The Real Deal New York

The heart of Downtown Brooklyn has never topped any list of hot spots for residential real estate, but that could change as a slew of new projects reshape the area, with one already completed and selling fast.

Surrounded by gentrified neighborhoods such as Brooklyn Heights and Cobble Hill, Downtown Brooklyn has often been identified as a business center and has suffered from a perception that it is somewhat isolated from residential development opportunities.

A lack of adequate zoning and appropriate development sites prevented the residential renaissance of nearby districts from remaking Brooklyn’s core, an area roughly bound by Cadman Plaza West, Atlantic Avenue, Flatbush Avenue and the Brooklyn-Queens Expressway.

But Downtown could soon take center stage as a development spot, though it might not be equal to the massive gentrification that has turned some Brooklyn neighborhoods into pricey locales.

Overall, Downtown Brooklyn “is mostly commercial, and there are some streets that have some residential buildings,” said Frank Percesepe, managing director of the Corcoran Group’s Brooklyn Heights office.

The number of residential buildings is set to increase because a massive rezoning of Downtown Brooklyn is attracting developers. A city master plan for the area calls for about 1,000 new apartments, mostly on the fringes of revitalized neighborhoods such as Boerum Hill and Fort Greene/Clinton Hill.

Downtown’s first big new residential development, Boulevard East at 53 Boerum Place and State Street, was originally planned as a rental property until developers opted for condominiums.

About 80 percent of the 99-unit condominium development has sold since it went on the market in August, with 50 percent of the studio, one- and two-bedroom apartments snapped up in their first week on the market.

The fringes of Downtown Brooklyn are also attracting developers because they are unable to build in neighboring landmark districts like Brooklyn Heights and Cobble Hill.

One project in this fringe area is the Toy Factory Lofts at 176 Johnson Street between Gold and Prince Streets. The project bills itself as being in Downtown Brooklyn, though it is technically in Fort Greene.

Two weeks after sales opened in September, about two dozen contracts had gone out for the 56-unit building. At the Sept. 9 grand opening ceremony, the first 15 loft units put on the market were sold within 15 minutes.

Elan Padeh, CEO and president of The Developers Group, which is marketing the building, said buyers are paying an average of $540 a square foot for condos in the former toy factory. Units range in size from 600 to 1,200 square feet, and prices start around $250,000.

“Starting with this project, you are going to see a lot more development in Downtown Brooklyn,” said Padeh.

Within the formal boundaries of Downtown, the Court House Apartments, a 320-unit project on the northeast corner of Court Street and Atlantic Avenue, is scheduled to hit the market in January. Two Trees Management president David Walentas, who led the successful efforts to market the Dumbo area, is the developer. Also part of that complex will be a 600-unit parking area, retail space and the first YMCA to be built in Brooklyn in 60 years, said William S. Ross, executive director of sales for Halstead Brooklyn.

Just across the street, Brooklyn Law School is constructing a residence hall for 450 to 500 students, expected to be completed at the end of the year, he added.

Regarding future residential development, Walentas will be leaving his calling card all over downtown Brooklyn. He will be converting 110 Livingston Street, headquarters of the former b te noire of city government, the Board of Education, into about 320 condominiums, according to Ross.

In the distant future, Shaya Boymelgreen, developer of Newswalk, is planning a complex of residential condominiums and hotel space at the edge of Boerum Hill on Smith Street, Ross said.

On a similar timeline, Time Equities Inc. will build out the entire square block bounded by State, Smith, Schermerhorn and Hoyt Streets with residential units on top of retail space. The plan calls for townhouses on State Street and apartments on Schermerhorn, Ross said.

That development lies just outside the area recently rezoned by the City Council to allow the creation of 1,000 apartments, along with 5.4 million square feet of office and retail space by 2013. The portion designated for residential development is bounded by Schermerhorn and State Streets to the south, Flatbush Avenue to the east, Smith Street to the west and Fulton Avenue and Livingston Place to the north.

“It allows for much more aggressive residential building on the north side of Schermerhorn and the south side of Livingston,” Ross said.

Residential developers may have converged on Downtown Brooklyn, but it remains to be seen if buyers will put the neighborhood on the map.

Marilyn Donahue, a broker of Brooklyn properties since 1967, now with Douglas Elliman, believes they may.

“It’s a very good question,” she said. “You’d really have to look at the statistics to see how much residential is going in and where it’s located, because if it’s located at Boerum Hill, there’s no problem.”

Donahue said she believes in a rising tide theory, because all the contiguous communities in Brooklyn are bleeding into one another and ending Downtown’s isolation as a dowdy commercial zone.

“All the neighborhoods are beginning to link, so one could walk from Brooklyn Heights into Metrotech into Fort Greene/Clinton Hill,” she said. “It’s very easy.”

But brokers may have their work cut out for them.

Jeff Tartikoff, 35, began looking for an apartment in Brooklyn with his girlfriend last spring. The couple had a preference for Brooklyn Heights or Cobble Hill, but they were willing to look at apartments in Concord Village, a postwar complex of seven buildings with co-ops and a limited number of rentals just northeast of Tillary and Adams Streets. A one-bedroom apartment was then renting for about $1,600 a month.

“It was a pretty cheap apartment,” Tartikoff said. “That was the reason we even went to go look at it.”

But Tartikoff’s girlfriend wasn’t comfortable with the area. “I personally don’t think it’s true, but she felt less safe,” Tartikoff said. “It’s not as neighborhood-y over there.”

The couple felt the apartments were a bit “on the older side,” he said, so they eventually opted for a one-bedroom apartment on Montague Street in Brooklyn Heights for just under $2,000 a month.

Tartikoff said that, while apartment hunting, he had learned online that residential development was going on in the Metrotech area, but that didn’t interest the couple.

“It really wasn’t the area that we wanted to focus on,” he said, though he admitted that they would have been pleased with Park Slope and its lower prices if the commute wasn’t so lengthy.

So what will attract buyers to Downtown Brooklyn? Price is always important, and can often be the deciding factor for pioneering types.

William S. Ross, executive director of sales for Halstead Brooklyn, said the price of co-ops and condominiums per square foot in Downtown Brooklyn is about $550 and up, and housing stock comprises apartment buildings and some limited brownstones.

