The Real Deal New York

On a recent rainy Friday morning, Richard Gere and his wife, Carey Lowell, ate breakfast at the Candy Kitchen, the no-frills diner in Bridgehampton. Also dining there, on Friday afternoon, was actress Tara Reid, one of the stars of the film American Pie, with five young men in tow. Russell Simmons, a part-time East Hampton resident was spotted in Sag Harbor driving a silver New Beetle, trying to find a parking spot in the tiny village like everyone else.

It’s summer, and the celebrities are back in the Hamptons. But aside from the stars renting or buying there, there has been little luster to real estate in the Hamptons this season, as the rental market was slow to begin and has been further crippled by rainy weather over the course of several weekends.
As of mid-June, brokers were still holding out hope that rentals, down 15 to 20 percent by some estimates from last year, would rebound.

Others are seeing a fundamental shift in the way houses in the Hamptons are rented, however, with renters showing up later in the season and renting for shorter periods of time. Gone is the frenzy of the 1990s summer rental market, when weekenders traditionally secured the best properties by President’s Day in February, and, in the latter part of the decade during the dot-com boom, when renters often raced to signed leases as early as the autumn before.

“We’ve still got a lot of people coming out, and there is a lot of last minute stuff this year,” said Ray Smith, a marketing director in Prudential Long Island Realty’s Southampton Office, and a broker in the Hamptons for the last 24 years. “I’d almost rather it be a normal season and get it over with.”

Starting last year, the first summer following Sept. 11, a significant number of renters held off signing leases until six to eight weeks after the start of the season, which traditionally begins on Memorial Day.

As a result, some brokers say the verdict won’t be in until after the July 4th weekend.

“Last year, bookings were very late in the season,” said Diane Saatchi, president of Dayton-Halstead Real Estate, which has several offices on the East End. “The bulk of the rental season was between Memorial Day and July 4th. But by July 4th of last year, we actually did better than the year before.”

Saatchi said that bargain-hunters may be waiting longer to secure better deals. So far this year, rental prices are down 10 to 15 percent compared to last year, according to Smith. “People think if they go late, they’ll get better deals,” Saatchi said, though that’s not always the case as some homeowners find it too much trouble to rent as the season progresses.

Gone too, perhaps, is the cherished Hamptons custom of the seasonal rental from Memorial Day to Labor Day, the three-month idyll in which the stay-at-home mother and children spend the entire summer by the sea, while the husband commutes out from Manhattan on the weekend. Now, brokers say they are seeing the growth of one-week, two-week and one-month rentals, and “submarkets” of people who rent at different times, like empty-nesters who don’t have children in school and want to rent during August and September.

“The rental market is getting totally changed around,” said Smith. “Most people aren’t renting the whole summer- they are doing a month, or two months.”

Those with enough money to do so might even spend “a month in the Hamptons and a month in Martha’s Vineyard,” he said. “We’re starting to see all these submarkets pop up.”

One brand-new venture, Hampton Retreats in Southampton, was started up earlier this year as an agency and 24-hour concierge to cater to those short-term renters- an “untapped market,” according to Brad Zackson, a Manhattan developer who founded the firm (see story on P15).

The trend towards shorter rentals can mean a major headache to brokers, who typically receive 10 percent of the total rental contract. That sum is then split equally between the broker and the broker’s office, so that a $5,000 one-week rental would mean only $250 for a broker, an especially small sum if the broker has had to show the renter many properties.

Rental commission is a loss leader for the real estate office owner as well, with rentals at Saatchi’s company accounting for only seven percent of office income but taking 80 percent of work time. However, rentals serve as a promotional tool, and the hope is that landlords will return when they want to buy or sell a property, Saatchi said.

Since homes are being rented for less this year, it further cuts into brokers’ commissions, Smith said. The downward trend follows many years in which there was a 10 percent price increase every year.

The homeowners who were successful renting this year “were the ones that adjusted,” Smith said. “The guy who rented last year for $150,000, and asked $165,000 this year, but rented for $145,000, made the deal. Overpriced rentals had a hard time this year. Even people that eventually did change and bring the price down, should have changed earlier.”

Fueling the trend too, has been rampant development in the Hamptons over the last decade, leading to a far greater housing inventory than in years past. Also, with mortgage levels at record lows, many long-time renters have become buyers, and the sales market is going strong.

“Economically, with interest rates being so low, it makes sense to buy rather than rent,” said Saatchi. “A lot of tried and true renters became buyers.”

While Saatchi said the high-end market – $3.5 million and above – has been sluggish until recent weeks, everything up to $3 million that is not overpriced is doing well, according to Smith.

More modest “well-priced village homes” away from the water in Southampton are particularly hot, Smith said.

“Why spend $40,000 for a summer rental if you can finance at four or five percent?” said Smith.

While some renters may be buying and there is surely more rental supply than demand this season, the creme de la creme properties, said Smith, are, as always, hard to come by. Some homeowners just don’t want to rent their homes, period.

