The Real Deal New York

Manhattan Companies Expand As Borough Booms [more]

Brooklyn has seen its share of pioneering residents in the last several years. Starting out from Brooklyn Heights and Park Slope, they brought gentrification to places like Carroll Gardens, Cobble Hill, Clinton Hill, Boerum Hill, Windsor Terrace, Fort Greene and Prospect Heights.

Now, those renters and buyers are moving further into the borough.

“At first, people were afraid of Brooklyn, and they went to Brooklyn Heights,” said John Reinhardt, president of Fillmore Real Estate. “Then people got more courageous. Now people are adventurous. Brooklyn is not a bad word these days. It’s a pioneer sort of word.”

Isabelle Reboh, a vice president at William B. May in Park Slope, said many people have expanded where they are willing to live in the borough.

“People call in, and they are more willing to go to Crown Heights, for example,” she said. “Last year, they wouldn’t have made that call.”

But the list doesn’t stop there, she said. The following is a look at some Brooklyn neighborhoods on the cusp:

BEDFORD-STUYVESANT

In the western section of Bedford-Stuyvesant closest to Clinton Hill, brownstones in the landmarked areas now range from $500,000 to $600,000, said Melinda Magnett, president of the Corcoran Group in Brooklyn. Ten years ago, they would have sold in the $100,000 to $200,000 price range, she said. They’re also a bargain compared to brownstones in the most expensive parts of the borough, which can cost $2 or $3 million. “The houses are beautiful, and many are intact,” said Magnett. She said the area is “still maintaining its diversity. It’s got professionals and artists, and Caucasians and well as blacks.”

Kris Dugan, an agent at William B. May, said she sees parts of Bedford-Stuyvesant becoming like Prospect Heights eventually. “There are beautiful homes with original detail,” she said. “And you’re still only 15 minutes to Wall Street.”

PROSPECT HEIGHTS/ CROWN HEIGHTS

Mary Ann Albano, head of William B. May’s Park Slope office, doesn’t think Bedford-Stuyvesant is “quite there yet” in terms of gentrification. But she said Crown Heights is right on the edge. “That’s probably the next area,” she said. In a recent transaction Albano described as a “fluke” deal, there were over 20 buyers for a place that needed a gut renovation, and the place sold for over asking price. Reboh mentioned a recent deal in which a building was sold in the low $400,000s after multiple offers, to a group of Orthodox Jewish buyers. “The housing there is really pretty,” she added.

To the west of Crown Heights, Prospect Heights continues to thrive.

“The area has very large homes and very large lots,” said Bette Cunningham, a sales agent at William B. May. Prices have doubled there in the last five years, and homes are going for $1.2 to $1.3 million at the top of the market.

LEFFERTS MANOR

Buyers priced out of Park Slope or looking for a bigger space have been flocking over the last several years to Lefferts Manor, a historic district east of Prospect Park. The area is restricted to one family homes, which can run up to $600,000 or $700,000 – half the price of a townhouse in Park Slope. Prices have almost quadrupled in the last eight years, and shot up around 25 percent last year alone. Inventory is scarce. “The area has been popular for the last five years,” said Cunningham, “and now it’s becoming even more popular.” Cunningham also said she sees buyers coming directly from Manhattan now. Besides Lefferts Manor, families are also increasingly spreading out to other one- and two-family home areas like Bay Ridge and Ditmas Park.

PARK SLOPE (FOURTH AVENUE)

Not too long ago, Sixth Avenue represented the boundary of Park Slope. Now, Fifth Avenue is becoming the neighborhood’s new trendy street. Fourth Avenue is also gearing up for a surge in new development, after rezoning adopted in April has set in motion plans for new 12-story buildings there. “It’s shocking that Fourth Avenue is happening,” said Albano. “It’s always been commercial.”

Few projects are completed, but given Park Slope’s immense popularity, Albano predicts great demand. “People are looking for condos, and only new developments are condos,” she said. There is also easy access to the nearby N and R subway lines. Albano said the new units will likely sell from around $300,000 (for lofts) to around $600,000.

RED HOOK

At the end of last month, New York Water Taxi was scheduled to begin ferry service between Red Hook and parts of Manhattan and Brooklyn. It could spell a big change for the area, which has been isolated because it has no subway line. “There will really be a boom,” predicts Dugan.

In addition to cobblestone streets and new restaurants, it’s mainly the loft space close to Manhattan that is drawing residents to the frontier neighborhood. “Other neighborhoods have lofts, but they are another half an hour away,” said Dugan. “You also have unbelievable views here, of Lady Liberty and Manhattan.”

Last year, studio and one-bedroom apartments could be had for $200,000, while townhouses ranged from $400,000 to $675,000. Another bonus is parking.

WILLIAMSBURG/ GREENPOINT

The latest stage in the evolution of Brooklyn’s hipster neighborhoods is luxury condo sales. Williamsburg already has several projects completed and “we’re starting starting to see activity in Greenpoint, too,” said Magnett of Corcoran.

Most recently, there has been Bedford Court on Bedford Avenue and the Gretsch, a converted 10-story factory with 130 lofts at 60 Broadway that will be ready for occupancy this fall. Units at the Gretsch range from studio to three bedrooms and run from $309,000 to $1.27 million, not including penthouses.

In Greenpoint, what was billed as the first condo conversion took place last year at 102 Clay Street. Two bedrooms in the small four-unit project ranged from $340,000 to $499,000. The only drawback in Greenpoint is limited access to public transit.

Magnett said much more residential development will likely occur in both Greenpoint and Williamsburg now that large sections of waterfront in both neighborhoods are in the process of being rezoned from manufacturing to residential use.

“Williamsburg is not finished by a long shot,” she said.

In Manhattan, around 90 percent of properties are sold through exclusive listings, where a seller signs a contract with a broker to “exclusively” represent a property. But in Brooklyn there is a mix of open listings and exclusive listings, though it is slowly moving towards exclusive listings only.

Going forward, company heads said that Manhattan firms entering the Brooklyn marketplace will likely have an effect on listings, hastening Brooklyn towards a model more similar to Manhattan’s.

“Open listings, where the seller retains the right to list with anyone he chooses, were the norm through about 1997,” said Chris Thomas, President of William B. May in Brooklyn. “Now, they are no longer the norm, and probably represent 35 to 40 percent of sales.”

Thomas said his company, because of experienced brokers and a large referral base, generally prefers open listings. The company first looks to sell a property to its existing client base, and then, if necessary, share the listing with other brokers. “People should understand they are hiring us because we have the most experienced agents in Brooklyn,” said Thomas. “We have a huge referral base, and we expect to sell it among the people who exist in the client base now.”

By contrast, Corcoran and Fillmore are advocates of sharing listings with other firms right from the start, though there is not always cooperation among firms.

“Our philosophy is very actively co-broking,” said Magnett, “But even though we have the majority of listings on the market, the majority of firms are still reluctant to co-broke.”

There is a Multiple Listing Service for Brooklyn, though Corcoran isn’t a part of it. The MLS connects about 200 brokers in Brooklyn. So far it is only for brokers, but in the next 60 days a new Web site will be unveiled that will share listings with consumers as well. It will be located at bnymls.com.

Reinhardt said he and his company, Fillmore, have taken a large role in getting the MLS going and that the company is a strong advocate of exclusives, noting it has more exclusives than anyone else in Brooklyn. “The MLS will be great for consumers,” Reinhardt said.

Meanwhile, Magnett said she is currently undertaking efforts to boost the Brooklyn division of The Real Estate Board of New York. A second meeting of the chapter will take place soon, and Magnett thinks the organization will begin to thrive once more Manhattan companies open up shop in Brooklyn. “I think it will become easier to recruit members once other Manhattan firms get established here,” she said. If that happens, she said she expects to see more co-brokering among all firms.

“I think if that happens, the co-broke situation will be corrected,” she said. “Sellers would demand it.”

Magnett also sees a need for modernizing some other aspects of real estate in Brooklyn, like technology.

“Every agent at Corcoran has their own computer, but they don’t have that in many other companies,” she said. “In that respect, Brooklyn is the way Manhattan was 20 years ago.”

Nestled between SoHo and the West Village, Hudson Square would seem like a natural pick as Manhattan’s newest hip neighborhood. Evolving from a grim post-industrial zone, the area is now becoming an outpost for “creative collar” (not white or blue) types and young families. Some are calling it the next TriBeCa.