A one-bedroom co-op can be had for $325,000 to $500,000, and a two-bedroom for $550,000 to $900,000. Yet price may not be the biggest draw, especially when Brooklyn prices are now only a hairsbreadth lower than those in Manhattan.

Potential buyers may also weigh planned commercial development, such as the construction of an arena for the Nets basketball team proposed by Metrotech developer Bruce Ratner for the southeast of Downtown Brooklyn.

That “location, location, location” is real estate’s oldest clich doesn’t make it any less true. There’s plentiful subway access (though limited parking), available shopping and proximity to Smith Street restaurants, in addition to the area’s newfound cachet.

“The whole place, it’s like a jewel,” Donahue said. “It’s all brand new, and everything is coming up. I think every new development is going to bring a Manhattan price.”

The pace of luxury development in Brooklyn is picking up as builders expand on the borough’s high-end potential, ticking off a slew of projects that started with David Walentas’ 1998 conversion of Dumbo’s Clock Tower Building into luxury lofts.

Bored by brownstones and clamoring for the contemporary, buyers in Brooklyn are seeking out new residential projects in massive numbers today – and developers are delivering.

At least 130 new projects have been constructed in Brooklyn since Walentas gambled on the Clock Tower conversion, with neighborhoods such as Dumbo, Williamsburg and the edges of Park Slope leading the way. What’s already built is only a drop in the bucket compared to the deluge about to come, developers and brokers say.

In this issue, The Real Deal takes a comprehensive look at new development in Brooklyn, with an in-depth chart (link at bottom of story).

While Manhattan may have led the city in new residential construction during much of the 1990s, these days Brooklyn leads the pack.

Overall, Brooklyn is projected to have more than 5,000 new apartment units within the next two years, according to Elan Padeh, CEO and president of Brooklyn-based marketing firm The Developers Group. Construction permits for more than 3,800 units were granted through July of this year, compared to permits for 2,200 units in Manhattan.

The borough has -to an extent – stolen a march on Manhattan’s neighborhoods. Many buyers consider upscale Brooklyn Heights as the answer to the Upper East Side, while artsy, loft-dominated Dumbo is the alternative Soho. Liberal, family-oriented Park Slope can be viewed as the borough’s Upper West Side and hipster Williamsburg is the East Village.

Across Brooklyn, new units are routinely fetching $600 a square foot, up from $500 a square foot just a year ago, said Jay Schippers, managing director of the Corcoran Group’s Brooklyn Development Division.

“Brooklyn is no longer being viewed as the poor stepchild of Manhattan,” said Josh Guberman, president of Brooklyn-based Core Development Group, a developer active in both Manhattan and Brooklyn.

Padeh said Williamsburg and Dumbo will be the most active areas for new projects. While only a few new luxury condo units have already been built in each neighborhood only around 300 apartments in Dumbo and 350 in Williamsburg “It’s the possibility of the neighborhoods” that is driving the hype, according to Padeh.

Roughly 8 million square feet of new residential development the size of three Time Warner Centers is expected to be built in the next five years in Williamsburg. Prices for new developments currently range from $500 to $900 per square foot.

In neighboring Greenpoint, Padeh is working with a developer who is looking at doing a massive 4,000-unit project there, though growth in that area depends on success in Williamsburg first, he said.

In Dumbo, 10 new developments are expected to be built or converted in the next two years, tripling the number of existing condo buildings and quadrupling the number of units. New project prices in Dumbo currently range from $600 to $900 per square foot.

In Park Slope, development is occurring along the periphery. On Fifth Avenue and 15th Street, a new trend of converting brownstones to condos and three-story buildings to six-stories appears to be growing, said John Reinhardt, president and CEO of Brooklyn-based Fillmore Real Estate. A rezoning along Fourth Avenue that took effect a year ago allows buildings up to 120 feet (or around 12 stories), and several new projects are already underway. Prices for new developments range from $485 to $600 per square foot.

Other areas getting increased developer interest are formerly blighted areas like Bedford-Stuyvesant and Bushwick, where the goal is to build decent but more affordable housing at higher price points than they would command a few years ago.

Padeh said Bedford-Stuyvesant is “the next bastion” for developers, and building is already happening. Land is half as cheap as Dumbo and Williamsburg $50 to $80 a square foot and developers can charge $325 per square foot for a new condo, he said. Parts of Bushwick are now called East Williamsburg, and Guberman and others are currently working on projects there.

Padeh said there is no lack of buyers in any community. “There are a lot of people renting that want to buy,” he said, adding that “contemporary is what sells,” as an alternative to the borough’s sizable inventory of older housing stock.

“Every single developer I know has a client list of 2,500 buyers waiting,” he said.

Demand is so high that the market for new developments has started to overheat, leaving brokers to deal with frustrated buyers in the fast market.

“The major challenge in selling in Brooklyn is keeping the buyers happy because we sell so quickly that many buyers can’t keep up,” said Schippers. He said that by early October, his group sold 24 of 30 units in its Park Slope Gardens project at 305 3rd Street, a week after they hit the market.

In another project, Boulevard East at 53 Boerum Place, his group sold 75 percent of the 98 units in six weeks, compared to their normal six-week average sale rate of 50 percent.

Ten years ago, the condo sales market was virtually dead, with supply far exceeding demand, Schippers said.

Walentas, whose Two Trees Management controls much of Dumbo, “showed it paid to build luxury units in Brooklyn,” Padeh said. “Up until that point, there was no new high-end development.”

With the bar raised, today’s builders are offering amenities on par with Manhattan developments. In addition to better bathroom fixtures and lighting, Reinhardt said amenities like granite countertops and hardwood floors are becoming standard issue in the area, which is making these properties easier to sell.

Amenities don’t stop there in many projects. Apartments at Schaefer Landing the first luxury residential development to be built on the Williamsburg waterfront will feature oak floors, recessed lighting, and a washer and dryer in every home. The building will also have a fitness center, riverfront lounge, catering kitchen, business center, children’s playroom, parking garage, library, roof deck terrace, landscaped private gardens and, pending approval from the city, a publicly accessible ferry dock for water taxi service to and from Manhattan. Sales recently opened for the development, which is still under construction. Douglas Elliman is marketing the project.

