fans, diners and shoppers, rather than a haven known only to local shoppers.

The Manhattan apartment market seemed to fare better in November than it had during the third quarter, with studio and one-bedrooms the most active segment, brokers and appraisers said.

Jonathan Miller, president of the appraisal firm Miller Samuel and author of the Douglas Elliman Manhattan Market Overview, said the market appeared to “kick back on” to a degree in mid-October, around two weeks before the election.

“The sales volume each month declined throughout the third quarter, but in October it picked up and November seemed to be more of the same,” Miller said in late November.

Lower-end apartment sales continued to dominate the market, a continuation of a trend seen in the third quarter, when studio and one-bedroom units made up 54 percent of all the apartments sold, a rise from 49 percent the quarter before, according to Miller.

“That segment saw its large market share continue,” he said. “It was still fueled by concern from buyers that interest rates will rise.”

Firms had somewhat different takes on the overall market, depending on the market segments they target.

Frederick Peters, president of Warburg Realty Partnership, whose brokerage “doesn’t do a huge amount of business in smaller apartments” said the market “was not bad” but that there was “very little frenzy.”

“Before the election, everyone was saying we have to wait until after the election,” said Peters. “Now, they are saying we have to wait and see how bonuses are.”

“People are making deliberate choices,” he added. “Buyers are out there because they have to make lifestyle choices,” such as needing extra space for a new child.

A new report by Warburg, which analyzes customer demographics, found that 31 percent of buyers stated more space as the reason for moving during the third quarter. At the mid-year mark, owning instead of renting was the primary reason for purchasing.

Miller cited a spate of $10-million-plus sales recently, but said the high-end market was “not robust, but healthy, or active.”

Andy Kim, director of sales at Nest Seekers, which does a greater percentage of its sales in the studio and one-bedroom market, was “surprised with the activity in November.”

“We noticed a pickup in activity since the election,” he said. “There were a lot of people searching in August and September, but people weren’t as decisive. Now, a lot of people are making a decision. Everybody is anticipating that the rates are going to go up.”

Overall, Miller said he anticipates possible 3 percent growth in prices for the fourth quarter, compared to the 2.1 percent price increase seen during the third quarter, and the 10.5 percent price increase seen during the market frenzy during the first quarter of 2004.

Inventory remains low, with levels unchanged from September and October, Miller said.

Peters said inventory is “terrible.” He said his firm’s exclusives “are probably as low as they have been in the last 24 months.” Kim said the pool of inventory is “dry”.

Miller said he expects to see “higher mortgage rates over the next six to 12 months, but it will be rather modest. I would guess somewhere in the mid-6s. Even if it goes up, it will still be historically low.”

“I don’t see the market cratering and I don’t foresee frenzy,” said Peters.

Wall Street bonuses, which could help give the market a boost next year, might be a mixed bag. “From what I hear, the bonus situation on Wall Street will be very variable according to different departments,” said Peters.

The rental market, meanwhile, continues to be tight, even though it is not as hot as it was this summer, which was the first sustained upturn in the market since the dot-com bust, said Bruno Ricciotti, a principal at Bond New York.

“Rents are higher than last November, but down since the summer,” he said. “There are less incentives from owners [such as paying brokers commission instead of the renter, or free rent] compared to last year. The incentive market really evaporated this summer.”

The Real Deal

Co-ops leery of possible conflicts of interest; brokers tout perks of membership [more]

Tenants in thousands of apartment buildings nationwide are converting to condominium ownership arrangements, but the New York market lags far behind the rest of the country. Other areas, particularly in California, Boston, Washington, D.C. and New Jersey, are pressing forward with high conversion volumes, often in rental to condo shifts. In south Florida alone, some 10,000 apartment-to-condo conversions are planned for the next 12 months. But real estate in New York has long been measured by its own standards, and market conditions here will likely prevent the five boroughs from hopping on the bandwagon anytime soon.

New York is the only area in the country dominated by co-ops, and while advocates tout conversions from co-ops to condos as a path to increasing co-op shareholder equity, the trouble and expense involved will be unlikely to sway Manhattanites.