“At the very high end, it’s always been limited,” said Smith. “You get what’s offered and that’s about it.”

“I had an offer of $450,000 to rent a beachfront property for two months this summer, which the owner was about to sell,” he said. “But it stayed empty until he sold it. He didn’t want people in the house.”

Still, there are high-end properties out there. A look at Hamptons Real Estate Online, hreo.com, which aggregates listings for all brokers, showed nine houses over $400,000 that still haven’t rented.

Saatchi said that while rentals may be down, there isn’t anything noticeably different in the Hamptons this year.

“All the top places are busy. Traffic is on par,” she said. “What’s happened is that our economy made some really rich people just a little less rich.”

Trump, who at times has been accused of being a mere front man for financial interests a brand slapped on buildings he doesn t own is about to take a step further into the world of marketing, public relations and play-acting when his NBC reality television series, The Apprentice begins production in late June. [more]

Every summer several new celebrities join the exodus to the Hamptons from points west, buying or renting property there. This year high-end property sales above $3.5 million have been slow, but there were still notable additions the Hamptons scene. [more]

If you re a young professional who wants to spend the summer living and partying with 10 or 15 of your closest friends, renting in the Hamptons just got a little tougher. Several weeks into the summer season, officials in Southampton Town Hall are already making good on their pledge to crack down on illegal share-house activity this year. [more]

A new high-end real estate company, called Hampton Retreats, is renting some of the Hamptons’ nicest homes and providing guests with five-star hotel services from private chefs to spa visits and chauffeurs. In a new, resort-like approach to the traditionally rustic Hamptons, the company plans to offer pampered vacations to wealthy clients who are increasingly coming to the area for short stays [more]

Being a high-end broker in the Hamptons pays. That s what a study of the top real estate firms in the Hamptons by Suffolk Research Service Inc. recently showed. [more]

Grubb & Ellis has seen its share of troubles.

In March, the commercial real estate service giant pushed out its chief executive officer, Barry Barovick, along with its chief financial officer, after an unsuccessful move towards consultancy at the expense of the standard brokerage business model.

Last fall, the company was delisted from the New York Stock Exchange. Total revenue declined from $414 million in 2000 to $313 million last year .

Most recently, Grubb & Ellis Chairman and controlling stockholder, Michael Kojaian, stepped in to acquire the company s outstanding senior credit facility for $32 million. The move came after the company had received three waivers on loan agreements with the Bank of America and two other banks since December. The waivers were necessary because company earnings had fallen below levels required by the banks, although company earnings on the whole have risen compared to last year.

Now, with Kojaian stepping in and promising greater flexibility for loan agreements, and with the days of a consulting-driven business model behind it, Grubb & Ellis is looking ahead.

The firm is headed by a four-person senior management team, including Dick Fulton, executive vice president of transaction services for the eastern region, and Brian Parker, chief financial officer, who rejoined the company after Barovick s departure.

While the firm may have tried to corner the market for real estate advisory services at the expense of the standard broker-driven business model under the leadership of Barovick, a former Ernst & Young consultant, these days, it s all about the brokers.

“The company has always been involved in consultancy,” said Fulton. “But we re putting emphasis back on the brokers. We re looking at consulting as an adjunct.”

“There is a renewed focus on the core strength of the organization,” said Parker. “We want to focus on what we do best.”

While scores of top brokers departed in 2001 and 2002, Fulton said the flow of brokers leaving has largely stopped. “We ve lost very few over the last several months,” he said. The company also plans to put additional cash into core services, including funds “to recruit additional professionals,” Parker said.

It also hopes to capitalize on the merger of giants CB Richard Ellis and Insignia Financial Group, which is set to close soon. “We see an opportunity there,” said Fulton. “It s a potentially difficult integration. Anytime you have changes like that you re going to have people that aren t comfortable with the new situation.”

In the New York office, Grubb & Ellis lost their top rainmaker, Glenn Markman, who defected to build his own team at Cushman &Wakefield last summer, and another top broker, Robert Emden, left. Fulton said since that time the company has “had several people move to G &E” in New York, though no instantly recognizable “marquee names.” The number of staff in New York has remained “virtually unchanged” between 2002 and 2003, he said.

Fulton also said changes have been made in New York because “talent there was being underutilized,” specifically in the law firm group. The group is now being used to help on deals throughout the U.S. “We asked, why not use that expertise throughout the country? ” he said. “We are now, and it s been very advantageous.”

Since Barovick s departure, the company s headquarters have returned to Northbrook, Illinois, just outside Chicago, after Barovick had moved them to New York. Fulton said the impact was negligible, noting that most of the administrative functions had never left Northbrook, and that the changes were “mostly at the executive level.”

The move back to Northbrook helped bring back CFO Parker, for one. Parker joined the company in 1996 but left when Barovick wanted the senior team to relocate. “He wanted to have all of the senior team in New York. I took a pass on that.”