Hudson Square is roughly bounded by Sixth Avenue and the Hudson River, and Canal and Morton Streets, and features a mixed skyline of low row houses, office buildings and two large warehouse facilities – the UPS and FedEx shipping plants – that still dominate a no-man’s-land area in the neighborhood’s center.

But it’s the recently rezoned Spring Street area that’s giving residential developers heart palpitations these days.

A quiet and lightly trafficked three-block stretch of art galleries, modern furniture showrooms, restaurants and bars, the block is also home to the centuries-old Ear Inn pub, which serves as the unofficial hangout for the locals-artists, craftsmen and laborers, many of whom had moved out of SoHo when it became too expensive 20 years earlier.

Now the area is in a state of flux, with two high-rise, luxury buildings already nearing completion on Greenwich Street and a third, a Philip Johnson-designed 11-story apartment tower on Spring and Washington Streets soon to break ground.

“I think it’s going to be a boom,” said Timothy Melzer, a broker with Douglas Elliman. “In that area you’re still in the West Village school district, so it’s attracting families. But it’s just north of TriBeCa so people really consider it TriBeCa because it’s so close, and it’s fairly close to the subways and the West Side Highway. That’s attractive especially if you work in New Jersey.”

One of the new developments, set to open by early March, is the Greenwich Street Project, a six-story condominium with 22 units in a former warehouse building constructed in 1908. Located at 497 Greenwich Street, it was designed by Dutch architect Winka Dubbeldam, and features a lap pool and screening room.

Melzer recently sold a 1,600- square-foot, fourth floor white box unit in the building for $1.15 million, or $718 per square foot. Construction also started this summer on a 14-story, 102- unit condo at 505 Greenwich St. being developed by Metropolitan Housing Partners.

“Go five blocks south on North Moore and Franklin and you’re paying $800 a square foot,” Melzer says. While by no means is it a bargain, these apartments let you into the area at a slightly better price.

“I think the area is going to be a little bit more affordable for about 10 minutes,” says Barrie Mandel, a senior vice-president at Corcoran who’s been selling in TriBeCa for nearly 20 years. “It’s not unlike the far West Village and 12th Street and the old meat packing district that somehow never came together and now is assimilated into the Village and Chelsea, and this part is similar.”

“You’re going to get a little of all the downtown types-a splattering of those who live downtown and certainly families more now than ever because of the schools and parks on the water,” she says. “And then you’ll have your creative types who don’t want to be in the middle of a neighborhood and want to be edgy.”

John Franqui of Trinity Real Estate, the largest real estate developer in the area with some six million square feet owned and operated, characterized the neighborhood as “creative collar – not really white or blue,” in a story by The New York Sun.

In other parts of the neighborhood, to the east off Sixth Avenue is the historic Vandam-King-Charlton district, a pristine three block area of tree-lined streets and residential walkups that are the remnants of what originally was a district filled entirely with residential properties before a spate of industrial buildings began going up in the late 1800s.

The neighborhood is also home to a slew of office buildings which run down the eastern corridor along Varick and Hudson. The crown jewel is the Saatchi & Saatchi building at 375 Hudson, which houses the advertising firm as its anchor tenant.

Residents in the neighborhood are near subways, and there are a number of public schools in the area, including one on Varick and Clarkson streets.

Overall, though, the neighborhood is still a few years away from gaining any cohesiveness, says Jason Pizer, director of commercial leasing with Trinity Real Estate.

“Canal is a very serious border there,” he says. “That’s probably an impediment to the area truly gaining an identity as Hudson Square where people who live in TriBeCa still consider it TriBeCa and people who live in SoHo still consider it SoHo.”

Still, the residential development is bound to bring in a different type of person who needs more services, and this is going to create new retail opportunities, Pizer says. Of particular interest to Pizer is the Morton Square project.

The project features townhouses, lofts, rental apartments and 147 condominium units, and is scheduled to be ready for occupancy this spring.

Two-bedroom, 2.5-bath condo units are priced at $1.3 million and townhomes start at $3.75 million.

“The cheapest apartment there is going for $1 million and the average apartment is like $2 million,” says Pizer. “They’re going to need to go somewhere to get a quart of milk. They’re going to need to get their prescription filled and so the demand will be there for the retail component, which will help greatly gentrify the area.”

When the Bank of America signed a long-awaited lease to be the anchor tenant in Douglas Durst’s new $1 billion Times Square tower in December, the 1.1 million square foot deal was among the most important of the year.

More than 500 professionals from 70 consulting and other firms and five law firms went full speed on the project for months to get the deal done in the small window of time the bank had to work with given its current lease. Bank of America was represented by Jones Lang LaSalle, and the firm’s John Ryan III did nothing but follow the deal for an entire year.

In the end, Jones Lang LaSalle reaped some serious and broad-ranging business from the bank, which will occupy One Bryant Park under a 20-year lease starting in 2008, said Jones Lang LaSalle president Peter Riguardi.

“We were their advisor, broker, provided development and consulting services and will be construction manager for their space,” said Riguardi. “We will probably be facility manager for them as well.”

In this age of integrated real estate services, that’s no minor matter. Jones Lang LaSalle is well positioned. Riguardi, 42, who joined the firm as head of New York operations nearly a year and a half ago, is similarly in a good spot.

The real estate “lifer” is son of Edward Riguardi, the former chairman of Colliers ABR who is known as “The Dean of Property Management” in New York.

The son learned well from the father, and Riguardi, who completed his first big deal as a college sophomore, has spent a career broadening the platform he inherited from his dad. He served as vice chairman and principal at Colliers prior to joining Jones Lang LaSalle.

While it is not the biggest firm in New York, JLL is truly a global company ranking along with top heavyweights CB Richard Ellis and Cushman & Wakefield worldwide. In New York, JLL has around 60 brokers compared to around 290 brokers at CBRE and 170 brokers at C & W.

But it’s not just size that matters. The massive merger of CB Richard Ellis and Insignia was partly based on the fact that Insignia needed to broaden its business beyond mostly brokerage. Now, Cushman & Wakefield may be searching for a merger partner, according to some executives, to bulk up, and maybe broaden its business.

“We’ve heard rumors, but who knows,” said Peter Hennessey, managing principal for The Staubach Company in New York. C & W had no comment.

Riguardi said JLL has influenced other firms. “Respectfully, I think a lot of firms are trying to emulate the international platform of Jones Lang LaSalle,” he said. But he nonetheless admits to cribbing notes from C & W and CBRE. “I think we have emulated a little bit more of their style in New York in that we are trying to be more market focused and develop more of a market leadership here,” he said.

Post-CBRE and Insignia merger, Riguardi sees the situation thus: “I think right now, CBRE and C & W are obviously the two big market leaders,” he said.

“But Newmark, Studley and ourselves are really trying to gain the most market share,” he said.

Following the CBRE merger, some executives said they were surprised there had been relatively few defection from the company, but added that significant departures could still be in the offing. “I don’t think six months or a year would ever be enough time for people there to evaluate whether they want to make a change,” said Riguardi. “If there were a shakeout, I don’t think it would be this quick.”

Woody Heller, who left CBRE to head investment sales at Studley, said he was surprised by the outcome so far. “To date, the exodus is pretty modest,” he said. “Which is great for them, and a little surprising for the outside world. But it’s still a two-year proposition in which all the people who are going to leave, will leave.”

Meanwhile, in several areas, JLL is closing in or passing the Big Two. JLL’s property management division has achieved phenomenal results, more than doubling in size since Riguardi took over. It’s now second behind Cushman & Wakefield, according to Crain’s. “When we started here, we had approximately 20 million square feet we managed out of our office,” said Riguardi. “We now manage 45 million square feet.” While a small part of that business came over from Colliers with Riguardi, he said, most of it is the result of recent efforts by the company’s “experienced team.” JLL is also the largest construction management firm in the city, with more than 50 people working in that division, Riguardi said. “It gives us another touch point with clients,” he said. As far as what he’s done with the company’s culture, Riguardi said, “we’ve gotten people more on the edge of their chair. We want them out, and want them involved in the community.”

Besides the Bank of America deal in Midtown, which is “going to be a cornerstone deal for people to look to as the market turns around,” JLL also did some big work downtown in 2003, and a total of four million square feet leasing in all of Manhattan, Riguardi said.