Though condos generally sell for more money, co-op prices are still high, and it appears few are willing to make the switch.

Ken Jacobs, a Manhattan real estate attorney, said only about 15 conversions one of them his own project, at 30 West 90th Street have occurred in the city in the past five years.

In a typical conversion, co-op shareholders trade in their co-op shares for fee simple ownership of condo units.

But those familiar with the concept cite an attitude among co-op owners that things are good enough as they are, especially in the booming market of the past decade.

“There’s the feeling that if it ain’t broke, why fix it,” said Jacobs.

Jack Boyajian, president of New Jersey-based Residential Ownership Alternatives Hutton (ROA Hutton), is an advocate of conversions and an optimistic predictor that most New York co-op boards will at least debate the question within five years. He said the process takes about a year to complete.

His own company has converted more than 6,000 co-op units to condos in markets across the country, with about half of them in New Jersey. Boyajian claims that ROA’s first conversion, the Waters Ebb project in Edgewater, N.J., in 1992, had buyers for condos at $150,000, while identical units in the adjoining co-op were ignored, despite selling for as little as $25,000. The co-op owners were soon forced to convert to condos as well. He said ROA expects to have done their first conversion in New York by next spring.

Boyajian said as much as 50 percent of the city’s co-op housing stock are “ideal candidates” for conversion. He cited Mitchell- Lama properties, set up as affordable housing, whose relatively low values would rise tremendously from a conversion.

Co-ops that are subject to the so-called 80/20 requirement, which forbids more than 20 percent of the co-op’s money coming from any sources outside the contributions of the co-op members, are also promising candidates, he said. Co-ops whose mortgages are coming up with no prepayment penalties would also fit the bill, he said.

Despite this rosy scenario, Jacobs said he doesn’t think a co-op-to-condo makeover will occur any time soon in the city, partly because Manhattan co-op boards retain the ability to reject buyers.

Add the layers of legal and administrative hurdles to be overcome, such as securing the acceptance of often reluctant co-op boards, getting shareholder approval in a supermajority vote and extensive document filings and review by the Attorney General’s office, and prospects for a sweeping shift seem remote.

“It will take years and years to happen and Manhattan will be the last place where it changes,” said Jacobs.

Attorney Eliot Zuckerman also said things will have to get much worse for co-op owners before prospects become better for proponents of condo conversions.

He said only an economic downturn might cause people to reconsider their resistance to conversions when they see that condos are more “marketable.”

Douglas Wagner, president of Manhattan-based brokerage Benjamin James Associates, said that buyers’ attitudes would be to prefer the greater bundle of rights that a condo provides over a co-op, especially the freedom from dealing with co-op boards. He thinks conversions would make sense particularly for co-ops in the twilight of their lease terms.

But Wagner said financing issues, including due diligence matters and the valuation issues involved in converting from capital stock to real property ownership, present major obstacles.

“It is very expensive to do usually,” added Teresa Donohue, a vice president at New York Mortgage Co., citing the additional expense of paying off the unit owners’ share of the underlying mortgage that most co-ops hold. Each unit owner who previously had a mortgage on his co-op unit would need to refinance out of the coop and into the condo unit, and would incur the higher closing costs of a condo.

“So they are more than likely taking on additional debt with the conversion,” said Donohue. The unit owner often has to decide whether the value of the newly acquired condo is increasing enough to justify the added expense and restructuring of their debts, she said.

Sometimes the bottom line is that it’s too expensive to get to a new bottom line, said Zuckerman. His firm recently tried to convert a co-op in Queens to a condo, but the deal fell through because most of the shareholders simply couldn’t come up with the money, even though conversion would have increased their property values by more than 30 percent, he said.

Craigslist.org weighs real estate listing fees in New York to reduce duplications and spam [more]

George W. Bush may have won the election, but he owes little of his second-term victory to the help of New York’s residential real estate brokers.
Perhaps unsurprisingly, most real estate brokers contributed to Democratic Party candidates leading up to the November race. A look at the donations made during the 2004 election cycle, which also includes 2003, from Federal Elections Commission data posted at the Web site www.opensecrets.org, showed some big givers but not a lot of donations overall.