While there is speculation that the board may soon take the company private or seek a merger partner, Fulton and Parker both said they couldn t comment on any plans. But Parker did note the disadvantages of being a public company.

“We are a public company traded over-the-counter. Four shareholders control 80 percent of the company. We have the disadvantages of being public- disclosure, the Sarbanes-Oxley Act, etc.-and very few of the advantages. We ve been in this situation for a number of years.”

However, Fulton said that employees at the company aren t as concerned about going private as they were a year ago. “A year ago, if you went into any office, the first question was, why are we not a private company? The stability is not a concern anymore.”

Grubb & Ellis stock was trading at $1.25 as of June 16, down from $16.50 in 1998, but up from $1.01 last fall. Part of the trouble, some observers note, is that Wall Street has a hard time understanding how real estate companies like Grubb & Ellis work. One line of thinking during Barovick s tenure was that consulting work could provide for consistent cash flow. Fulton admits the brokerage business, by its nature, does have a problem with “recurring revenues”. But Parker notes that “consulting has a cycle as well.”

One indication of where Grubb & Ellis might be heading might be gleaned from a move the company made in April. At that time, an agreement with the company s Phoenix office significantly changed that office s structure. On April 1, working in conjunction with BRE Commercial, a brokerage firm in the San Diego area, the office began operating as an affiliate, Grubb & Ellis|BRE Commercial. “The business model, unique to the real estate industry, is designed to test whether the firm can enhance service to its clients by providing local ownership as well as access to an international platform,” a company press release said. The “size, makeup and success of the Phoenix office have often made it a test location for best practices within Grubb & Ellis,” the release said.

Now that the four-person management team at Grubb & Ellis has been in place for several months, “stabilizing the organization”, as Parker said, the board and chairman Kojaian are beginning the search for a new CEO, though no timetable has been set.

“The Board and the Chairman are working through exactly what they are looking for,” said Parker, adding his opinion that “we don t want to venture too far from the core” in making a new hire.

But while the company moves forward, certainly, questions remain. One is the earnings issue, the EBITDA (earnings before interest, taxes and depreciation) that dipped below a level acceptable to the banks and caused Kojaian to step in with his $32 million purchase. EBITDA was a loss of $1.7 million for fiscal 2002, which ended June 30, compared with income of $27.9 million for fiscal 2001. But in recent months, the picture has brightened as EBITDA has risen for the first nine months of fiscal year 2003, which ended March 31st. EBITDA was a gain of $3.69 million, compared to a loss of $1.96 million for the first nine months of fiscal year 2002.

The company is also making efforts to streamline operations, with Fulton saying the company stripped $15 million out of annual operations this March. In addition to the $32 million credit facility acquired by Kojaian, he also provided $4 million of working capital to the company in May on favorable terms.

“The fact that our majority stockholder has agreed to take on the additional role as our creditor underscores Michael s commitment to Grubb & Ellis,” said Parker.

“It s so refreshing not be continually confronted with the question of are we going to be in business tomorrow,” Fulton said.

The eastward expansion of the European Union in 2004 will contribute to a strong commercial real estate market in parts of Eastern Europe, with Hungary, the Czech Republic and Poland leading the way.

Based on the strength of its market, a recent report by Cushman & Wakefield found Hungary the number one country out of 13 emerging countries either set to join the European Union or candidates for membership.

“These Central European countries have performed well, given their early moves to carry out economic reform, their recent good growth and growing appeal to investors and international business,” said David Hutchings, Cushman & Wakefield’s Head of European Research.

Besides those three countries, Latvia, Lithuania, Slovakia and Slovenia are becoming part of the European Union in its biggest expansion next year. Hutchings sees the new members as well poised to join compared with countries that were a part of the southward expansion of the European Union in the 1980s, because of greater pressure for reform and a more global business environment today.

But that won’t necessarily lead to a sudden “economic big bang,” he said. “Part of the reason is most of these countries are already out-performing the existing EU countries,” he said.

Among the developments noted in the report are 36 million square feet of new shopping center space due to be finished in the emerging countries over the next two years. “Consumers in the region have lapped up new retailing concepts such as modern shopping centers and out-of-town retail parks,” Hutchings says. “The development of the next generation of retail space will remain a catalyst to attract foreign retailers and the new breed of domestic player.”

The industrial sector is also poised to grow, as a result of a more liquid market for trade. “The removal of trade barriers post accession will encourage more distribution and freight companies to relocate into the region and establish pan-European networks,” said Hutchings.

Office growth, however, could be more limited. “Future growth in the demand for office space is likely to be gradual as many companies have already set themselves up in their preferred markets. But we may see some boost to short-term demand, especially perhaps from public bodies, such as the EU itself, and lobbying and trade organizations,” the report said.

Interest from institutional investors is expected to grow further over the next two years as entering the union reduces the risks associated with emerging markets.