In the fifth largest new lease of the year, JLL completed a sublease deal for OppenheimerFunds to take 193,000 square feet at 2 World Financial Center. Working on behalf of Merrill Lynch, the firm has subleased three-fourths of the 400,000 square foot assignment. JLL could also wrack up a huge deal if it is involved in Goldman Sachs planned headquarters just north of the World Financial Center. The company currently manages 3.5 million square feet downtown for Goldman Sachs. Riguadi is mum.

“We’re not allowed to comment at all on Goldman Sachs,” he said.

Riguardi grew up in Staten Island, and trips to Manhattan with his father growing up were spent taking in a building as well as a hockey game or show. “We’d always stop off at a building, and real estate was always dinner table talk,” he said. By the time he was a sophomore at Iona College, Riguardi had a real estate license and completed his first transaction that year when he made an 8,000 square foot lease deal at 60 Hudson Square for a sugar commodities firm. “It was a good start,” he said.

Riguardi then went on to join his father at Williams Real Estate, before going on to found Koeppel Tener Riguardi Inc. with his father, which merged with Abrams Benisch and Riker in 1994 to form Colliers ABR. The two still work together at JLL, his father coming in four days a week and serving as “a senior resource to all our businesses.”

Riguardi has enjoyed the partnership. “We manage it pretty well. He’s a great person first. But we don’t always agree, and that’s fun too,” he said.

“When we disagree we are workers and when we go home, he’s my father,” Riguardi said. “We’re also on different sides of the business so its not like we’re in contact minute-to-minute.”

When the discussion turns to Downtown rebuilding, the Freedom Tower, Ground Zero memorials and the residential conversion boom in the area are usually leading topics.

Retail development, if it comes up at all, is usually a secondary concern. While retail plans at Ground Zero are understandably still evolving, many commercial brokers say the lingering uncertainty about what will go there is hurting retail in the much larger Downtown area.

Brokers and groups like the Alliance for Downtown New York are fighting to bring more upscale retail tenants Downtown to replace what was lost at the World Trade Center site, as well as bring in some basic services that are lacking – like supermarkets. They say they often face an uphill battle trying to convince national retailers to open up Downtown. Ann Taylor, Nine West, Borders and Banana Republic have been some of the few successes since Sept. 11.

“The area has gotten a lot of negative press in terms of saying all these people were leaving when they actually haven’t been,” said Gary Alterman, executive vice president and principal at Newmark & Co. “A lot of nationals don’t understand the financial district.”

Obstacles do remain – good spaces can be difficult to find, and there are construction, traffic and security issues. Co-tenancy with lower-end retailers like wireless stores and fast food joints also deters some national chains.

But Downtown boasts obvious advantages as the third-largest business district in the United States and the fastest growing residential neighborhood in New York City, with an estimated $1.4 billion in unmet retail demand, according to a recent study by Economic Research Associates and Madison HGCD.

There have been positive outcomes since Sept. 11, like at 2 Broadway, where six national retailers, including Ann Taylor Loft and Nine West, have moved in. Borders also relocated Downtown after being displaced by Sept. 11. Three World Financial Center, which recently signed on Banana Republic in a deal one broker called “a pleasant surprise,” could also see more high-end deals soon.

There is plenty of space for retail outside the Ground Zero site. While a total of 325,000 square feet of retail was destroyed at the World Trade Center, there is still more than 10 times that amount – 3 million square feet – of retail in Lower Manhattan below Chambers Street. Much of it is relatively low-end.

“Nationals often say they want to hold off until they figure out what’s going on with Ground Zero,” said Richard Hodos, president of Madison HGCD. “But look at it today. There is a lot of retail space that can be developed in Downtown that has nothing to do with Ground Zero.”

There is also a slowly growing sense of clarity about the Trade Center rebuild, even if a design for the retail portion of the site hasn’t been determined yet.

In December, the Port Authority bought out Westfield America, the Australian mall operator that held the retail leases at the trade center, for $140 million. Hodos said the move bodes well for retailers, because Westfield would have likely sought to build a large urban mall.

“I think that it’s a great thing that Westfield backed out,” said Hodos. “A mall is not anything that I wanted to see there.”

Instead, it seems likely that retail will be predominantly street level and below ground. There will also be efforts to restore the street grid so that Downtown isn’t bifurcated, with the eastern part cut off from the western portion, as it was when the Trade Center stood there. The intersection of Broadway and Fulton will become a key hub, and Fulton Street will run from east to west across much of Downtown.

“Fulton Street is where retailers will look to expand,” said Ariel Schuster, senior director with Robert K. Futterman & Associates.

Gene Spiegelman, senior director for the retail services group at Cushman & Wakefield, said the transportation infrastructure that will be built Downtown, including an underground people mover, will help the area enormously. “It’s hard to get around now,” he said. “But the circulation is going to be great.”

Still, it’s unlikely that what will be rebuilt at Ground Zero will match what existed before Sept. 11. “The sheer density of office workers and the way transportation fed into the area means that no one will ever do the same numbers,” said Schuster. At the pinnacle, stores like Duane Reade were paying $3,500 a square foot in rent. What was destroyed were many of the “upper moderate to better retailers,” like Coach, J. Crew and others, said Hodos. Brokers are trying to lure them back.

Today, much of the focus is on improving retail on Broadway and to the east, and adding high-end retailers at the World Financial Center on the west side.

There are a number of challenges facing retailers looking for space on Broadway, the main north-south thoroughfare. Much of Lower Broadway is dominated by institutional spaces occupied by banks and post offices, and unavailable for retail. Many retail spaces have little frontage, and space on side streets can be antiquated. Overall, vacancy is low. Downtown vacancy is at around 11.6 percent for retail.

“The spaces down here work for some retailers and not for others,” said Mai-Anh Tran, director of financial programs for the Downtown Alliance. “Fitting within the space is part of the challenge.”

Hodos said retail in parts of Downtown is characterized to some degree by “schlock.” Having wireless stores or fast food franchises in a building can be a problem when trying to bring in more upscale retailers who don’t want to share space with those stores.”There are a lot of situations where there are co-tenancy issues,” he said.

Brokers can work together to somehow merchandise the street a little better, Hodos said, but ultimate responsibility rests with landlords. “If all they look at is the dollars, gold chains will win. If they look at credit, we have a chance.”

In one recent example, a wireless company was competing with cosmetics retailer Sephora for a space in a Broadway building. The wireless store agreed to pay more rent, and now the landlord has two wireless stores side-by-side, a bad mix.

One of the big successes Downtown has been 2 Broadway, whose tenants in addition to Ann Taylor and Nine West include Aerosole, GNC, Starbucks and Mexican restaurant chain Chipotle. Ann Taylor’s opening in April 2002 marked the first brand name retail store to open in Lower Manhattan after Sept. 11.

Alterman of Newmark represented 2 Broadway in all those lease deals, which totaled more than 12,000 square feet. Drawing points for tenants included the fact that the 1956 building affords “lots of glass frontage,” he said. Ann Taylor has about 80 feet of frontage on Broadway, “as opposed to the 12 feet of frontage you might find in other buildings in the area,” Alterman said.

The location also makes sense given the amount of traffic nearby. There are two subway lines directly outside the building, and the Staten Island ferry is two blocks away. Overall, there are some 280,782 workers Downtown, with an enormous amount of buying power. Lower Manhattan has 8.1 million annual visitors and the fastest growing residential population in the city: 31,529 residents with an average annual income of $140,000.

The World Financial Center has also seen some good results recently. Schuster said he was “pleasantly surprised” by Banana Republic’s decision to take 8,000 square feet at Three World Financial Center. Steve Asch, executive vice president at Newmark, represented Banana Republic in the deal and said the company decided to go there “on the basis of the office population” and that the deal didn’t hinge on any expectations about the Ground Zero rebuild.

Going forward, Tran of the Downtown Alliance said a recent study said there is room for more career apparel and specialty food stores on Lower Broadway and more dining and entertainment and career apparel stores on the middle part of Broadway near the Trade Center site. There is also demand for a full-sized supermarket Downtown, an amenity that will become more necessary as the area gains residents.

All the developments, changes and controversy surrounding the rebuilding of the World Trade Center have generated a considerable amount of ink in the local and national media. As one of the most emotional and comprehensive redevelopment projects in the country’s history, it deserves the attention and scrutiny it has garnered. But one aspect of it all that hasn’t generated nearly as much coverage is the future of retail in the overall scheme. This lack of clarity is, in turn, causing national retailers to hesitate to commit to the area.