At the Corcoran Group, two star brokers were big contributors. Broker Robby Browne, who sold the record-breaking $45 million apartment at the Time Warner Center, gave an impressive $14,000 to the DNC Services Corp., an arm of the Democratic National Committee, as well as $1,500 to Gov. Howard Dean and $1,500 to Sen. John Kerry.

Broker Sharon Baum, meanwhile, gave $2,000 to George W. Bush and $1,676 to the Women’s Campaign Fund.

At Douglas Elliman, number one agent Dolly Lenz gave $1,000 to Sen. Hillary Rodham Clinton (even though the former first lady wasn’t running for reelection).

Douglas Elliman Chairman Alan Rogers gave $2,000 to Sen. Charles Schumer and $2,000 to Sen. John Edwards.

At Brown Harris Stevens, Kathy Sloane, a vice president and director at the company, appeared to be the firm’s most frequent giver. She made 10 different contributions, including $4,000 to Sen. Kerry, $2,000 to Sen. Clinton and $1,500 to Sen. Schumer.

Neil Binder, principal of Bellmarc, who is known for being active with Republican political action committee TOMPAC, or Together for our Majority, gave $10,000 to that organization.

Jeff Wolk, co-principal and co-founder of Fenwick-Keats, who held political fund-raiser dinners leading up to the election, also contributed: $10,000 to the DNC Services Corp., $1,000 to the Democratic Senatorial Campaign Committee and $500 to Sen. Schumer.

Meanwhile, a queen of social and politically-connected dinner parties, Alice Mason, who has counted ex-Presidents Clinton and Carter among her guests, gave $500 to Gov. Dean, $1,000 to Gen. Wesley Clark, and $2,000 to Sen. Clinton, according to opensecrets.org.

Following his REBNY Residential Deal of the Year award win, John Venekamp of Brown Harris Stevens has been getting calls from other brokers, former and current clients, friends and others congratulating him on his coup.

“It’s been kind of fun,” he said. “They’ve been saying: ‘This is the kind of thing you’d do.’”

The kind of thing Venekamp and fellow BHS broker Leslie Singer did to win the New York real estate version of the Oscars was to come to the rescue of an elderly woman who had been burned out of her Upper West Side apartment by a fire that killed her husband in November 2002.

Venekamp and Singer set to work rehabilitating the West End Avenue co-op after Singer learned of the woman’s plight from a friend.

The whole process took eight months. “When we first walked in the door, we realized we needed to go home and get on our jeans to do some work,” said Venekamp, who has a background in renovation.

The three-bedroom, two and a half bathroom apartment sold for $2.4 million last spring. “It didn’t take long to sell the apartment,” said Venekamp. “There were more than 10 people bidding on it.”

The burned out owner, Patricia Feuerstein, still lives on the Upper West Side, though she is currently in poor health, Venekamp said.

In other awards presented during the same ceremony, Kyle Blackmon, also of Brown Harris Stevens, received the Most Promising Rookie Salesperson of the Year Award.

“This is a young kid who came from the South, and he’s doing a phenomenal job,” said REBNY president Steven Spinola. “He’s got that Southern good-looking charm, and I won’t say who he probably does well with in selling apartments.”

Helene Fields of HF International Realty was presented the Henry Forster Award.

“It’s the equivalent of a lifetime achievement and contribution-to-the-industry award,” said Spinola. The Real Deal

When the Mayflower Hotel and a vacant lot on West 62nd Street and Central Park West sold for $401 million in May, its price of $650 per buildable square foot made it the highest such price ever paid in Manhattan for a future residential development site.

More than style, buzz or even location, land suitable for development is a prized commodity in New York. As they say, they aren’t making any more of it. Adjusted for inflation, the $24 bargain the Dutch struck for Manhattan in the early 1600s wouldn’t buy a parking place today.

Manhattan land prices continue to rise at an astonishing rate, but developers say the astronomical prices of completed condo units allow them to forge ahead and still turn a profit despite the site costs.