A budding skyline can be spotted across the Hudson River marking the tremendous evolution of New Jersey’s “Wall Street West.” The acres along Jersey City’s coastline, once abandoned and decrepit, are sprouting skyscrapers and luring companies like Goldman Sachs and JP Morgan Chase to plant roots in the Garden State s second largest city.

But the picture is not entirely rosy. A number of companies that announced their plans for Jersey City with much fanfare before Sept. 11 have ended up downsizing significantly since. The economic downturn has led companies to put the brakes on many projects, scale down others and sublet existing office space. The vacancy rate has shot up to 12.9%, according to Cushman & Wakefield statistics. That number might soar above 18% depending on how much space Goldman Sachs and UBS PaineWebber place on the market once construction is completed on buildings they were supposed to occupy in entirety. UBS is already formally marketing 500,000 square feet.

The Lefrak Organization is credited with single-handedly rejuvenating the Newport section of the city just outside the Holland Tunnel. In the eighties, Newport Office Center I got the ball rolling and soon buildings II-VI were standing tall.

The rise of office buildings in Newport was followed by development a few blocks south at Exchange Place. Newport Office Center III was entirely leased prior to completion. JP Morgan Chase leased Newport Office Centers V and VI. But by the time construction on Newport Office Center VII was underway, the tide turned. UBS PaineWebber leased the 1.1 million square foot building but finds itself with more space than it needs because of the slump in the financial services market.

“Because of the velocity of rents in Manhattan and because of the scarcity of space, people were taking more space than they needed based on their growth projections and the lack of availability,” explains David Stifelman, a director in the commercial brokerage division of Cushman & Wakefield. “Well, you know what happened. Everyone hit a wall.”

Perhaps the most excitement was generated by Goldman Sachs plans to build what will be the tallest skyscraper in New Jersey. The office tower is slated to open in spring 2004 but plans are on hold for a retail atrium and for a mixed-use facility that was supposed to include a conference and training center, office space, and a hotel. Goldman Sachs would not confirm it, but according to brokers the company has already cut the number of employees scheduled to relocate by more than half. Goldman spokesman Bruce Corwin says the number of employees that would be transferred to the Jersey City facility is in flux.

“There s still enthusiasm about Jersey City. It s just that we launched this project at sort of the height of the bull market and market conditions have changed drastically since then. And so, while we re still enthusiastic about Jersey City, we can accommodate a larger part of our workforce in our existing facilities because our workforce is smaller.” The company s overall headcount dropped by 13 percent last year.

Uncertainty has put many projects in limbo until the pulse of the economy strengthens. Hartz Mountain Industries had fully leased 70 and 90 Hudson Street by the time Jersey City began feeling the pinch of economic downturn. The developers are putting plans for 77 Hudson Street and Journal Square Plaza III on hold until a commitment from an anchor tenant can be secured.

Lehman Brothers plans for 101 Hudson Street also changed. The company is seeking to sublet the 400,000 square feet it leased in the multi-tenant building. Only half of Mack Cali s thirty-four story Harborside Plaza 5 is leased. Tenants include Forest Labs, SunAmerica Asset Management Corp, Garban, and TradeWeb. The latter two relocated from New York City. Mack Cali leased the 577,575 square foot Harborside Plaza 10 to Charles Schwab but before the building was complete, Schwab was seeking tenants to sublet. Stifelman points out the company has only succeeded in subletting half the building s office space.

“The pricing has been a freefall and most of these people are prepared to do what it takes to get the space off their books.”

But the scenario is not as bleak as it was during the eighties, according to Stifelman. “Most of the people that develop are either REITs, very wealthy individuals, pension funds, and most of the buildings were pre-leased.”

Much of the Gold Coast s future hinges upon its ability to compete with Lower Manhattan, according to Glenn Brill, Senior Manager at Ernst & Young Real Estate Advisory Services Group. Jersey City s edge might be undercut as developers rebuilding the financial district offer incentives and competitive rental rates. Brill said Jersey City s other advantage used to be new construction but, as the World Trade Center site is redeveloped, Lower Manhattan will offer new construction as well. “I think you can expect Lower Manhattan to compete very strongly for tenants and if they successfully enhance the transportation infrastructure in Lower Manhattan, it could be a formidable competitor.”

As the commercial market sags, the residential market remains resilient, according to Dan Frohwirth, Director of Real Estate for the Jersey City Economic Development Corporation. Tenants are signing leases at Liberty View Towers after the opening of the first of two 28-story waterfront luxury apartment buildings. Another luxury apartment building, Marbella, is in the works.

As the neighborhood gentrifies with the arrival of thousands of professionals, the demand for restaurants, bars, and shops has increased. Cosi, Starbucks, and other yuppie favorites have opened shop. Target is opening a store by taking over existing space. The Lefrak Organization is constructing a six story building with retail space and offices for specialists like lawyers and doctors.