The developing market isn’t always able to match demand. Schippers said that although many buyers are looking for loft-style units, they make up only about 20 percent of available units.

Other parts of the borough are also slated to see increased building activity. Downtown Brooklyn, a mostly commercial neighborhood, is seeing new projects due to a massive rezoning effort. A city master plan for the area calls for about 1,000 new apartments, mostly on the fringes of revitalized neighborhoods such as Boerum Hill and Fort Greene/Clinton Hill (see story under “Feature Story” header on main page). At the Toy Factory Lofts at 176 Johnson Street, units are fetching $540 a square foot.

“The area will see a lot of projects,” said Padeh, because of the lack of height limitations seen in other sections of Brooklyn. “The neighborhood is really an extension of four existing communities [including Brooklyn Heights, in addition to the neighborhoods mentioned above], so depending on how those expand, it will shape the character of the area.”

Activity won’t be as heavy in Brooklyn Heights and Cobble Hill, both of which are constrained by their landmark status. Brooklyn Heights has always demanded the highest prices per square foot in the borough, but there is little land to build on for new projects. In Cobble Hill, “a good portion of the area is landmarked, so when you do see a project, it’s a conversion,” Padeh said. The Arches at Cobble Hill, a new development converted from a church, is selling its last remaining units for around $600 a square foot. In the area west of Cobble Hill, there are more new projects. In Fort Greene, there is not much land for new development, because much of the neighborhood is dominated by well-preserved brownstones, though a few projects are underway.

Red Hook is the borough’s big question mark, as it remains relatively isolated from mass transit and convenient access to other parts of the city. While there is beautiful waterfront property, there is no subway access and considerable opposition in the community to any sort of rezoning. Much of the land is still designated for manufacturing, and there are few existing condos. Plus, transforming the area “is on the back burner” for the Bloomberg administration, Padeh said.

“Land there is the biggest gamble,” he said. “There are not a lot of people willing to take that risk.”

Map of Brooklyn New Developments

Businesses outside of the apparel industry are giving the Garment District a gradual makeover of its commercial tenant base, but its mantle as the next trendy locale for offices isn’t quite ready-to-wear.

Advertising agencies and other small, creative businesses are starting to fill spaces left by the now mostly decamped manufacturing side of the clothing industry that marked the area from 35th Street to 42nd Street between Fifth and Ninth Avenues as the Garment District. It is now officially known as the Fashion District.

But history, zoning and neighborhood landlords are slowing redevelopment of the 32-block region, also known by brokers as Times Square South. Although its average rents are cheaper than the rest of Midtown Manhattan, it’s still a working neighborhood, lacking amenities such as restaurants and night spots that round out an area where service industry workers will linger and help its overall development.

Ira Fishman, a vice president at Winoker Realty and longtime broker in the area, says the change in neighborhood names reflects the transformation of the district’s dominant industry, and heralds further erosion of its historical roots.

Fishman says that the rag trade was clearly the leading industry a generation ago.

“Back in the Seventies, you had buildings that were all specialty use buildings,” Fishman says. “That one was a coat building, that one was a dress building that was when women still wore dresses to work and it was so itemized. A garment was made in a specific building.”

But manufacturing offshore whether off the shores of the Hudson River in New Jersey, or over in Asia established itself as a cheaper alternative, and much of the large open floor spaces in the west 30s fell into disuse.

The old days are gone, says Fishman, but a new identity isn’t yet cemented. For brokers and tenants willing to be ahead of the curve, function may lead form in the Fashion Center. It sits between Manhattan’s three largest transportation hubs, west of Grand Central Station and bracketed by Penn Station and the Port Authority Terminal, and brokers are quick to promote its location.

Figures from Cushman & Wakefield’s August report on Midtown office leasing show that Times Square South accounted for 1.6 million square feet of leases, or 12.5 percent of the total space taken that month.

“That area has definitely changed and is a non-manufacturing area,” says Paul Walker, a vice president for leasing at CB Richard Ellis. “The two appeals are proximity to transportation and the price.”

He says below average Midtown lease rates will keep drawing new businesses in, despite protectionist legislation signed in 1986 as a concession to the once-influential Industrial Ladies Garment Workers Union, which prevented landlords from making more than 50 percent of certain buildings available as office space.

Despite the efforts of the ILGWU, the moribund manufacturing sector is a shadow of its former presence in the district as small designers are taking over the industrial share of the tenant base, accounting for only 33.5 percent of total employment in 2003, according to the Fashion Center Business Improvement District report.

According to Cushman & Wakefield, the average August lease rate for Times Square South was $29.85 a square foot, only 62 percent of the Midtown average of $48.04. Subleases are even cheaper, with a district average rate of $27.58 a square foot, or 61 percent of the average Midtown rate of $44.86.

“In the nineties, you had an influx of offices,” Fishman says. “The garment tenants had stopped doing their sewing and cutting, and even stopped doing their shipping, and little by little there were fewer and fewer manufacturers around.”

Late arrivals to the dot-com boom of the Nineties drifted north of the Flatiron District, unable to find space in the then-pricey Silicon Alley area, but most of those companies crashed hard and were gone by 2001, Walker says.

What really cemented the Fashion District’s potential was the 1999 deal that put advertising agency Bates USA into 400,000 square feet of office space at 498 Seventh Avenue.

“That’s when there was a permanent change,” says Fishman. “Little by little, the sportswear and casual wear showrooms began to leave and the offices took over.”

But the effects of the Internet boom were somewhat fleeting, Walker says.

“There was a flight to quality when the market dipped in 2002, as prices dipped in more prestigious neighborhoods, businesses that were still around said they didn’t want to be in second-class neighborhoods when they could be in better ones for the same price.”

At the same time, landlords were unwilling to spend money to adapt old manufacturing spaces for office tenants, and Walker says that’s resulted in a bit of a stalemate.

Matt Astrachan, executive director at Cushman & Wakefield, says that is starting to change, and that with a little extra work, variances can be granted to allow higher proportions of office tenants. He says one recent deal fuses past and present in the Fashion District Calvin Klein’s renewal on a 150,000 square foot lease at 205 West 39th St. is for office space only.