In the last 18 months, Manhattan land prices have doubled in some areas, says Bob Von Ancken, executive managing director of the valuation and advisory group of Grubb & Ellis.

On the Upper East Side, for example, land prices have jumped from $200 per square foot to $400 per square foot. From 60th Street to 86th Street, between First Avenue and Lexington Avenues, developable land is selling in “the $400 range, where only three years ago, it was in the $100 range. It’s unbelievable,” says Von Ancken.

In the most notable transaction in that neighborhood, New Jersey-based Garden Homes Development bought Beth Israel Hospital’s Singer Division property at 170 East End Ave. for $185 million, or $770 per buildable square foot – another record price for a residential site, and coming a month after the Mayflower deal, in June. Luxury condos with East River views will be built on the site.

In November, developer Property Markets Group paid an even higher price $1,050 per square foot for the 12-story prewar 823 Park Ave. at 75th Street. It wasn’t a pure land deal, as the developer also had to buy out the building’s remaining tenants.

“The reason land prices are so high is because the profit being generated from condominium development is enormous,” says Von Ancken.

“Condo units are selling for $1,000 to $1,200 per square foot on average. Developers can make a huge profit because demand is so keen.”

The demand is high because Manhattan means a nearly perpetual housing shortage, says Jules Demchick, president of JD Carlisle Development Corp. The group developed Morton Square in the West Village and is now constructing a new 28-story, 128-unit condo at 83rd Street and York Avenue, called Cielo.

“When you think about the millions of people in New York City, you are looking at a small number of homes for that piece of property,” he says.

Land on the Upper West Side, along Broadway in the 70s, is selling for around $200 a square foot, Von Ancken says. The Mayflower Hotel site, which was bought by a joint venture group including William and Arthur Zeckendorf and Goldman Sachs, includes an entire city block of around 70,000 square feet, which will see future condo development. It fetched a higher price because of the Central Park location and partly because of “spillover from the Time Warner Center,” Von Ancken says.

In Lower Manhattan, near Wall Street, land prices are currently in the $125 to $150 per square foot range. In Chelsea, land is going for $150 to $200 per square foot.

The price of land often dictates what type of building will be constructed, and why rentals are more likely on Wall Street than on the Upper East Side.

“You can afford to pay $175 or $200 for land if you are going to put up a rental building, but not more,” Von Ancken says.

Most new developments these days have celebrity architects and luxury amenities, such as private clubs, wine refrigerators and televisions in the elevators. In order to make a profit on these bells and whistles, the location of the development is extremely important, says Barbara Stone, president of Regency Capital Realty.

“These costs are going to pass onto the consumer. So, the positioning of the building in the luxury market has to be right. One neighborhood may be a different type of market than another and they have to take into consideration their target buyer,” she said.

Developments currently being planned will open to the public in 2006 and 2007, and much can change in that period. But even if the market slumps, developers are betting Manhattan is strong enough to recover.
“The developer’s actions speak louder than anything else. If they are buying and building, they have to think it’s a good investment because no one is buying to lose money,” says Richard Bassuk, president of the Bassuk Organization, an investment banker that has completed about $20 billion in financing for condo development in Manhattan in the last 20 months. “If there are two or three year down periods, Manhattan recovers faster than any other place in the country. If you have staying power here, the risk is almost nonexistent.”

Ralph Trionfo, president of Upside Ventures, a commercial real estate firm that has sold three pieces of land in Manhattan this year, says losses are possible, but chances are slim.

“They will be able to recoup their investment because prices of units keep going up and Manhattan residents expect to pay those prices,” he says.

Atlanta

Commercial

The $115-million, 21-story Intercontinental Buckhead Atlanta, which opened its doors to guests last month, is the first luxury hotel to open in Atlanta since 1991. The Peachtree Road hotel has 425 rooms, with rates of $300 a night for a standard room and $2,500 a night for the 2,000-square-foot Presidential Suite.

Boston

Commercial

New rules will require all new municipal government buildings to be “green” and will also start to pressure large private projects to be environmentally friendly. Boston Mayor Thomas Menino’s Green Building Task Force issued the recommendations in an attempt to catch up to environmental advances in Seattle and Chicago.