Jersey City’s proximity to Lower Manhattan and economic incentives are key factors in attracting commercial tenants. The PATH train system allows for easy access to Manhattan as do ferries run by New York Waterways. The Hudson-Bergen Light Rail is still in its infancy but the Jersey City end of the line is complete and in use.

Jersey City’s draw is still strong, according to Stifelman. “You will find out it is much less expensive to operate your building in New Jersey. If you don’t have to be in Manhattan but want accessibility to Manhattan, to draw upon the labor pool, and for business purposes, it’s the best alternative.”

The first residential project that will receive Liberty Bond funding put in place following the Sept. 11 terrorist attacks was approved by the city’s Housing Development Corporation last month. The $82 million project at 90 Washington Street is expected to have 368 studio and 30 one-bedroom apartments. [more]

Two brokers in Douglas Elliman’s downtown office are pushing for a new way to measure property- by volume rather than square footage.

Leonard Steinberg and Herve Senequier, who specialize in selling lofts, say that measuring space according to its “cubic factor”, or cubic footage, provides a more accurate value of an apartment’s worth.

“So many buyers and sellers talk about dollars per square foot when evaluating properties,” said Steinberg, who is a vice president at Elliman. “We think it is as important to consider the value of cubic footage. We started looking at it because we felt there was a void.”

Steinberg said that the “emotional and physical value” of taller ceilings has a “tremendous value” to many people.

“In many cases, we feel that the value of lofts has not been fully realized,” by measuring by square footage, Steinberg said.

Compare a 2,000 square foot apartment with 8.5 foot ceilings with an identical sized apartment with 11 foot ceilings, he said. The apartment with the higher ceiling has nearly 1/3 more volume than the apartment with the lower ceiling, said Senequier.

The idea hasn’t caught on yet, however.

“We’re not seeing it as a trend,” said Jonathan J. Miller, President and Co-founder of Miller Samuel, the real estate appraisers and consultants. “The idea has been thrown around a little bit.”

“It’s a novel idea,” he said. “The problem is that no one does it, and it’s not widely presented so you don’t have anything to compare the data with.”

“There something to it, because it’s purely bringing into play the ceiling height,” he said. “But as far as a viable market tool, the data just isn’t out there yet.”

Joan Marlow, who is on the board of directors for the metropolitan New York chapter of the Appraisal Institute and runs her own appraisal firm, agrees.

“The rationale behind it is very reasonable,” she said. But given the fact that there is often confusion over measuring in square feet-sometimes measurements are made in gross square footage and sometimes net square footage-”it would just add confusion at this point.”

Chris Wilson, Director of Developmentfor Stribling & Associates TriBeCa, said it was the first he’d heard of the idea.

“It’s hard enough getting a consensus in term of square footage,” he said.

But Steinberg and Senequier, who are also partners, note that there are precedents for using cubic footage in the way the city measures property. All land in New York is zoned in a manner that determines how high a building can build (the FAR, or floor-area-ratio), and how much total square footage is allowable based on the size of the lot and its location.

“In every big city, space matters now,” Steinberg said. “Greenwich Village, for example, is for the most part landmarked and has severe height restrictions. Height becomes something that is not unlimited and should be valued as such,” he said.

In loft buildings, he noted, people take advantage of large amounts of space by “building mezzanine levels and creating extra level space,” which should be adequately valued.

Steinberg said that, overall, Americans are moving in the direction of favoring residences with “open-plan kitchens and fewer, larger, more spacious rooms.”

Steinberg said he came up with the idea for cubic footage when he was buying a station wagon-he was deciding between a VW Passat and a Mercedes E Class-and trying to figure out how much volume each had.

“It was totally an ‘a-ha’ moment,” he said.

Not only do Senequier and Steinberg sell lofts-they live in one, too.

“We live in a loft with tall ceilings,” said Steinberg. “Although the apartment measures under 2,000 square feet, the sense of spaciousness is really quite remarkable.”

“The dramatic impact is wonderful, and with large trees, cascading silk drapes and a ‘mini-mansion’, element,” he said. “We would be unable to afford this quality of life outside of the loft arena.”

A provision of the U.S. Patriot Act that would require real estate brokers to set up anti-money laundering programs is being fought by the National Association of Realtors and the American Land Title Association, who say the laundering programs are unwarranted and would hurt small brokerages.

Signed into law following Sept. 11, the act requires a wide variety of financial institutions to establish programs to make them more vigilant in detecting suspicious activity, whether terrorist-related or not.

While real estate professionals have not been required to comply so far, the Treasury Department is looking at developing provisions that would affect the industry.

National Association of Realtors representatives have already met twice and plan to meet again with staff at the U.S. Treasury Department, said Jeanne Delgado, regulatory and industry relations manager for the National Association of Realtors. According to Delgado, the Treasury Department has indicated some reluctance to regulate the real estate industry.

A comment period also ended in June following the “advance notice of proposed rule making” by the Financial Crimes Enforcement Network, or FinCEN, the Treasury Department bureau that administers the anti-money-laundering provisions of the Patriot Act. There is no schedule for action by the agency following the comment period.