One of the primary reasons for this hesitancy is pure practicality- while there will undoubtedly be numerous retail opportunities in and around the World Trade Center site, most retailers are adopting a wait-and-see stance, looking for those factors that will help them better determine their chances of long-term success. However, there are more definite answers to many of those questions than meet the eye:

What type of retail will dominate the area?

Because Westfield has removed itself from the retail portion of the World Trade Center project, it’s becoming increasingly likely that retail in the area won’t follow an urban mall model but will be predominantly street level and below ground (as part of the underground concourses that will connect the WTC site and surrounding area).

How will the development of transportation affect Lower Manhattan retail?

As part of the construction of the transit hub at Fulton and Broadway, a number of the surrounding properties will likely be redeveloped, presenting opportunities for retailers. The initial phase of the Fulton/Broadway hub will open in mid-2006, with completion in 2007. The Lower Manhattan Development Corporation and others have also advocated a revitalized Fulton corridor that would essentially link the WTC site with areas all the way to the South Street Seaport, which would be a significant opportunity for retailers.

What about residential development?

A number of new residential projects are under development in the area, which will bring approximately 1,400 new units in 2004 and over 3,000 in 2005. This will create a more retail-friendly, around-the-clock environment that is likely to grow as the area continues to revitalize and redevelop.

Other national retailers aren’t committing to Lower Manhattan, why should I?

A handful of major national retailers have already opened or made a commitment to the area. These include Banana Republic, which recently announced it will open a store in the World Financial Center; Borders, which replaced its highly successful WTC store with a newly-opened location at 100 Broadway; and Ann Taylor Loft and Nine West, which recently opened at 2 Broadway. Better yet, all three of those that have opened are doing well – Borders has said it is exceeding sales expectations at 100 Broadway and Ann Taylor Loft and Nine West are reporting sales in excess of $900 per square foot and $700 per square foot, respectively.

Another significant factor affecting the future of Lower Manhattan retail is that all the milestones set forth in Governor Pataki’s rebuilding timeline are being met and funding is being secured, creating a much more certain and stable environment for retailers considering a long-term commitment than anyone anticipated at this point. The opening of the WTC PATH station is an important early example of this.

Of course, the new retail market downtown is still taking shape. But it’s important for the many retailers who are considering the area to know that, while many architectural and design issues remain unresolved, there is far more certainty and opportunity – now and in the future – than has been reported.

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Richard Hodos is the president of Madison HGCD, a commercial real estate brokerage.

Manhattan’s institutional investors are becoming part of the bridge-and-tunnel crowd.

Low interest rates and a scarcity of buildings for sale in Manhattan’s high-priced office districts are driving some buyers to the outer boroughs to try and cash in on the hot investment sales market.

Other investors are trying to get a slice of the action in Manhattan by structuring creative deals for smaller stakes in buildings or turning to class B properties.

Not that buyers still aren’t holding out for assets like the General Motors Building. The 50-story office building, one of the best in New York, sold for a record-breaking $1.4 billion last year.

“Those buildings will continue to be the asset class of choice,” said investment sales broker Richard Baxter of Cushman & Wakefield. “They are eminently able to be financed, and they are very sought after.”

Because there are so many buyers and so few buildings, many investors are looking to the outer boroughs, including some unexpected players.

“It’s a classic reaction to scarcity,” said Woody Heller, head of the capital transactions group at Studley. “Geography, deal size and deal type are the factors that change in an environment like this.”

Recently, Morgan Stanley and the Fisher Brothers formed an investment fund that specifically targets all of New York, not just Manhattan, Heller said.

“That includes small deals in all the five boroughs,” he said. “It’s unusual for an investor of that type to do deals in non-institutional areas.”

Heller said one of the main issues investors will have to examine in the outer boroughs, like everywhere else, is the tenants in a given building. “You want good tenant profiles,” he said. “The question is, what risk do people tolerate in this market versus another market?”

Bill Shanahan, an investment sales broker at CB Richard Ellis, said Brooklyn is especially hot right now. Plans by developer Bruce Ratner to build an arena to house the Nets basketball team in downtown Brooklyn, rezoning by the city and residential development are all fueling interest.

“There is a big focus on Brooklyn for both residential and commercial,” Shanahan said. “You really have to give some credit to Bruce Ratner. The sky is the limit if they get a stadium there.”

Shanahan also said new residential buildings in Brooklyn are hot properties because they are much needed in a borough dominated by brownstones, which can often be limiting in terms of layout. “Brooklyn has such a huge demand for modern apartments,” he said.

Shanahan cited several new high-rise apartment buildings being constructed on Fourth Avenue on the edge of Park Slope as indicative of the kinds of new development that could serve as potential investment opportunities.

However, not every investor is comfortable leaving Manhattan for Brooklyn, according to Baxter. “I think there are buyers for every market segment,” he said. “Some of the foreign investors have very strict acquisition criteria” and limit themselves to between 42nd and 59th Streets, from Park Avenue to Sixth Avenue, he said. Baxter is also currently marketing a building at 86 Chambers which is primarily leased by government tenants and might appeal to a foreign buyer, he said.

Robert Knakal, chairman of Massey Knakal, which has offices in Brooklyn and Queens and is opening an office in the Bronx this year, expects the outer boroughs to explode in terms of investment sales in 2004.

“We anticipate a tremendous flight of capital from Manhattan to the outer boroughs,” he predicted. “In the second half of 2003 we saw a dramatic increase in the number of transactions in Brooklyn, Queens and the Bronx and many of the buyers of these properties have traditionally been Manhattan buyers.”

The outer boroughs can often provide a positive cash-on-cash return for buyers of apartment buildings, Knakal said, which isn’t necessarily the case in Manhattan.

“We believe that capitalization rates on multi-family properties will continue to hover only slightly above fixed-rate lending rates, which will provide little cash-on-cash return. This is particularly true in Manhattan,” said Knakal.

By contrast, “in the outer boroughs, where cap rates are above lending rates, positive cash-on-cash returns can be realized,” Knakal said.

Other funds have also been formed to acquire “less glamorous” properties. Myron Berman, a principal of the recently formed BP Real Estate Fund, is targeting midsize income-producing Class B and C properties in the Northeast, including industrial, retail, office, multifamily and hotel assets.

“They may not be the shiniest and prettiest assets,” he said, “but they present exceptional opportunities to generate significant value. And the competition for these properties isn’t nearly as fierce because they usually fall below the radar screen of institutional investors.”

“There are many office buildings with leases that are about to run out that won’t be replaced because the space is either vacant, not being used, or rents are too high,” he added. “Those properties will surface on the market very soon.”

Shanahan said that in Manhattan, some buyers are looking at class B properties because there is more room for rental rate rises. He cited an example, saying that a $5 rise in rent on a $25 per square foot space in a B building would make for a better return than a $5 rise in rent on a $50 per square foot space found in a class A building. He added, however, that class B rental rates usually increase after class A rates during an upturn in the economy.

Buyers in Manhattan are also getting creative in how they are buying into class A office buildings given the current scarcity of inventory, brokers said.

Heller said Vornado’s investment of $200 million in the General Motors building as a mezzanine loan to buyer Harry Macklowe was one such example. “They would usually be the buyer in the deal,” Heller said.

Another deal, S.L Green Realty Corp.’s purchase of 45 percent ownership in the 2.6 million square foot McGraw Hill Building at 1221 Ave. of the Americas in December, was also an uncharacteristic buy because the REIT assumed a non-operating position in the building. SL Green bought the stake for $450 million, in a deal in which McGraw Hill was represented by Heller and his team as well as Steve Siegel of Heller’s old company, CB Richard Ellis.

“SL Green would typically look for management and leasing opportunities, and there they got neither,” said Shanahan. “So we’re seeing creativity on the investment side.”

Investors are also continuing to look downtown, where the hot trend has been residential conversions, with thousands of units in the works. Baxter doesn’t see the trend abating anytime soon. “Demand continues for property suitable to residential,” he said.

Development sites are also hot right now, but only for residential. “It depends on the zoning,” Baxter said. “We’re seeing record prices for FAR (floor-area-ratio). But if it’s not where residential is permissible, we’re not seeing the same demand.”