Residential

While the suburban housing market has shown signs of softening, sales for condos in central Boston remain strong. The average third-quarter selling price for a two-bedroom downtown condo was $534,000, up 18 percent from $453,000 the year before, according to the city’s Listing Information Network. Sales volume was up 25 percent over the same period last year.

Commercial

Another attempt to sell Fan Pier has fallen apart as the buyers a team comprised of New England Development, Boston Properties and The Related Companies – decided to let a deadline pass and forfeited a $2.5 million deposit and a chance to develop the 21-acre waterfront property. Miami-based Lennar Corp., the initial winner of the project in August before it backed out, is back in the running.

Chicago

Residential/Commercial

A condo boom is taking place in downtown Chicago, with 2,300 units in 15 new developments coming to market in the first two quarters of 2004, according to Appraisal Research Counselors of Chicago. Condo and townhouse sales are up 91 percent from a year ago. The upswing in building hasn’t helped resale activity, creating what one agent said is the “toughest market in the last 10 years,” according to Realtor.org

Residential/Commercial

Donald Trump held a ceremony last month marking the demolition of the Sun-Times building on North Wabash Avenue, which he will replace with a 90-story condo. Trump says he already has agreements to sell three-fourths of the tower’s units. A George Soros-led investment fund and Deutsche Bank led financing for the project.

Las Vegas

Commercial

MGM Mirage announced plans last month for a multibillion-dollar hotel and condo project on 66 acres of the Strip, between the Monte Carlo and Bellagio resorts. The first phase, expected to open in 2010, will consist of a 4,000 room hotel with a casino, three boutique hotels, 500,000 square feet of retail, dining and entertainment venues, and 1,650 luxury condos. Ehrenkrantz Eckstut and Kuhn Architects of New York was chosen as the project planning firm.

Residential

The median existing-home price in Las Vegas stood at $250,000 in September, marking an incredible 42 percent jump from the previous year. Meanwhile, new home prices in Las Vegas were up 25 percent during the year-over-year period ending in September, to an average of $278,924.

Commercial

Las Vegas is looking to cash in on less glamorous industries than nightlife and gaming. The future, it seems, is furniture. The 1.3 million square foot World Market Center, now under construction downtown, is being touted as the keystone of a new industry in the area and an economic kick-start for downtown. The Related Companies is partner and co-developer of the project. An eventual city furniture market – mainly consisting of showrooms that manufacturers and exhibitors would use to pitch products to retail stores could encompass 7.5 million square feet of space.

Los Angelos

Residential/Commercial

With 1,500 housing units approved or under construction and new retail shops on the horizon, the funky enclave around the NoHo Arts District is seeing a redevelopment boom that could echo those of downtown and Hollywood. Among the projects in the works, NoHo Commons a $200 million complex of apartments, lofts and shops being built with government assistance in the heart of the Arts District is on track to open late next year, according to the Los Angeles Daily News.

Residential

After its purchase by real estate conglomerate NRT earlier this year, Sotheby’s International Realty is expanding its national presence, picking up Dalton, Brown & Long Realtors in Beverly Hills last month for an undisclosed amount. The 600-agent company said it had sales of $3.3 billion over the past year.

Commercial

The Los Angeles County industrial market is leading the nation, absorbing more space than any other place in the country during the third quarter, according to a survey by Grubb & Ellis. The massive market, which encompasses nearly 950 million square feet, is also one of the tightest in the country, with a vacancy rate of 2.5 percent, Globest.com reported.

Miami

Residential/Commercial

The four hurricanes that hit Florida this fall are expected to result in insurance payments topping $23 billion, surpassing the previous damage record of $15.5 billion set in 1992 by Hurricane Andrew. Insurance companies will pay out over two million claims to customers whose property was damaged or destroyed by the storms, almost triple the 700,000 claims from Andrew, according to the Insurance Information Institute.