“They don’t do any manufacturing over there, just offices,’ he says. “There’s a lag between what was and where we are going here.”

Astrachan says the neighborhood is underutilized for office space, but that major landlords, including Williams Real Estate, Kaufman Adler, Newmark and Adams and Co. Real Estate will eventually be able to capitalize on the Fashion Center’s natural advantages of location and price, while relying on the newer crop of smaller designers and showrooms that still make up at least a third of the area’s workforce.

“In a down market, we were still outperforming, because the industry tenancy was stable,” he says. “Now we’re still outperforming, and we’re always considering new office tenants. The [permanent] change isn’t really going to happen until you have the ability of some of these buildings to rent to pure office tenants, and right now they technically can’t. It’s still underutilized.”

The Real Deal

Conditions are improving in the city’s office leasing markets, according to Grubb & Ellis, which recently reported that Manhattan’s office vacancy rate dropped to 10.5 percent in September, its lowest rate in 26 months.

A modest economic recovery has given the Midtown leasing market a lift, though Downtown is seeing a growing vacancy rate in all types of office space, according to the September monthly report issued by Colliers ABR.

Midtown saw the biggest rise in leasing from the previous month, with a 9.3 percent vacancy rate for class A office space in September, down from 9.8 percent in August, according to Colliers.

“Midtown probably represents about 70 percent of all leasing activity this year,” said Richard Persichetti, senior research analyst at Grubb & Ellis. “It has been more the case that tenants are moving around and taking new space. There aren’t many new companies coming to the market, but the amount of movement has been enough to drop the vacancy rate.”

A third-quarter report by Cushman & Wakefield said new leasing in the city has increased by more than six million square feet compared to the same period a year ago.

Midtown

The class A vacancy rate continued to drop for the third straight month, as Morgan Stanley completed a renewal of 364,000 square feet at 750 Seventh Avenue and the law firm Hunton & Williams leased 133,000 square feet at 200 Park Avenue. Additionally, Time Warner pulled 210,000 square feet off the sublease market for its own use and Est e Lauder leased 62,813 square feet at 110 East 59th Street. Colliers said the average asking rent climbed to $55.78 a square foot in September, up 1.5 percent from August, when asking rents averaged $54.95 a square foot.

Meanwhile, subleasing activity stayed relatively flat, according to Grubb & Ellis.

“Midtown has definitely gotten tighter,” said Robert Sammons, research director at Colliers. “Things are much improved and the pricing is much stronger. That’s good for landlords and owners and not so good for tenants.”

Leasing has been further bolstered by the improving local economy.

“The New York City economy has continued to strengthen throughout 2004,” said Persichetti in his report. “Gross city product grew for the third consecutive quarter and unemployment dropped to the lowest level it has reached in several years; add positive job growth to the mix and these improvements have helpedécorporate decision makers feel more comfortable with their decisions to lease space.”

Midtown South

While this market was not as strong a performer as its neighbor to the north, Midtown South’s 11.9 percent vacancy rate in September was still a slight improvement from the August rate of 12.1 percent.

Persichetti said most of the activity in the area is still driven by the garment industry, but a 91,299 square foot lease by WebMD Corp. at 111 Eighth Avenue and CHF Enterprises’ 53,000 square foot renewal at 1 Park Avenue were key September transactions.

Average asking rents for the last month remained flat at $29.58 a square foot, up one cent from the August figure of $29.57 a square foot. That represents a 6.2 percent increase from the same period a year before, according to Colliers.

Downtown

Vacancy rates climbed across all classes of Downtown office space in September, and analysts said the looming expiration of city and state incentive programs will exacerbate the market’s weakness. Colliers said the class A vacancy rate was 13.2 percent for September, up from 11.3 percent in August.

Though expected, the decision by JP Morgan Chase to place on the market 588,000 square feet of directly leased space at 1 Chase Manhattan Plaza and 298,000 square feet of subleased office space at 95 Wall Street was responsible for the jump in vacancy rates.

“Chase is in consolidation mode, more so now that they are also working through the effects of their merger with Bank One in Chicago,” Sammons said. “This is cost-cutting, but you still have a lot of prospective tenants kicking the tires Downtown.”

The average asking rent for class A space declined slightly to $35.03 a square foot in September, down from $35.47 a square foot in August, according to Colliers.

The Jan. 1 deadline for new entrants into the Small Firm Attraction and Retention Grant Program, a city and state incentive program that offers grants at a rate of $3,500 per employee will take some wind out of the market’s sails, according to Persichetti.

“If [new tenants] weren’t drawn by that, I don’t see them coming Downtown,” he said.

The class A vacancy rate will remain stable and even decline if a significant new tenant is able to arrange incentives for a Downtown relocation or expansion, Sammons said. Meanwhile, class B and C vacancy rates have risen enough to prompt numerous conversions to residential space, he said.

These are some high times for penthouse apartments and for the few top-tier brokers who sell them.

A three-story, 16-room penthouse atop the Pierre hotel listed for $70 million last month has the highest asking price for a Manhattan apartment.

Owned by author and hedge fund manager Martin Zweig, the 11,000 square foot co-op includes nine bedrooms, four terraces, six fireplaces, heated marble floors and a “grand salon” a cavernous former hotel ballroom with a 23-foot ceiling replete with ornate chandeliers.

The property was recently ranked No. 2 on Forbes’ list of the U.S. “Ten Most Expensive Homes.” The co-exclusive brokers for the property are Sharon Baum of Corcoran and a team headed by Elizabeth Sample of Brown Harris Stevens.

Sample and partner broker Brenda Powers also have the listing for the eighth-most-expensive home on the Forbes list, the penthouse at the Ritz-Carlton hotel, which is currently on the market for $45.5 million.

With a price raised from $41.5 million last year, the triplex condo has nine bedrooms and nine-and-a-half baths, a 400-square-foot terrace, three wood-burning fireplaces and a glass atrium.

Figuring six percent commission on both penthouse deals (assuming they sell for asking price, which some say is unlikely), brokers would net an estimated $6.93 million on the sales.