Recent development site deals include another transaction handled by Heller, who has had a hot hand lately. Central Parking System sold the air rights to 10 West 48th Street and two small adjacent buildings to Jules Demchick’s J.D. Carlisle Development Corp. for $23 million. The site will likely house a new 131,500 square foot residential condo or hotel.

In other deals, developer Ratner recently bought a much coveted parking lot near City Hall for an undisclosed price where a residential tower can be built. The Related Cos. also purchased a 18,000 square foot parking lot at 26 Astor Place where it plans to build apartments.

Going forward, the direction of the investment sales market will depend largely on interest rates.

Shanahan said that prices will be affected by the improving economy and its effect on rental rates and interest rates. “As the economy improves, rental rates will improve, which will have a positive effect on pricing,” he said.

But an improving economy could also boost interest rates, which would offset that trend. “It will sort of be a potential race between interest rates and rental rates if the economy improves,” Shanahan said.

Baxter said he foresees an interest rate rise, but nothing dramatic. “It won’t be more than a 1 to 1 1/2 percent rise, and I’d be surprised if it rose that high.”

According to figures provided by Massey Knakal, building prices in New York City appreciated by 8.4 percent in 2003. The company also concluded there was a 16 percent drop in sales volume in 2003, as the amount of building turnover dropped from 1.9 percent in 2002 to 1.6 percent in 2003.

Right after completing the largest new lease of last year at 55 Water Street, the Health Insurance Plan of New York realized it needed even more space.

At the end of last year, HIP signed up for an additional 69,500 square feet there after already signing on for a mammoth 486,000 square feet in April.

Last year was a good year for insurance companies.

While law firms received most of the attention for leading the market, and financial services, as always, formed the foundation of the leasing market, insurance made a strong showing, finishing third in leasing overall.

Downtown, insurance led all industries in leasing in 2003, with 953,000 square feet. Financial services firms finished a distant second in that market with 365,000 square feet.

“The insurance industry has been strong over the last 15 months,” said Peter Hennessey, managing principal for The Staubach Company in New York, which has represented several insurance firms over the last year. “Insurance and law firms have been leaders out of the recessionary cycle. They haven’t been dramatically affected during the cycle, either.”

According to Cushman & Wakefield, law firms leased a total of 2.1 million square feet in Manhattan last year, financial service companies leased 1.4 million square feet and insurance companies leased 1.3 million square feet.

Overall, Hennessey said insurance companies, like law firms, have been in a good position to take advantage of low rents. There has been consolidation in the industry, but it hasn’t had a major effect, he said.

“In other businesses, there is some level of uncertainty about where they are headed,” Hennessey said. “Insurance companies are making commitments for spaces that expire in two or three years. They are thinking ‘why not make a commitment now’, when there are market lows.”

The large HIP deal in April, a big boost to downtown, came at a unique moment for the company, when it was outgrowing its existing facilities and considering going from non-profit to for-profit status. Downtown incentives were also a key part of the deal.

When HIP moves into its new digs at 55 Water St. in July, it will occupy the entire north building as well as part of the south tower. Brian Given of GVA Williams represented HIP in the recent expansion deal in December. Mary Ann Tighe, Brad Gerla, Howard Fiddle, Ken Rapp and Tom Shirocky of CB Richard Ellis handled the owner’s side.

Call it the Russian retail Revolution.

After a dozen years, Western-style retail development is beginning a transformation of Russia’s secondary cities, which expect billions of dollars of investment in the next few years after a decade of being outpaced by Moscow.

Meanwhile, Russia’s two largest cities, Moscow and St. Petersburg, are seeing increasing investment from international retailers like Ikea, though U.S. companies–with the exception of McDonald’s–don’t have a big presence there yet.

Though Russia is still largely perceived as a risk for foreign companies – with poor market infrastructure and few adequate facilities to even house retail, as well as political issues – the increasing purchasing power of Russia is starting to ignite a retail boom.

Currently, the annual income in Moscow is around $7,000, and around half that figure in the rest of Russia, according to Jones Lang LaSalle. Income is expected to grow 46 percent by 2010, and much of that money will land in retail coffers.

“Retail is definitely the booming segment of Moscow’s commercial real estate market,” said Yulia Nikulicheva, associate director for Jones Lang LaSalle Moscow. “Personal income is growing rapidly.”

Overall, Moscow accounts for around 25 percent of the more than $100 billion spent annually on retail in Russia. But the capital city has only seen sustained shopping center development over the last three years. And the city of 10 million is still focused on eliminating such obstacles as outside street markets in its drive to establish Western-style retail space.

At the peak of the open-air street market in 1998, there were more than 1.6 million square meters of street retail in the city. Partly as a result of a decree issued by the mayor of Moscow and enforcement efforts, that number is now down to around 600,000 square meters.

Jean-Christophe Cattin, head of the retail department for Jones Lang LaSalle Moscow, said efforts are being made to educate the public about the benefits of indoor Western-style stores. “There is a guarantee on the products,” he said. “There is air-conditioning and heat. It’s nearly at the same price, and with more service.”

Modern shopping centers, a recent phenomenon in Moscow, are now a booming business on the outskirts of town.

“The first modern shopping center opened in 1997,” said Cattin.”But then the Russian crisis happened, so the real start was in 2000.”

International companies – there are only a dozen or so major players in Russia – gravitate to these new developments.

Ikea, for example, started its business in Russia in 2000, opening a wildly successful store in the Moscow suburbs. Reportedly, the company has invested more than $150 million in its local operations. In December, the company also opened a new store in St. Petersburg, which has 4.5 million residents.

Other international companies operating in Moscow are less well known. The major players are mostly European. They also tend to be family owned,” because they can take the business risk, something shareholders might not be comfortable with,” acknowledged Cattin. American brands are sold in Moscow, but don’t have their own stores, with the major exception of McDonald’s.

“McDonald’s was one of the happy few who entered Russia,” said Cattin, who said he sees it more likely that U.S. companies will eventually partner with European retailers going forward, rather than necessarily entering the market themselves. “It’s a long way from the U.S., and these European countries are of course a lot closer,” he said.

Foreign companies include French food retailer Auchan, which operates “hypermarkets” in Russia, similar to Wal-Mart in the U.S., perfumery and cosmetics chains like Yves Rocher and L’Etuale, Germany’s METRO AG, Turkey’s Migros Turks and others.

Russia-based retailers -the most popular ones sell food and consumer electronics – are more likely to operate within Moscow itself, where retail space is more primitive. The situation could change, thanks to an initiative that is converting old manufacturing space in one section of the city.

It was these native Russian companies that first started spreading to the country’s secondary cities, along with a few of the international retailers, making inroads into what is a huge untapped market.

Overall, only around 2 to 4 percent of Russian customers shop in modern retail facilities, such as malls and supermarkets, according to a report by Moscow investment firm Renaissance Capital.

There are 13 cities in Russia with a population of a million or more, excluding Moscow and St. Petersburg.

Russia’s sixth largest city, Samara, for instance, which is 750 miles east of Moscow and which has a population of 1.2 million, just got the first Western-owned and-operated hotel outside Moscow and St. Petersburg when a Marriott Renaissance opened there this fall.

In Kazan, another regional city east of Moscow, Ikea is spending a reported $100 million to open a huge mall that will house its first store in the Russian heartland.

Cattin said there is a great demand for shopping centers in the regional cities. He also said there is a great desire for international fast food outlets in addition to McDonald’s, to supplement local fast food outlets.

There are also few U.S., or even European, brands sold in the smaller cities. “A brand clothes shop would be very successful,” he said.

Cattin said Jones Lang LaSalle is involved in working with both international retailers like Ikea as well as Russian developers who are largely the ones driving the work of building shopping centers and retail spaces because of their local knowledge.

“Russian developers need more advice because the whole process really only started very recently,” Cattin said.

Besides Jones Lang LaSalle, CB Richard Ellis has an office in Moscow through associate Noble Gibbons. Colliers has an office, and Cushman & Wakefield operates in Russia through an affiliate.

As far as potential political problems for companies and concerns raised by the jailing of Yukos boss Mikhail B. Khodorkovsky recently, Cattin maintains there aren’t major problems for companies as long as they stay clear of politics.

He acknowledged that some foreign companies are doing market surveys in Russia asking about the repercussions of the Khodorkovsky jailing, but said, “if retailers understand they just deal with economic and business development, everything is fine.”