Residential/Commercial

A developer is planning what appears to be the biggest condo conversion yet in South Florida – 954 units in three towers on Hollywood’s beach. Ocean Crest, built in 1968, will be renamed The Tides at Hollywood Beach, according to the South Florida Business Journal.

Commercial

MDM Development group has shelved plans for downtown’s first office tower in a decade, and is now exploring building a 72-story condo tower. If constructed, the 750-foot tower would be the third-tallest skyscraper in the city.

Philadelphia

Commercial

Brandywine Realty Trust held a topping out ceremony last month to mark the completion of the steel frame of its Cira Centre office tower – the first new office building to be constructed in Philadelphia since 1992. The 28-story, 728,000-square-foot building is located adjacent to Amtrak’s 30th Street Station in University City.

San Francisco

Commercial

In the city’s first big technology lease since the dot-com bubble burst, security software maker Symantech has taken nearly 40,000 square feet of Class A space at 303 Second Street, according to the San Francisco Business Times. The move comes after Symantec’s acquisition of another tech company earlier this year.

Residential

The number of new residential foreclosures listed for sale nationwide jumped nearly 37 percent in October, according to Foreclosure.com. The number was even higher in California, which saw foreclosures rise 50 percent. New foreclosures in the U.S. totaled around 30,000 in October.

Seattle

Residential/Commercial

The prices investors are paying for Puget Sound apartment buildings are jumping sharply, continuing a trend that began early this year despite persistently high vacancy rates. Prices have jumped to more than $100 per square foot this year, after hovering in the mid-$80s for the last four years. The average cap rate in King, Pierce and Snohomish counties is 6.7 percent, compared to 7.2 percent last year and 8.3 percent in 2001, according to the Puget Sound Business Journal.

Residential

The Seattle area residential market continued to exhibit robust health in October, with pending home sales up 4.9 percent over the same period last year. Western and central Washington saw an average price of $251,350, up 12 percent from a year ago. Brokers say their main problem is low inventory that continues to tighten.

Commercial

As part of a plan to develop Seattle into a biotech center, Microsoft Corp. billionaire Paul Allen and his company Vulcan Inc. are redeveloping the South Lake Union area of the city, where Allen owns 58 acres. Vulcan plans to build more than 10 million square feet of residential, office and commercial space on the site. Nine projects, totaling 1.8 million square feet, are underway or finished. Those include apartment buildings, office and research space, a grocery store and a hotel, according to the Seattle Post-Intelligencer.

Washington, D.C.

Residential/Commercial

Real estate is booming in Washington, and the region is creating jobs related to real estate at the fastest pace in the past five years. Real estate jobs – including brokerage and construction – accounted for almost a fifth of the 65,600 new positions added in the overall job market in the year ended in September, according to the U.S. Department of Labor.

Commercial

The Gallup Building on F Street NW recently sold for $493 a square foot to foreign investors, the second-highest price per square foot in the region this year. The Acacia Building on Louisiana Avenue NW fetched the highest per-square-foot figure this year, selling for $600 a square foot.

Commercial

The chairwoman of the D.C. Council last month moved to sharply reduce the public money that would be needed to build a ballpark for the relocated Montreal Expos. Saying she had a plan that would save Washington $350 million, council chairwoman Linda Cropp outlined a proposal under which the city would finance about a third of the stadium’s cost and leave the rest to a developer, who would get a potentially lucrative federal tax credit, according to a story in the Baltimore Sun. The plan is an alternative to the city and Major League Baseball fully financing the stadium, though it could also quash the relocation plan, according to published reports.

Planned 25-story Sherwood tower first of high-end developments in area [more]

Soho refugees push up prices and erode Old Country touches [more]

Architects and engineers exempt; NYC brokers see little change in 2005 [more]

Harlem board offers land-use plan
Community Board 9, which represents West Harlem, recommended a plan to zone some of the area for light manufacturing while emphasizing mixed uses elsewhere.

Planning commission OKs West Side rezoning
The City Planning Commission approved a plan to rezone a 59-square-block area on Manhattan’s West Side from West 30th and West 43rd streets, between Seventh and Eighth avenues and Twelfth Avenue. The City Council has 60 days to review the proposal. Changes made during the public review process include an affordable housing expansion of up to 3,100 units and reducing commercial development from 28 million square feet to 26 million square feet.