The other Manhattan property on the Forbes list coming in at No. 4 is a penthouse duplex at the Trump World Tower selling for $58 million. The apartment was purchased in 1999 by a pair of Turkish brothers Cem and Hakan Uzan for a then record price of $38 million, but they later backed out of the deal according to Forbes.

The entire apartment is 22,288 square feet, and it has 16-foot ceilings. Michael Shvo of Douglas Elliman had the listing as of last month.

Michael Shvo has a vision for his nascent brokerage and marketing company that comes from past experience and what he hopes will be his future competition.

“A combination of Douglas Elliman and the Sunshine Group” is how Shvo describes the new firm he is in the process of forming. He’ll have plenty of support as he tries to make it happen.

Shvo, who headed the top-producing group at Elliman in 2003, resigned last month to start his own firm. He will be joined by his entire 20-person group, and is currently finalizing a lease for office space on Fifth Avenue in the upper 50s.

Rumors abound over the circumstances of Shvo’s departure, though the 31-year-old top broker said the move was something he has been working towards for a number of years.

“There is only so much you can grow within a company,” said Shvo, who after starting at Elliman five years ago sold $300 million in property last year and currently has $150 million in exclusives. The decision to leave gelled in January, after he won the top-producing group award, he said. “I was working 18 hours a day, so I didn’t have time to think,” he said. “When I had a little time to think, I made the decision.”

Others have speculated that there were different reasons for Shvo’s leaving. Earlier this year, ethics issues were raised over sales at 505 Greenwich Street, a new development. The Corcoran Group is marketing the building, but Shvo apparently brokered several sponsor units in the building, causing a stir. Shvo said Corcoran was unfairly keeping other brokers out of the building. The issue was brought to REBNY.

“The departure didn’t have to do with that,” said Shvo.

Steven Spinola, president of REBNY, had no comment, saying it is the policy of the board not to publicly discuss any issues it may or may not be deliberating.

A source at a competing brokerage also said Shvo had had a confrontation with Steven James, Elliman’s Eastside director of sales, that precipitated the departure.

James had no comment, and Shvo said no such encounter occurred, pointing out that he didn’t have a working relationship with James, because he was answerable to the head of the firm, Dottie Herman. Shvo added he is “good friends” with Herman and had dinner with her following his departure.

Karen van de Vrande, vice president of marketing and communication for Douglas Elliman, also said it had been an “amiable” parting of ways.

As far as his current listings, owners will decide if they want Shvo or Elliman to continue to sell their property. Shvo will retain somewhere between all to a majority of his listings, a member of his group said.

Listings include the penthouse duplex at the Trump World Tower, selling for $58 million, which is No. 4 on Forbes’ list of the U.S. “Ten Most Expensive Homes.”

Shvo’s new firm is going to focus on marketing new developments and brokerage – part Sunshine Group and part Elliman, he said.

“Developers building projects today have very few choices,” he said. “I’m one of the only people in marketing who has extensive experience directly with buyers. I’ve worked from the bottom up.”

Shvo already does the consulting and marketing for 11 condominium developments in the city, he said. Projects include 350 West 53rd Street, another at Third Avenue and 39th Street and another on Fulton Street.

“We’ll be the young, happening thing,” said Shvo, adding that one project he is consulting on will have hot tubs in every apartment and another project will have $40,000 bathtubs. “We are not looking to fit in the mold and do the same thing again and again.”

Shvo said he expects to expand his company from 27 people starting out to more than 50 by the end of the year. “I’ve been flooded with emails from people who want to work with us,” he said.

If it’s location, location, location that sells property, then it’s reputation, reputation, reputation that sells brokerages themselves, particularly in the New York metro area.

The same market dynamics that will drive up a sought-after piece of property are at work in the real estate brokerage market, where successful smaller operations can fetch between three and 6.5 times their annual earnings in a merger or acquisition transaction, depending on the size of the business.

What a brokerage is worth begins with its EBITDA, or earnings before interest, taxes, depreciation and amortization, or more simply put, its annual cash flow.

“The whole process begins with what your EBITDA is,” says David Michonski, chief executive of Coldwell Banker Hunt Kennedy, which is itself a merger-created company that took its current shape in a 1995 deal.

But from there, the terms of a brokerage deal differ somewhat from say, a bank merger.

“In a service industry like ours, everything gets factored in – your reputation, your years in the business and especially [the seller's] plans for their role in the company after the deal is completed,” Michonski says.

The tri-state area is the second largest in the country in terms of the value of its transactions, and major national firms are constantly consolidating market share with strategic acquisitions of smaller real estate companies as they jockey for advantage.

The purchase last month of D.J. Knight & Co by global relocation services powerhouse SIRVA (see story under “Residential” section on main page) and Halstead’s buy of Heron Residential are only the latest in a year marked by many acquisitions.

One of the year’s biggest deals, Corcoran’s purchase of Citi Habitats, was recently revealed to have taken place for $49.6 million, according to a person familiar with the contract.

Earlier, Sotheby’s International Realty joined the constantly expanding list of Cendant Corp. subsidiaries (of which Corcoran is also a member) in a deal worth $100 million. According to SEC filings from last November, Sotheby’s real estate division brought in $27.6 million in revenue for the first nine months of 2003. Projecting earnings of roughly $35 million by year-end, it means the firm, headquartered in New York with 15 offices nationwide, was purchased for around three times annual earnings.

There were also numerous smaller transactions throughout the year, including Brown Harris Stevens’ and Douglas Elliman’s first forays into Brooklyn and several purchases by Manhattan firms in the Hamptons.

Backed by the Biggest

Consolidation is the name of this game, and no company has moved more aggressively into Manhattan than Cendant, which, through its real estate subsidiary NRT, bought up Corcoran in 2001 and took over the Sunshine Group a year later, before picking up Citi Habitats and Sotheby’s this year.

Cendant shares have risen more than $2.40 in the last 12 months, partly on growth at its crop of Manhattan acquisitions, according to NRT chief executive Bob Becker.

Its main rival, the $12-billion Prudential Company, backs Douglas Elliman as its principal link to the city’s real estate market. Elliman, the city’s largest real estate company, expects to book $6 billion in sales this year.