The average sales price of a Manhattan apartment dipped slightly in the fourth quarter from previous record highs, while listing inventory continued to contract.

The average price of a Manhattan apartment was $903,259, down 1.5 percent compared to the quarter before, which was the first time the average sales price had crossed $900,000, reaching $916,959.

Despite the dip, sales prices were still 11.7 percent higher than during the fourth quarter of the year before, according to Jonathan Miller, president of the appraisal firm Miller Samuel Inc. and the author of the Douglas Elliman Manhattan Market Overview.

The median Manhattan price, meanwhile, inched up .9 percent to $580,000, a new record for the study, exhibiting how prices remained at or close to record levels.

While condominiums posted a gain in average sale price, co-ops, luxury apartments, and lofts all saw declines in average sales price.

Meanwhile, the number of apartments available for sale has continued to contract, with listing inventory declining nearly every month for the last nine months.

Overall apartment inventory was at 4,843 units for the fourth quarter. This represented a 7.3 percent decline from the third quarter total of 5,224 and a 19 percent drop from the prior year quarter total of 5,977.

The numbers were the first time apartment inventory has fallen below the 5,000 mark since the second quarter of 2002. Low inventory is partly due to lack of significant conversion activity and continued emphasis on the rental market in development, according to Miller.

The number of sales declined in the fourth quarter as well, though they remained at a high level, according to the report.

Sales volume fell 2.9 percent, with 2,256 sales in the fourth quarter, compared to 2,324 sales in the third quarter.

The number of sales was still 11.2 percent above the prior year fourth quarter total of 2,028.

The report also noted that the financial markets rebounded sharply during the fourth quarter, creating the likelihood of additional hiring by Wall Street firms in the near term and positively affecting the local real estate market. Mortgage rates generally trended downward over the quarter. More recently, in mid-January, interest rates on U.S. 30-year fixed-rate mortgages reached their lowest level since mid-July.

Real estate analysts project a modest uptick in mortgage rates over the year as the economy improves, Miller said. This may be fueling the high level of demand seen this quarter as consumers worry they will miss out on low mortgage rates, he said.

Condominium Market

The average sales price of a Manhattan condo increased 1.1 percent to a record $1,159,808, which was also 13.9 percent higher than the prior year quarter, the report said.

For the first time, the average price per square foot exceeded $800. The average price per square foot was $822 in the fourth quarter, a 4.2 percent rise compared to $752 per square foot the quarter before.

Prices increased for larger apartments, while prices for smaller apartments weakened. The average sales price of a condo studio and 1-bedroom fell 3.4 percent and 6.6 percent, respectively. The average sales price of a 2-bedroom and 3-bedroom unit rose 7.2 percent and 13.2 percent, respectively.

Listing inventory fell to its lowest level in more than a year. The number of apartments available for sale fell 3.4 percent, to 1,695 from 1,754 during the quarter before. The lack of inventory may be constricting the number of sales, which fell 6.8 percent, the report said.

The average price per square foot for the West Side showed the largest increase, rising 12.3 percent. The Downtown market saw price per square foot increases of 5.9 percent. The East Side market was relatively unchanged.

For 2003 as whole, West Side condominium developments appreciated a whopping 40 percent, according to a recent Corcoran Group report, which included the record-breaking sale of a $45 million apartment at Time Warner Center. Downtown, average condo prices were up 9 percent in 2003, according to the report.

Co-op Market

The average sales price of a Manhattan co-op apartment fell 2.5 percent to $776,514 from the record price level of $796,174 set in the prior quarter, the Miller Samuel report said.

Market share for 1-bedroom apartments surged by 9 percent. A loss in market share for the studio and 2-bedroom segments, by a corresponding 9 percent, was partially attributable to the drop in listing inventory, making the availability of apartments more limited, the report said.

Studio apartment prices surged 10.6 percent. Upper-end apartments showed weakness, with the average sales price of a 3-bedroom apartment declining 4.3 percent.

The number of days it took to sell a co-op apartment continued to fall throughout 2003. The average days on market fell to 132 days in the fourth quarter, compared to 137 days in the prior quarter.

Luxury Market

The average sales price for the luxury market, defined as the top 10 percent of all co-op and condo sales, showed a 7.8 percent decline from the prior quarter.

Despite the decline, the average sales price of $3,190,329 remained higher than quarterly averages for this market segment over the past two years.

Overall, price levels in the luxury market are relatively stable and median and average sales price declines were largely attributable to the smaller size of luxury apartments sold during the quarter, the report said. The average square footage of a luxury apartment fell 6.9 percent to 2,516 square feet in the fourth quarter.

Loft Market

A drop in average apartment size also contributed to a decline in median and average sales prices in the loft market in the fourth quarter.

Loft apartments averaged 1,830 square feet for the quarter, which was the smallest size seen since the same quarter two years ago.

As a result, the average sales price fell 4.6 percent to $1,365,038 from $1,430,879 in the prior quarter. However, the average price per square foot of a loft apartment set a record, coming in at $746.

The number of loft sales rose 1.4 percent, even while listing inventory posted an 18 percent drop, the report said.

The intense pressure on appraisers to “hit the number” may be taking its toll.

The appraisal industry has long said it has had to deal with mortgage brokers, loan officers, real estate agents and others who pressure its members to value properties at a certain amount so that a sale or refinancing will go through.

But the issue of appraiser independence has been the subject of renewed focus recently, prompting discussion and seminars in some industry circles.

The reason? During the fall, five federal agencies jointly issued a statement clarifying guidelines on appraisal independence, essentially reminding appraisers about their duty to uphold the law.

At the same time, the first independent national study of the appraisal industry found the challenges to the integrity of appraisers was worse than previously thought, with 75 percent of appraisers saying they had been pressured by a mortgage broker in the last year.

Meanwhile, there is not much regulation of the industry in New York State, according to some observers. A federal report last year said that nearly half of state appraisal regulatory agencies were doing an inadequate job.

Jonathan Miller, president of Miller Samuel real estate appraisal company, said the letter sent out by the federal agencies, including the Office of the Comptroller of the Currency, Federal Reserve System, FDIC and others this fall had generated “a lot of discussion.”

It really hit home,” he said. “There must have some real issues for them to come out with this. Finally, it’s a sign from the federal government that there is some concern about this.”

The letter was largely focused on how appraisal independence is compromised when an institution uses an appraiser who is recommended by the borrower.

“It said the lender is supposed to engage the appraiser, not the borrower,” Miller said.

Jeffrey Jackson, chairman of appraisal company Mitchell, Maxwell & Jackson, said the letter appeared to be “kind of a spillover from the commercial end to the residential” and didn’t necessarily create huge waves.

But he acknowledged that there are significant pressures facing appraisers. Appraisal subsidiaries and small independent operations are particularly vulnerable to pressure, he said.

“It’s happening more and more where appraisal companies are a subsidiary of a mortgage finance company or a real estate brokerage company,” he said. Because the independent functions exist within the same company, “that’s where they are most subject to pressure.”

Smaller independent companies are also vulnerable to influence because they rely on a small number of deals. “A company that is doing two or three deals a month, the deals matter so much, they might push the envelope,” Jackson said.

Skewed appraisals are not as common with sales (“the markets are very efficient,” said Jackson). However during refinancing situations, “you have a lot more pressure,” he said.

Miller said he particularly sees a problem in the wholesale lending area, where transactions usually involve a refi of some kind.

“The structure is more adversarial to an appraiser,” he said. “In this situation, our client is the mortgage broker, and the mortgage broker’s incentive is to close the deal.”

By contrast, with lending institutions, “there is an insulation and protection from the sales side of the bank,” he said.

Overall, Miller says, “there is tremendous pressure” to come up with certain numbers, or “to hit a certain value.”

“We ignore it, but it certainly creates stress,” he said. “If it’s a problem, we drop them as a client.”

In the national study on appraisers, in addition to pressure from mortgage brokers, 59 percent of appraisers reported similar pressure from a loan officer working for a lending institution or mortgage company to arrive at certain numbers.

Overall, 56 percent of appraisers said they had been pressured by a real estate agent. The study, which included 500 respondents nationwide, was conducted by Ohio-based October Research Corp.

Nearly half of the respondents said overvaluation demands ranged from 11 to 30 percent above market value, according to the study.

Pressure is usually applied by direct or veiled threats to withhold future business from an uncooperative appraiser, according to October Research.