Bloomberg: Miller to back West Side stadium
According to the New York Post, Mayor Bloomberg is counting City Council Speaker Gifford Miller as a supporter of his West Side development plan, even though Miller opposes borrowing money to build a new football stadium for the Jets and prefers that the city pay its $300 million portion through its capital budget. Bloomberg expects the City Council to approve the City Planning Commission’s rezoning proposal.

Vote on UN expansion plan suspended
The New York State Senate tabled its vote on a UN proposal to renovate its headquarters and build a 35-story tower in a nearby park. Brooklyn Republican Martin Golden criticized the UN for being ineffective.

Union Square Park renovations get $14M
Mayor Bloomberg announced a $14 million investment in renovations for Union Square Park, which are scheduled to begin next fall.

LMDC ready to pay $44.5M for last Ground Zero block
The Lower Manhattan Development Corporation authorized the purchase of the last piece of land needed to redevelop Ground Zero for $44.5 million. The block, bounded by Liberty, West, Cedar and Washington streets, is owned by the Milstein family. If no agreement is reached on the price, state condemnation may be necessary to acquire the site.

Six new BIDs on the way
Six new business improvement districts one in Manhattan’s Flatiron District and five in the outer boroughs are expected to be approved by year’s end, according to Crain’s.

Time for a quick quiz. Question: What’s the difference between $2.8 million and $1.6 million?
Answer: A personal assistant.

According to the 2003 National Association of Realtors’ member profile, Realtors who don’t have a personal assistant had a median sales volume of $1.6 million in 2002. That’s compared with $2.8 million for Realtors who have at least one personal assistant.

Yet faced with this irrefutable fact, many brokers still shy away from hiring an assistant. Many defer because of the costs involved or the time it takes to hire and train an assistant.

Douglas Heddings, a vice president at Douglas Elliman and managing director of the Heddings Property Group, has embraced the assistant concept. He hired assistant Ervin Hechavarria in 2002 – “One of the best decisions I’ve ever made,” Heddings recalls. Since working with Hechavarria, Heddings has hired another assistant to help manage his burgeoning office. “I could not have achieved this level of success so quickly by working as a solo practitioner,” he notes.

Because this is such an important topic and there’s so much information to share, I’m going to devote two columns to this subject. This article will focus on planning to hire an assistant.

The first item to consider is deciding whether or not you need an assistant. “If you feel overwhelmed, are missing key deadlines, or are giving away referrals, then it’s time to get an assistant,” says Jeffrey Rothstein, an executive vice president and director of sales at Douglas Elliman. “Or, you simply want to take your business to the next level and you need another person to help you to achieve that goal.”

Finances are a consideration. According to Rothstein, who teaches continuing education classes on hiring assistants, you can offer a flat hourly fee between $15 to $20 or a base salary of $20,000. (Note: The latter depends on the assistant’s professional background and industry expertise. It can go as high as $60,000.) As part of the wage package, you may also consider a percentage of your net commissions and/or a holiday bonus. And you can split 50-50 any referral business the assistant brings in.

Rothstein has additional advice: “The assistant should be employed through your brokerage firm as an independent contractor for tax purposes. Some organizations require that you pay for that person’s benefits, including health insurance.” If you decide to self-pay, talk with your office sales manager, accountant and attorney regarding taxes, state and local regulations and Social Security issues.

Next, outline the tasks you want your assistant to handle. Keep in mind that you will need to invest time to ensure that those responsibilities are handled according to your specifications and to industry requirements. “In the beginning, you’ll probably devote 100 percent of your time training your assistant,” says Rothstein. “That’s an enormous responsibility, but you need to build a successful foundation from the outset.”

Be prepared to delegate. “This is the biggest obstacle for most brokers,” says Eileen Spinola, senior vice president at the Real Estate Board of New York. “Don’t get an assistant if you are unwilling to cede some control.”