“In one way every marketplace is totally different from other marketplaces, but in other ways they are totally similar,” Becker says. “What we looked for were the right opportunities, and first and foremost, we look for talent.”

The combination of talent and solid cash flow is set against a generally accepted range of multiples for a real estate company, says Michonski.

“The rule of thumb is that if a company is doing $2 million or less in gross commissions over 12 months, it’s generally worth its EBITDA,” he says. In other words, a multiple of one times earnings, rather than a higher multiple.

The bigger the company, the higher the price. “People want size and they’re willing to pay for that,” Michonski says.

When a company has $4 million in commissions, the purchase multiple can go to 2.5 times EBITDA, and can triple once the earnings hit $6 million, he says. “That’s what I call the magic number,” Michonski says.

The $9 million to $12 million range hits a multiple of four or better, and over that, prices will range from 5 times EBITDA to as much as a 6.5 multiple.

The Sotheby’s sale would work out to be less than Michonski’s estimates, but some observers speculated at the time that Sotheby’s may have actively sought to sell off the unit to offset losses following the U.S. Justice Department’s investigation of price fixing involving Sotheby’s and Christie’s, in which both companies agreed to pay $268 million each to settle civil claims.

Steven Murray, co-founder of Real Trends, a Littleton Colo. publisher and head of Murray Consulting, a group that represents sellers in mergers and acquisitions, says the 6.5 multiple is the top of the market, and something of a premium for major markets. Another factor taken into consideration is the relative desirability of the company on the market.

“The core of the valuation is the size of the firm and the location of the firm, and the potential synergies with other operations of the acquirer – and how many people are pursing the company,” says Murray, who estimates he’s worked on about 15 New York area transactions in the last 18 months. “That could mean they’re going to get a higher multiple than their size would dictate, but when the synergy for the purchaser is excellent they see it just fits very well with an existing company’s operations.”

The Right Fit

Making sure the office cultures will blend is something that can’t really be analyzed, but sellers, buyers and consultants agree it is perhaps the most critical aspect of any deal.

“It’s people who make an organization, particularly in a service business like this one,” says Becker. “It won’t work if there’s not a sharing of common values.”

Michonski says a true integration can take up to two years and can be very smooth, or very bumpy indeed.

After a rocky few months following last year’s acquisition of Charles H. Greenthal, Michonski says he had to address his new employees and say: “Look, we’re on a big bus, we’re growing at 40 percent a year and the driver knows where he’s going and knows the direction, and either you decide you want to be on it and take this ride with us or you’ve got to get off.”

“Within two months, about half the people had left,” he recalls. “That’s always a very painful experience, but a year later, everyone that stayed has doubled their income.”

A talented, organized management structure also adds value to a deal, say industry observers. Sometimes that’s not always obvious, as with the 2001 deal that moved Corcoran into the Cendant portfolio. The value of the NRT-led deal was estimated at $70 million, and closed just after the Sept. 11 attacks.

“To the whole outside world, that was a total personality-driven company, but [founder] Barbara Corcoran had great organization and great systems in place to run that company,” Murray says. “There was great depth to the team, and as carefree and entrepreneurial as Barbara seemed, there was a solid team. You can see that, [chief executive] Pam Liebman has tripled the size of that business in the last three years.”

He also says Barbara Corcoran’s decision to remain with the company in an advisory capacity after the sale closed boosted the purchase price.

“Very few people want to buy a business where the owner is going to retire the next day, not in our industry,” he says.

Other sources says it’s unclear how much involvement Corcoran has with the company now, however, and have heard that the “Queen of New York Real Estate” wishes she had waited longer to sell the firm in order to fetch a higher price.

After a weak September apartment market in which potential buyers and sellers were distracted by the Republican convention and the later-than-usual Jewish holidays, October marked a return to somewhat more normal conditions.

Uncertainty created by the presidential election appeared to give the market some pause, however, even though the lower-end showed strength as a result of low interest rates.

Overall, weekly purchase application numbers from mid-October were stable, said Jonathan Miller, president of the appraisal firm Miller Samuel and author of the Douglas Elliman Manhattan Market Overview. Interest rates at a six-month low help drive purchases.

Lauren Cangiano, senior vice president at Halstead Property, said the market was active, “but if I had to compare this October to last October, this one is a little slower.”

The proportion of deals done at the lower-end of the market has been increasing and there has been a marked increase in inventory in this segment as well, she said.

In the third quarter, studio and one-bedroom units made up 54 percent of all the apartments sold, a rise from 49 percent the quarter before, according to Miller’s statistics.

“We are definitely seeing a slight inventory increase,” said David Michonski, chairman of Coldwell Banker Hunt Kennedy. “We think that its things being on the market longer.”

“There have been many more open houses over the last several weeks,” Cangiano agreed. “We’re seeing more inventory in the lower-end a million and under.”

Elaine Clayman, a vice president and director at Brown Harris Stevens, had a different take, saying she was seeing multiple bids and getting “aggressive” prices for her listings.

“I was a little bit nervous in the summer,” she said. “But perhaps that was just a seasonal slowdown. I thought maybe people would hold off buying until after the election, but that’s not what’s happening. They’re out there buying like crazy.”

Earlier, September sales activity declined 18 percent from the previous month, which was already showing signs of a significant slowdown.

Regardless of their political sympathies, brokers can blame the Republican Party for the dip that month, said Jeffrey Jackson, chief economist for appraisal company Miller, Maxwell & Jackson.

“Sales activity disappeared the week of the Republican convention, dropping to the lowest weekly level in over two years,” he said. “Even though low mortgage rates have kept the market hot, owners, buyers and brokers all took time off.”

The appraiser also said the Labor Day holiday and Jewish holidays played a role in the slowdown of the week ending Sept. 4, when sales dropped 34 percent in Manhattan while national sales rose by 12 percent.

The contracts that were signed during that period were most likely for or above the asking price. The Douglas Elliman report for the third quarter said the average price climbed to $1,069,445, a 2.1 percent rise from the preceding quarter.

However, the median sales price dropped to 655,000, a 2.8 percent decline from the preceding quarterly record of $674,000, which Miller attributed to the rise in smaller apartment sales.