Other tactics include “pre-comping,” in which a broker or loan officer asks in advance whether the appraiser thinks he or she can come up with “comparable” sales for a property to justify a specific target value needed for the mortgage. If the appraiser does not agree, the assignment will often go elsewhere, according to a Washington Post story on the study.

In the area of state regulation, there are also problems, according to federal agencies.

In May, a report by the Federal Financial Institutions Examination Council found that more than 40 percent of state appraisal regulatory agencies failed to resolve complaints against real estate appraisers expeditiously and were inconsistent in applying disciplinary sanctions.

Miller said there appears to be little enforcement regarding negligence in this state.

“In New York State, I don’t believe there has ever been an appraisal license lost because of negligence,” he said. “Our state law doesn’t seem to have the teeth other states do. There are certain states where we see a lot of licenses revoked.”

Miller said he was familiar with some instances here where people knew of appraisals that were questionable, but didn’t bother complaining. “They didn’t submit their complaint because they didn’t think anything would happen,” he said.

Miller said more regulation might come about a result of an economic downturn. “Things have been going so well,” he said. “If prices were down, you could see a more in-depth look.”

Overvaluations can pose a significant problem to consumers during down periods in the economy.

While overvaluation might not hurt in an economy in which houses are appreciating 5 to 7 percent a year, when an economy goes through a downturn, consumers who bought houses with small down payments and inflated appraisals could be stuck. They could be “upside down,” – owning houses worth less than the balance they owe their lender.

With its recent letter on independent appraisal functions, Miller is hopeful the federal government will take more action.

“I think the idea behind this letter is that the independence of the appraiser is paramount to having a solvent lending environment,” he said.

In Manhattan, apartment dwellers often find themselves short of space and eager to expand. Setting out to conquer a neighboring apartment is one way to get space they can afford.

Though it still only represents around five to 10 percent of deals done by real estate agents, there has been a gradually increasing trend towards combining apartments over the last several years.

The trend has been fueled by low interest rates, lack of inventory, and, farther back, a 1997 rule change by the city that no longer requires a revised certificate of occupancy when spaces are connected.

With the city a safer place since the 1990s and crime still near historic lows, the trend has also been fueled by more families deciding to stay here than in the past, producing a greater need for bigger spaces.

When two apartments are combined “the whole is greater than the sum of the parts,” said Jonathan Miller, president and co-founder of Miller Samuel, the real estate appraisal company. He said the general equation is “one plus one equals two and a half.”

“The reason for this is our market is a high-density metropolitan area with a premium placed on contiguous space,” Miller said. “For example, if a co-op shareholder with a two bedroom apartment decides to combine his apartment with a studio that becomes available, the studio would assume, at a minimum, the price per square foot of the two bedroom it is being combined with.”

“That could bring the whole apartment up to another level,” he said. “Less than a three bedroom but more than a two bedroom in a housing market that has limited supply.”

Although brokers agree combining apartments is a continuing trend happening in all parts of the city and in all price ranges, they frequently do not benefit from most of these sales, since the deals are often done without a broker’s help.

Robby Browne, a senior vice president at Corcoran, said that people are much more space sensitive than they were five or 10 years ago.

“People are trying to find space and if they can accomplish it by buying the apartment next door, it’s better than trying to move, although it makes less product for us to sell,” he said. “It’s not a significant part of my business, but I am very much aware of it.”

Jacky Teplitzky, an executive vice president at Douglas Elliman, agreed.

“Sometimes people will see a broker to appraise the value of the apartment and get advice, but most likely no broker is involved, unless a broker is representing the apartment next door”, she said. “Then it can be a quick sale and very beneficial to the broker.”

Jeff Wolk, co-principal and co-founder of Fenwick-Keats, said it has been a steady trend ever since the special certificate of occupancy rule changed six years ago,

“Buyers don’t have to deal with as many administrative hurdles of city ordinances, and sometimes your neighbor can be one of the easiest people to sell your apartment to,” he said.

Wolk said that it’s hard to estimate how many transactions occur every year since so many sales happen between neighbors. “That information would be hard to find because apartments aren’t recorded that way,” he said. It is also very difficult to get statistics on the number of construction permits that involve combining apartments because the New York City Buildings Department said it does not keep them.

Still brokers estimate that clients looking to combine apartments probably only comprise between 10 and 20 percent of their business. Miller believes that the figure is actually less than five percent overall. “Of the sales that happened last year, probably less than five percent were some sort of combination, although as a percentage it has grown quite a bit in the last 10 years,” he said.

Some brokers instigate the sales by helping to negotiate with neighbors who are at first reluctant to move, or by contacting a former client to let them know an adjacent apartment is available, and, if added to theirs, would greatly enhance the value of their apartment. “Quite frequently, that’s common,” said Wolk. “Brokers are very creative and will vigorously market a building”.

“It’s a very good business practice”, said Teplitzky, who herself owns a combined apartment in a building that started with 90 units and now has 74.

Often if an apartment owner is interested in the apartment next door, the owner may not be ready to sell or may ask for a price significantly above the market rate. When Teplitzky wanted to buy her neighbor’s apartment, they weren’t ready to sell and it was not an issue of price. “The value of the apartment to the person next door is higher, and you as the buyer will have to pay a higher premium, because the person next door understands their apartment’s worth,” she said.

Wolk said that if the buyer doesn’t want to pay the market price, or the price is significantly higher than market value, greed can often set in and the buyer might feel he’s over a barrel and being gouged. “The neighbor hiking up the price can get very emotional and personal and create a lot of in-building tension,” he said.

Browne also knows personally what it’s like first hand to have a coveted apartment. “I’ve been approached by neighbors to sell my apartment but there is no way that I will, because I could not duplicate what I have,” he said. “I’m not interested in the money and nobody is going to offer me $20 million to move.”

In another example, a former owner of a combined apartment on the Upper West Side, who didn’t want his name used, said he waited between six and eight years to acquire the one bedroom apartment next door and paid 15 to 20 percent above market to get it. “I was not able to negotiate one dollar,” he said. “The seller knew I wanted that apartment and that whatever he asked I was going to pay. He wouldn’t have been able to sell it for what I paid.”

But paying way above market price is not always the case. Will Cohane, who lives in a one-bedroom duplex in the Century at 25 Central Park West, bought a two bedroom apartment in December that he intends to combine with the upper floor of his current apartment.

Cohane, who works in hotel management, said he was looking to move downtown when the space became available and he couldn’t pass it up. The sponsors were very excited to sell it quickly and he did not pay much more than 5 percent over the market price, he said. “Frankly, I wouldn’t have paid more for it,” he said. “The previous tenant passed away and this was one of the last sponsor-controlled units.” The upper floor will be the main floor with the guest bedroom/office/basement on the first floor.

For people who live in a co-op and want to combine apartments, it is necessary to first go to the building’s board and get approval. It can be easier to get approval on a combination plan if one already exists in the building.

“If there is one already, more pressure will be applied to get it approved,” said Teplitzky. “Otherwise, it will be tedious process where they will want architects, lawyers and others to get involved. It can be very traumatic and very costly,” she said.

“Boards are continuing to get tighter on their rules when it comes to reviewing plans,” said Wolk. “There must be a formal approval of the new purchaser even if it’s someone already in the building.” But if you are a shareholder in good standing, a co-op board is generally in favor of combination and should approve the plans, he said.

It has become quite common when people combine two apartments that the buyer will acquire the common area to make the layout work. If that space is at the end of a hallway, the co-op will often sell it to the buyer. “The co-op benefits because they get income in shares in perpetuity and they are not losing access to that hall space, and the co-op holder has an enhanced layout,” said Miller.

The cost for combining apartments can vary widely depending on how extensive the renovation will be. “The rule of thumb is generally $200 to $250 a square foot,” said Wolk. “In adding 500 square feet of space, a buyer might have to pay $125,000 to do the renovation. Generally, renovation cost goes into kitchens and baths, depending on how full-scale a renovation is.”

Browne said it also depends on the contractor you choose and how quickly a board moves on your proposal. A vertical combination is more expensive because it involves a stairway, floor joists, and drilling through a ceiling, which is often heavy concrete. Combining adjacent apartments is much more common.

Look up “New York City real estate” on Internet search engines like Google or Yahoo, and what do you get?

Not much, as far as New York City residential real estate companies.