National Association of Realtors President Cathy Whatley said in a comment letter that the anti-money laundering programs “would be extremely burdensome to small companies,” which comprise 67 percent of the National Association of Realtors’ membership. The association has more than 900,000 members. The American Land Title Association also is comprised of around two-thirds small business owners.

The proposed rules would require those involved in real estate closings or settlements to designate or hire an anti-money laundering compliance officer, develop internal anti-money laundering policies, conduct employee training programs and implement independent audit functions.

FinCen has cited several criminal cases from the 1990s that involved proceeds from illegal drug sales and a report published in 1996 by the National Institute of Justice that says that real estate transactions offer excellent money-laundering opportunities.

In one case cited, an Atlanta real estate company bought several residential properties for cocaine dealers. They converted cash from the drug dealers into separate cashier’s checks, all below $10,000, and therefore not subject to reporting requirements.

Some in the real estate industry have said that a few case studies and one report don’t offer compelling evidence of a need for regulations.

Whatley admitted that there is “little doubt that real estate is subject to abuse by money launderers,” but there isn’t sufficient evidence supporting the need for more regulation, she said.

She also said real estate brokers shouldn’t be required to have anti-money laundering programs because the bulk of their duties have little to do with the closing or settlement process.

Realty transactions that involve a cash down payment of $10,000 or more already are subject to the Bank Secrecy Act, which requires the real estate licensee to file a report with the federal government that includes information about the buyer, the amount of money received, the date and the nature of the transaction, according to Whatley.

That report form includes contact information for the IRS Criminal Investigation Division and a box that the licensee can check if he or she believes the transaction contains suspicious activity.

Also, more regulation would be redundant because a large cash down payment assumes additional financing will be obtained, and financial intuitions already comply with anti-money laundering programs, Whatley said.

Ann vom Eigen of the American Land Title Association said most of the risk of money laundering comes from corrupt participants in the real estate industry, not from innocent brokers.

“The primary risk of money laundering in connection with real estate does not appear to result from the real estate closing process itself, but rather from the activities of corrupt participants in the real estate industry,” she said.

More than 40 percent of state appraisal regulatory agencies reviewed by the Federal Financial Institutions Examination Council last year failed to resolve complaints against real estate appraisers expeditiously and were inconsistent in applying disciplinary sanctions, a recent report concluded.

The Council’s 2002 annual report to Congress found that state agencies failed to pursue alleged violations of the Uniform Standards of Professional Appraisal Practice and did not adequately document enforcement-related files.

The Council’s report, along with a United States General Accounting Office Report in May outlining numerous problems with the appraisal regulatory structure, has led major national appraiser bodies to urge a full investigation of the current regulatory structure.

“The fact that 43 percent of state appraisal boards failed to resolve complaints against real estate appraisers in an expeditious manner is troubling,” said President Alan E. Hummel of the Appraisal Institute, one of the groups calling for an investigation.

Hummel said the findings were not unexpected, however. He noted numerous problems with Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989, which created the current regulatory structure.

“The regulatory structure that developed as a result of FIRREA has become increasingly complex and inconsistent from state to state,” he said. “Our organizations are not surprised about the problems within the current system.”

The Appraisal Institute was joined by the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, and the National Association of Realtors in submitting a letter to Congress urging a full investigation of the shortcomings, including hearings.

“Proper valuation of real estate held as collateral is of vital importance, especially in this time of economic uncertainty,” Hummel said. “Competent and qualified real estate appraisers serve as a crucial safeguard in our banking system, but lax enforcement and ineffective federal oversight will only serve to diminish this safeguard.”

New York City reinvents itself with regularity, and nowhere is that more true than in the varying landscape of its streets and the architecture of its buildings. Modern high-rise condominiums share space with historic brownstones and sleek apartments with glass details live next door to lofts with their original cast iron details.

But you don’t have to choose one over the other. In today’s real estate market, it’s those perfect hybrid buildings combining old New York charm with chic, contemporary design that are the hot item, and these unique structures are being built in New York’s oldest neighborhoods without compromising the rich architectural history and original streetscapes.

At the apex of the Meatpacking District, Chelsea, and the West Village, amidst trendy bistros, fashionable shops and gourmet food markets, hybrid versions of residential lofts and converted apartments are adding variation to the old New York landscape where slaughter and storage houses once stood. The latest development here is appropriately named the Porter House (366 West Fifteenth Street at Ninth Avenue), and it will open this August, next door to the Old Homestead Restaurant.

The original, yellow-bricked, 1905 building was once a six-floor wine distributor’s warehouse with cast iron and hardwood details; the addition is a four-story zinc and glass masterpiece that cantilevers out over the original structure. Due to a well-planned design involving irregular patterns of light boxes and floor to ceiling customized windows, the building glistens in the sun and glows at night, adding to the offbeat beauty of the neighborhood.