Stay tuned for next month’s column, which will cover the logistics involved in hiring and working with an assistant.
–
Ms. Muller is the master teacher at The Real Estate Academy.

Beware of strangers bearing free cash to cut your home purchase down payment — especially when your mortgage lender won’t know a thing about it.

That’s one conclusion emerging from the recent start-up — and abrupt suspension — of a zero-down payment program named SNAP. SNAP is an acronym for the sell now assistance program. Until recently, it was promoted for use by home sellers and buyers in 48 states — all but Hawaii and Alaska — by the Franklin Foundation Inc., a Maryland-based nonprofit organization.

Now SNAP is on ice, at least temporarily. But the details of its operation should give pause to lenders and mortgage borrowers alike. Late this summer, Franklin Foundation announced a new wrinkle for popular no-down payment programs, an approach it called generations ahead of other programs, according to its Web site, www.snapprogram.com. The site is now virtually blank, referring visitors only to Franklin’s toll-free telephone number.

The new wrinkle was this: For interested home buyers and sellers, Franklin would facilitate the creation of a bank account in the name of the home buyer, after the borrower signed a federal W-9 taxpayer identification form. The buyer’s bank account would receive deposits of up to $50,000 from third-party funding sources working with Franklin.

As part of the arrangements, participating home sellers would be required to repay the amount of the funds deposited in the buyer’s bank account, plus an administrative fee of 10 percent, to the funding source that made the deposits. The cash in the account could be used for the buyer’s down payment and closing costs on a mortgage, which would be forwarded to the closing agent in time for the loan settlement.

The money in the borrower’s new bank account would be the identical sum that Franklin’s own documents, required to be signed by the home seller, defined as a loan that is repayable following settlement.

Now the plot thickens: On its Web site, Franklin emphasized that the source and nature of the down payment cash in the home buyer’s new bank account would NOT appear on the HUD-1 settlement sheet. In other words, the mortgage lender actually funding the loan through a mortgage broker would likely be in the dark about the fact that the home buyer’s cash — documented in the loan application file with a Verification of Deposit (VOD) form signed by the participating bank — had been provided by a third party.

Franklin Foundation also strongly recommended that all SNAP loan transactions, anywhere in the country, receive title and settlement services from a single company — First Title & Escrow Inc. of Rockville, Md. Franklin explained in its promotional materials that closing the mortgage with First Title was important because that company can be relied upon not to jeopardize the buyer’s loan application through improper disclosures to the lender, either on the HUD-1 or otherwise. First Title did not reply to a request for comment.

Why keep a lender in the dark about the source of a buyer’s down payment? Is it to make loan applicants appear more financially qualified than they really are? Is it to make home sales go through that otherwise would not?

I asked Franklin Foundation for answers over a two-week period without a reply. More recently, Scott Nash, representing Franklin Foundation, contacted me with this explanation: The truth is, he said, we do not have the answers to these questions. Nor would Nash reveal how many loans had been closed with SNAP money, the names of the lenders or brokers involved, or the identities of the multiple real estate attorneys nationally who the SNAP Web site claimed had reviewed and approved the program.

For the time being, Nash said, SNAP is being put on hold. That was good news to some large national mortgage lenders, who agreed that the lack of down payment cash — and the presence of a verified bank account deposit up to $50,000 in a loan application — might fool them into seriously misjudging the financial risk presented by a home buyer.

Ken Preston, a spokesman for giant Countrywide Home Loans, said we do not knowingly participate in programs like SNAP. But he conceded that it would be difficult to detect such loan applications in any event.

I would fire anybody who participated in this, said Paul E. Skeens, a loan officer with Carteret Mortgage Corp., in Waldorf, Md. It’s obvious that you are circumventing the rules.”

But are lenders the only potential losers when buyers with no down payment cash get secret backdoor help? Hardly. The purchasers themselves put themselves in jeopardy by trying to stretch their finances to buy a house they can’t really afford.

What happens when they’re sitting with their big house, big monthly payments, and one of the two breadwinners loses his or her job?

The endgame is foreclosure.

—
Ken Harney is a real estate columnist for The Washington Post.