In the rough-and-tumble world of New York real estate, rental agents are at the bottom of the well-established pecking order. They are often looked down on by sales brokers, generally make less money and have more tiring jobs in a faster-paced segment of the market. So when is the right time for a rental agent to head on to the seemingly greener pastures of sales?

New agents often start out in rentals because the success rate is higher and it’s easier to make money right away, while a new sales agent may not see any income for three to six months. Later, as the agent gets experience and builds up a reputation in the business, that can change.

Often, the high-pressure atmosphere and long hours in the rental market will drive an agent to either move to sales or leave real estate altogether.

“Typically a rental agent will get burned out over the course of three years or so. They become bored and less challenged, this is when a transition to sales should come into play,” says Michael Moran, director of sales at Dwelling Quest.

Agents that decide to stay in the industry usually make this decision when they first start out, Moran added.

“They join the real estate industry for its long-term career potential,” he says. “They may not have a transition plan in mind, but they know this is the career for them, wherever it may take them.”

From the outset, though, a rental career can be a tough haul. Around 80 percent of agents don’t make it past their first year, according to industry estimates.

“A lot of people give up in the first few weeks. It’s a prime example of not managing their time and workload,” says Noah Sferra of Benjamin James, who started as a rental agent and now also does sales. “You have to say, ‘I am not working today after 6 p.m. I’m not making any money but I still need two days off.’ I see that all the time with the younger ones; they are working hard. If there is burnout, it is because they are not taking care of themselves.”

Adding to the pressure, the rental market started improving this past spring after a four-year lull following the dot-com bust, resulting in more competition among agents.

For those who are successful, however, starting in rentals can mean a quicker rise to the top than in sales.

“One can become a top rental agent in six to nine months,” says Greg Young of Citi Habitats. “In sales, it takes two or three years. Successful agents, as they grow in their careers, are going to move toward sales because it’s easier to make $200,000 selling 15 apartments than renting 70 of them.”

Starting out in rentals is also a good way to get acquainted with inventory in the marketplace without making the leap into sales. “To become familiar with your market and each building, it’s helpful to be a rental agent first,” Sferra says.

Sferra himself made the transition to sales a few degrees at a time, making his first sales deal less than a year after starting out as a rental broker. One year after that, now doing as many sales as rentals, he says his income has more than doubled.

He knew the time to make the transition had come when he noticed that on his company’s Web site, sales ads were getting nine to ten times more hits than rentals.

“There is more of a market in sales,” Sferra says.

Splitting time between rentals and sales can be a “fantastic marriage,” he adds, “because in sales there is so much downtime. While you are waiting for a commission or the deal to close there is plenty of time to do some rentals.” Rental deals can typically take three to four days (including three to four hours to get a lease), while the timeline for sales is more likely three to four months.

Thomas Kim of Dwelling Quest just started sales training after working in rentals for nearly a year.

“It’s hard to keep up that kind of pace for a long time,” he says. “Rentals is where you start out, and sales is a career.” Kim says rentals can feel like running a hundred-yard dash literally. “There have been situations where I’ve run to the management company office and gotten there 10 minutes late.”

Beatrice Ducrot of Stribling says a slower pace and a more in-depth relationship with clients is part of the attraction of being in sales.

But Ducrot, who did rentals almost exclusively for 10 years before moving into sales, says she has also cultivated long-term relationships with her rental clients.

Like her, many clients have made the transition from rentals to sales.

“I have rental clients who have stuck with me for the last 20 years because I tried very hard to help them the best I could and they enjoyed my service,” she says. “A lot have become sales clients, too.”

Ducrot acknowledges the perception that rental agents are lower on the totem pole than sales agents, but says it is inaccurate. In her opinion, rental agents work much harder than sales agents. She says it’s especially true because “the rental client wants to see you right now and has much less loyalty.”

“Most agents that specialize in sales feel they are above rentals,” agrees Moran. “This carries over to the rental agents, who are forced to believe that they are lower on the totem pole due to the lack of respect they get from the ‘more established’ sales agents.”

Still, Sferra acknowledges, “you definitely find that people walk away from rental deals saying worse things about their agents than in sales deals.”

Moran believes that in order to be a professional in the industry one must be able to offer complete knowledge of both sides of the market.

“If an agent can’t offer the full service, that agent is on the lower end of the totem pole, regardless of whether he or she specializes in sales or rentals,” he says.

Agents who want to go from rentals to sales can follow many potential routes, because there’s no standard road map telling them how to make the change.

A brief survey of New York real estate companies shows that much depends on an ambitious agent’s employer.

Traditionally, companies have specialized in either sales or rentals, but some companies, such as Citi Habitats, see their ideal broker as one who does both equally well.

Greg Young of Citi Habitats has a background in sales and joined the company five years ago to teach rental agents to sell.

“Through our sales training they grow at their own pace in a two- to three-year period,” he says. “If they prefer rentals they can have occasional sales and if they prefer sales they can be more sales oriented and cut down on the number of rentals. It’s an attractive reason to start with us because agents are not pigeonholed.”

Michael Moran, director of sales at Dwelling Quest, says the transition should be done over the course of six months, with an agent gradually working more in sales and slowly phasing out rentals.

“I hold their hands for as long as they need me to. I go on showings with them, tour new developments and existing buildings and go on marketing presentations with them,” he says.

A top broker needs to stay on top of both the rental and sales markets, Moran adds. “Often sales agents are asked to find investment properties for their buyers,” he says. “So one must know the rental market, its trends, the hot neighborhoods and the like in order to advise accordingly.”

At Benjamin James, there is a co-op and condo class, but broker Noah Sferra, who splits his time between rentals and sales, believes the best way is to learn by working with a manager.

“One of the best things that can happen to you is to have a deal get really screwed up because that is the way you learn,” he says. “In one sale the attorney did everything wrong, so I had to make it right. I knew it cold after that.”

Sferra also thinks it’s very helpful to find a friend who’s buying as a way of easing into that first sale.

Beatrice Ducrot of Stribling, who also does both rentals and sales, says the fast pace of the rental market is good training for sales, but that agents must often learn sales by going to another firm.

“A lot of firms do not allow their brokers to do both,” she says.