The Porter House, thanks to the developers at Jeffery M. Brown Associates, Inc., and ShoP Architects, is a perfect hybrid of historic structure and modern hip architecture, which pays unique homage to the past.

“We didn’t want to go in and tear down everything and then rebuild,” said developer Jeffery M. Brown. “We purchased the air rights adjacent to the neighboring buildings and use the existing space with the most impact.”

The result is a 10-story, 22-unit condominium that will offers light-filled rooms in both the original building and the new addition. Loft spaces of approximately 958 square feet with one bedroom are starting at $625,000, and loft two-bedroom space with 1,942 square feet is offered at $1,345,000. The three-floor penthouse unit with approximately 1,836 square feet is offered at $1,650,000.

The apartments are packed with sleek kitchen and bathroom amenities: Viking kitchen appliances, custom lacquer cabinetry by Ferretti, fixtures by Kohler, polished chrome and wedgewood vanities by Urbinati, and Giotoba hardwood floors. Best of all, residents have everyday access to a rooftop terrace, which one can enter using the elevator and which offers incredible views of the Hudson River and the city below.

“We wanted to show potential buyers that we are giving them value, because we value them,” said Brown.

The developers used the existing cast iron pillars and original 300-year-old wooden beams in the first six floors, including the lobby, and every window has been custom cut to fit the brick window openings on those floors. The balconies begin on the sixth floor of the building and open into the apartment with double doors, creating a smooth extension from indoor to outdoor, filling the apartment not only with light but with a greater sense of space. The building is loft living along with discreet service and bedroom spaces reminiscent of pre-war apartments.

The new addition of seems to hang effortlessly out in space, but structural engineers conducted an intense study to make sure the addition was done safely; the structural steel support is hidden everywhere so residents can feel secure.

Buyers, according to both Alan J. Segan, Vice President of Rubenstein Public Relations, Inc., and Bruce L. Ehrmann, Senior Vice President of Stribling Marketing Associates, noticeably appreciated the attention to detail in each apartment and the old and new aspects of each space.

“It took us less than four weeks to sell these apartments. This would be a surprise in any market,” said Ehrmann.

“This is very exciting architecture and we’ve done so well on sale,” added Segan.

When developers are searching for properties to convert, they often turn to landmark and turn-of-the-century buildings in historic areas, where buyers can find space in stylish neighborhoods that are steeped in history.

Hal Henenson, Director of the Direct Marketing Group at Douglas Elliman, which has handled a number of hybrid buildings, said it was pretty common to see penthouse additions on traditional cast iron buildings. However, if the building is a landmark (as many are in the downtown area) the addition will have to be set back, so that it cannot be seen from the street.

The Fulton-Chambers Building (102 Fulton Street), a 14-unit condominium conversion of a historic 1896 cast iron building, is another example of hybrid design currently being offered by Douglas Elliman. This converted building has a penthouse duplex added onto the original, renovated site, blending 19th century cast-iron architecture with an interior that suits 21st century needs-all without destroying the original façde’s charm.

The original Fulton-Chambers Building was built by real estate developer John Petit and veteran skyscraper architect James M. Farnsworth, and the seven-story structure features a cast and galvanized iron front designed in the Renaissance style.

When purchasing property, the key is to procure as much space as possible, and often the only place to go is up, so air rights must be purchased. And, of course, it costs more to extend and add on than tear down, but for developers like Brown, the added expense is worth it.

A New York State Senate bill introduced by Senator John A. DeFrancisco (R-Syracuse) would require individuals and businesses to hold a valid real estate license to be compensated for referrals.

The bill, which is being supported by the New York State Association of Realtors (NYSAR), was recently approved by the Senate Judiciary Committee and now moves on to the full senate.

NYSAR originally asked for the bill’s introduction because some unlicensed companies and individuals compile real estate listings and sell them to licensees. “We don’t feel that there is a huge problem yet,” said Mike Kelly, NYSAR’s government and political affairs representative. “But we want to codify law to conform with what is happening in other states.”

Connecticut, New Jersey, Pennsylvania and Vermont have enacted similar laws. Currently, New York law is silent as to whether or not referrals are a regulated activity, according to a sponsor’s memo for the bill. Over the years, different administrations have offered the industry alternative interpretations of the state licensing law, which has brought uncertainty to the marketplace, the memo said.

Kelly said the bill, S.4371, is especially important because of the growth of the Internet as a tool for connecting real estate professionals with buyers and sellers. “Incompetent and untrustworthy practices by faceless businesses and individuals have the potential to increase,” he said. “Consumers would certainly benefit from paid referral activities being limited to licensed entities and individuals.”

Don Corleone- the Godfather-got his start here in the Mario Puzo classic. A young Marlon Brando struggled against union corruption on the docks in On the Waterfront. Puerto Rican and second-generation European street gangs battled it out here in West Side Story.