Only a few companies – Corcoran, Sotheby’s and Citi Habitats – come up in even the top 100 search results.

While most companies rely on web traffic coming directly to their site, it’s likely they are missing out on business because they don’t place high on search engines. Nearly three out of four home buyers, or 71 percent, use the Internet as a tool today, according to a recent study.

There are other ways to get noticed on search engines, or get business from the Web. With “sponsored links,” companies or agents pay to have their name come up if an Internet user searches for a specific term.

There are also national companies that are increasingly trying to cash in on Internet users visiting search engines to look for real estate. The companies include Homegain, Lending Tree and others, most of which work by passing on leads to agents and then taking a cut of the commission if a deal goes through. Lending Tree, purchased by media mogul Barry Diller in April, has already signed up Goodstein Realty and William B. May in New York.

The most basic – and cost-free – way that a company can establish its web presence is by designing a site that comes up high on a search engine. While that partly depends on total web traffic, it’s also a matter of designing and “tagging” the web site well so that a search engine recognizes it.

Corcoran is the leader of the pack in this area. Last month, it came up third or fourth when a user searched for “New York City real estate”. The next closest companies were Sotheby’s and Citi Habitats, which usually came up at the tail end of the top 20.

With 600,000 visitors a month, Corcoran places a high priority on its Internet presence, chief technology officer Charles Olson said.

“Though most of our traffic comes directly to us, it is important to come up high on search engines,” he said.

Olson won’t give away any secrets about how his site is “tagged”, but said efforts to fool search engines don’t work. “We have the appropriate terminology,” he said. “It’s an honest web page.”

As far as “sponsored links” where a site pays money to come up on a search engine like Yahoo or Google, there are few in Manhattan that are using this service.

On Yahoo, the only residential agent or company with a sponsored link that comes up if one searches for “New York City Real estate” is Toni Haber, a broker at Douglas Elliman. Haber was reluctant to say too much about her sponsored link, possibly for fear of giving ideas to competitors. She said there is a bidding process that goes on to get a link, and it can be costly. “You have to pay several hundred if not thousands of dollars a month,” she said. “You have to be the top two or three bidder to get something up there.”

Olson said Corcoran had considered a sponsored link, but had decided against it. Sponsored links are generally “pay-per-click,” which means you pay every time someone goes to your site from the sponsored link.

“It cost two cents to several dollars per click for the more popular terms,” he said. “That can cost you thousands a month if you don’t cap it. We decided the cost wasn’t worth what it would bring in. We get more bang four our buck in The New York Times or on billboards.”

Another route that is open to real estate companies and agents as an indirect means of getting business from the web is using services like Lending Tree and Homegain.

Those companies work by getting consumers to come to their sites, gathering information about their real estate needs, and then passing those leads onto agents.

Lending Tree has two business lines: one that allows mortgage borrowers to submit an online application that then is shopped to multiple lenders, and another that other allows home buyers and sellers to find a realtor.

Most of Lending Tree’s business – around 85 percent – centers around the mortgage side, but the find-an-agent side is growing quickly. Lending Tree is based in Charlotte, but its parent company, Diller’s InterActive Corp., is headquartered in New York.

So far, Lending Tree has only a tiny foothold in New York City, said Eric Cunliffe, Senior Vice President and General Manager of Lending Tree Realty Services.

“In New York City, we have a very small presence,” he said. “We do have a big presence outside the city, in Long Island, New Jersey and Connecticut, though.”

Nationally, the company works with some 10,000 agents at 700 companies, but only two companies in Manhattan.

At each company, Lending Tree has a primary point of contact where it sends its leads, usually a company’s relocation department. At William B. May, the company’s primary point of contact is director of relocation services Karen Dillinger. At Goodstein Realty, the contact is president Len Bayer. From there, the leads are distributed to a select number of agents who are chosen to take part in the program by each company.

There is no charge to pass a lead on to an agent, but if an agent closes a transaction, the referral fee is 15 to 20 percent. Half of that figure goes back to the consumer using the service, in the form of frequent flier miles or gift certificates as an incentive to use the service, Cunliffe said.

While Cunliffe said the company doesn’t disclose the percentage ratio between applicants and closed deals, he said leads are “highly filtered.”

“We would consider an agent’s time wasted if they are not closing on these leads,” he said. Lending Tree doesn’t send leads if a customer is already using an agent or has already found a home, for example.

Cunliffe doesn’t see obstacles to growing business in Manhattan, though one stumbling block appears to be that to take part in the service, companies or agents are supposed to be members of the National Association of Realtors.

William B. May is not a member of NAR, but Cunliffe said individual agents at the company may be part of the organization.

One company trying to sort their way through all the different Internet approaches is Dwelling Quest.

“With 70 percent of buyers going to the Internet to look for homes, that’s where the future is going to be,” said Daren Hornig, president and CEO of the company. Dwelling Quest, which was acquired last fall by Hornig and his financial backers, has already launched a branding and advertising campaign and is now redesigning its Web site, a project that will be finished this month.

Hornig said he was looking at using sponsored links and Lending Tree, or another similar service, going forward.

“The net effect of everything you do in advertising needs to show results,” he said. “I would look to sponsored links if it showed results, but I’m not about to pay $100 for a click through.”

Hornig also said he was currently talking to executives at Lending Tree about using that service.

“I’m exploring it,” he said. “It’s intriguing, but it also seems a bit expensive in terms of commission.”

Leslie O’Shea stepped in where another broker had failed and completed her first deal as an agent in January.

The Stribling broker, who started as an agent in mid-September, had interested buyers lining up in droves after she got her first exclusive, a one-bedroom co-op apartment at 417 East 90th Street.

The apartment, overlooking Eli Zabar’s greenhouses and bakery, had been handled by a previous broker who had sat on it, trying for months unsuccessfully to bring in an inside person to buy it.

But the first buyer O’Shea showed the $250,000 apartment to jumped at it, and within a week O’Shea had a signed contract for the 500 square foot pad with river views and the regular aroma of fresh baked bread.

The Real Deal has tracked O’Shea and two other agents (Margaret Maile of Corcoran and Richard McDonough of Douglas Elliman) as they got their start in real estate as part of a monthly series which ends with this installment. The series set out to follow the agents until each got their first signed contract.

“I’m really thrilled,” said O’Shea, who the month before had been spending most of her efforts on a dozen buyers, many of whom weren’t close to buying.

The listing came thanks to Cornelia Zagat Eland, a broker at Stribling, who passed on the deal to the new agent.

When O’Shea met with the seller, a woman who lives in the suburbs and rents the place out, she learned the previous broker had done a bad job.

“For a few months, it may not have even been listed,” said O’Shea. “So we were starting with a person who was a little sensitive about the whole process.” Making assurances the same wouldn’t happen again, O’Shea got the listing during her first meeting with the woman, who works in debt restructuring.

Things then moved fast. The first client O’Shea showed the apartment to, a real estate developer whose wife works in casting, made an offer right away. But the cost of mortgage and maintenance would have been 39 percent of his gross income, and his parents could not sign on as guarantors because they live out-of-state, which is against the board’s rules.

After several other offers, a young woman came in with a strong bid, a high six-figure salary and lots of liquidity, and the seller accepted.

The deal developed another wrinkle after an open house produced three more offers, one of which was substantially above the asking price.

O’Shea was still working out how to handle the situation at the time of her interview with The Real Deal. “The critical thing here is that I need to get my client the best deal possible, and be fair and ethical in my treatment of the prospective buyers and their brokers,” she said.

Meanwhile, O’Shea continues to work with several buyers, and recently got a call that she said was especially pleasing, considering the 36-year-old hopes some of her clients will consist of people she knows.

“A friend of mine called looking for a $5 million apartment,” she said.

“It’s someone I’m very close with and we’re practically sisters in a way. It was a nice affirming thing.”

O’Shea also continued her work in partnership with Jeffrey Stockwell, a senior vice president at Stribling, pitching several exclusives throughout Manhattan.

Back in September, only two days on the job, O’Shea had said she was confident about switching gears, leaving a career in marketing for one in real estate. “I have a strong sense of confidence that I can build up a serious business,” she said at the time. “Though I don’t have any idea how long it will take.”

Now that she is on her way, she said, she enjoys the independence of the job and the team backing her up at Stribling. “I’ve never been so professionally happy in my life,” she said. “I’m having a blast.”