These days, Hell’s Kitchen-or Midtown West or Clinton, as it’s been dubbed by others-is probably more accurately captured by actor Colin Farrell in the recent movie Phone Booth. In it, a fast-talking young public relations professional is targeted by a stalker in a phone booth just west of Times Square in an area that is still slightly seedy, yet increasingly gentrified.

We don’t see any of the new residential rental high-rises that dot the area in the movie, but maybe that is where Farrell would have lived in the neighborhood, which runs from 34th Street to 59th Street, and from Eighth Avenue to the Hudson River. At least 15 luxury residential buildings have opened in the last four years, largely catering to young professionals, amid the traditional tenement buildings with a tub in the kitchen where the fictional Corleone lived.

“The neighborhood is still a little bit offbeat, though don’t read anything into the phrase ‘offbeat’,” said Guy Caterina, a vice president at DJ Knight residential brokerage. “It’s a quickly developing neighborhood. Younger professionals are moving in-Wall Streeters and young attorneys who can walk to work in Midtown.”

Caterina said four or five new luxury residential buildings have opened up in the last year alone-most with fancy condo finishes like grandiose lobbies, high-speed Internet access and health clubs-and that there is now a glut of rental units on the market that is only expected to get worse. Sales have been relatively stable, however, other brokers say. The main corridor of development is along and around 42nd Street.

“They are expecting 6,000 new rental units in Manhattan in the next six to nine months, and that’s going to affect this area,” Caterina said. “The major landlords, because of the glut, and because of the neighborhood being a little out of the way, are offering phenomenal deals,” like three months’ free rent and no broker’s fee on two-year rental agreements.

The area-which Caterina says was “overlooked” by a lot of the brokerage community as recently as five years ago – is also drawing its share of upscale amenities as the new high-rises open up. Hot restaurants include Ilo, French-Moroccan Marseille, Mediterranean-fare Molyvos, Baldoria and Town.

“Take a walk up and down Ninth Avenue, and go into restaurants at 5 or 6 p.m. at night,” said Caterina. “It’s a lot more upscale than it was two or three years ago.”

Finance companies moving to Midtown since Sept. 11 have also been drawing renters, who can walk to work, to the area. Caterina also said newcomers moving to New York for the first time “have much less of a problem going into the neighborhood.”

Not everyone is happy with the changes, however.

Long-time residents and activists have been vocal about maintaining the area’s colorful past.

The area is dominated by tenements, some dating to the 1850s. The basic design is the railroad flat with all the rooms in a row, the bathtub in the kitchen and the toilet in an adjacent closet.

The neighborhood got its “Hell’s Kitchen” moniker in the 1880s, though the origin of the name is uncertain. Clinton, the other name by which the area is known, is traceable to two of the community’s founders-George Clinton, New York’s first governor, in 1777, and his nephew, DeWitt, who also served as mayor and later governor.

In the 19th century, Hell’s Kitchen was home to street gangs like The Parlor Mob, the Dead Rabbits and the Gorillas, and the “strong-arm squad” of police from the 37th Street station that battled them. Neighborhood residents knew enough to avoid the dangerous alley on 41st Street between 9th and 10th Avenues that was known as the League of Nations.

By the turn of the last century, as the tenements rose, the community was also becoming home to the city’s cleaning people, servants, restaurant and hotel workers, Broadway ushers and stagehands. These days, the tenements remain alongside parking lots, body shops and warehouses, a heritage that many locals want to maintain.

“The old timers aren’t too happy,” said Caterina. “Personally, I don’t put much credence in that local action. Parking garages and body shops don’t make sense in the middle of Manhattan anymore.”

In the future, there are huge development possibilities for Hell’s Kitchen as well as major obstacles.

The proposed Hudson Yards project-which calls for transforming the far West Side, from 28th Street to 41st Street and Eight Avenue to the Hudson River, into an office district-could radically alter the area. The New York Jets professional football team is also proposing a $1 billion stadium between 30th and 33rd Street near the river.

But Caterina said the most important development would be the extension of the No. 7 subway line, which ends at Eighth Avenue, a giant project that is currently being looked at by city officials.

“You’ve got to improve public transportation,” said Caterina, noting that remoteness from the subway is hurting high-rises on the far West Side. “Walking from 12th Avenue to 8th Avenue in the middle of the winter is brutal.”

Some residential towers have come up with novel solutions. The One Riverplace project at 12th Avenue and 42nd Street was having problems drawing renters.

“They called some brokers and the brokers told them that the reason units weren’t renting was because of transportation,” he said. “Now they have a shuttle that runs back and forth to the subway during rush hour.”

In addition to high-rises, there is also a bevy of midblock projects that blend in with neighboring tenements going up, as well as a push to renovate townhouses and the existing toilet-in-a-closet tenements.

“I get phone calls from investors all day long who want to renovate tenement buildings,” said Caterina. “They are generally renovating to rent. And you generally don’t see low-end renovations. They want the renovations to last.”