Since sales agents rely on commissions and a slow start can leave a rookie without much income, Moran says one of the most important factors in making the switch is building up savings to get through potentially lean times.

“Typically to get going in sales, you should have at least six months worth of living expenses saved up, as it takes time to close your first deal,” he says.

Another significant aspect in making the transition from rentals to sales is starting to think long-term.

“The mistake that most rental agents make is they think the length of the relationship with their renters should be short-term, but renters buy and so do their friends and family,” says Moran.

The Real Deal

Relocation giant Sirva has made its latest move a Manhattan expansion, picking up brokerage and relocation company DJ Knight & Co. in a deal announced last month.

Terms of the deal were not disclosed. Sirva, a publicly traded company, will file disclosure documents with the Securities and Exchange Commission, but had not done so as of press time.

Jim Trainor, a spokesman for Chicago-based Sirva, said the acquisition was a natural fit for the multinational company with 8,000 employees in 45 countries. Sirva’s North American brands include Allied, northAmerican, Global and Sirva Relocation. The company has a market capitalization of $1.7 billion.

“We wanted to have an entr e into New York City, and DJ Knight certainly provides that,” he said. “They know the market better than we do.”

David Knight, president of DJ Knight, will become director of global sales at Sirva and James Conigliaro, the senior vice president, will become general manager at Sirva, the company said.

Over the past 17 years, Knight built up his business as a residential brokerage and relocation specialist, working with financial services, consulting firms, insurers and other corporate clients to provide company housing, home purchase and rental assistance and residential brokerage services, which will mesh with Sirva’s domestic operations and its foreign subsidiaries.

Brokers are bubbling over buyers’ interest in a recent condo conversion of a pair of Park Avenue South buildings, where a radical makeover by Tessler Developments is transforming former union offices to luxury condominiums behind the existing turn-of-the-last-century neoclassical facades.

The eight-story buildings that once housed the United Federation of Teachers, between 20th and 21st Streets, will now be called 260 Park Avenue South.

More than 70 of the 110 apartments in the new development have been sold since sales began in mid-August.

In converting the building, the developer has done more than turn drab corridors into carpeted hallways and replace rows of file cabinets with spiffy kitchen fixtures.

Tessler purchased the complex 20 months ago, and besides the requisite gutting and sectioning into apartments, the developer has added four floors, replicating the building’s exterior.

Tessler is also are cutting out a 12-story slice to create a south-facing courtyard with terraced gardens to expose the inner apartments to natural light and better air flow. Brokers who have shown clients the model apartment say prospective buyers are easily swayed by what they see, and are backing it up with big offers.

Zoya Litinetskaya, a broker with Halstead Property, was working with a client interested in primarily new developments for almost eight months before the woman decided on a two-bedroom apartment in the “800 range,” Litinetskaya said.

“What she was getting for the money at 260 Park Avenue South was by far superior as far as finishes and materials used,” Litinetskaya said. “She actually overextended her budget by a considerable amount and bought an apartment at 260 Park Avenue South versus, I would say, 10 other developments.”

While some buyers are easily convinced, some brokers are also seeing the continuation of a trend toward smaller loft spaces with the project.

Mary Vetri , a senior vice president at William B. May, said developers may have passed up sprawling loft-size spaces in favor of three-bedroom apartments, perhaps trying to squeeze more rooms into a building.

Lofts at 260 Park Avenue South do seem smaller, and “may be a case in point,” she said.

Shaun Osher, executive vice president at Douglas Elliman, pointed out that the overall number of units in 260 Park Avenue South, which he is marketing, may shrink from 110, because buyers are combining spaces to make larger homes.

The apartments, with interiors by Shamir Shah, are getting a good response, say brokers, whose clients are drawn to the 11- to 14-foot-high ceilings, oversized double-paned windows and kitchens opening onto living spaces that lend a loftlike feel to apartments. Luxury touches include Calcutta marble countertops, oak floors, Italian walnut cabinetry and stainless steel appliances.

Shah said his aim as a designer is to meld a building that is clearly older and more traditional with the modernity of the interiors.

“They’re clean, streamlined and slightly transitional,” he said. “The aim was to give a wide range of people a neutral palette and base to develop, but also to give them something that spoke of quality and a decent, well thought out finish.”

David Ryskiewich, a broker with Citi Habitats, agreed. He recently sold a client a 994 square foot one-bedroom apartment with 12-foot ceilings for $910,000.

“I’m a big fan of prewar conversions, and the gut renovation of the interior is completely contemporary,” he said. “All the fixtures are top-of-the-line. Chef’s kitchens. Very tasteful.”

Ryskiewich said he felt the only drawback is that clients have to take a “huge leap of faith” to purchase because the building is not yet finished. He said this may have given risk takers a relative bargain, because the project was priced slightly under market.

“It’s probably a no-brainer,” Ryskiewich said. “By the time the building is finished [in summer/fall 2005], if there are any apartments still available, they’re going to be at market price and above.”

Osher said he recently sold the two-bedroom, 1,880-square-foot model apartment for $2.6 million.

“We’re breaking records for prices,” said Osher.

Vetri said she wasn’t able to convince her client to purchase at 260 Park Avenue South, but it wasn’t for lack of her enthusiasm for the development, which has 24-hour concierge service, a fitness center and storage spaces for bikes and strollers.

“To me, it’s the ultimate pied- – terre. It’s a good central location,” Vetri said. “Because of the size of the rooms, it’s perfect for someone who’s comfortable in something that’s refined but unpretentious.”

There are also three penthouses, one of which has its own lap pool, and none of which are being marketed yet. A 4,000 square foot penthouse with up to six bedrooms may sell for almost $8 million, Osher said.

Penthouses will overlook a neighborhood that has captivated brokers. The easy access to Gramercy Park and Union Square and the upscale cachet of Park Avenue make 260 Park Avenue South a particularly desirable residential location.

Though parking may be limited, there is plenty of subway access, and the neighborhood has the energy of downtown but the sophistication of Park Avenue.

“It’s a balanced, solidified, stable neighborhood, but it is a little bit trendy, it’s a little bit younger, it’s a kind of happening neighborhood,” said Adrienne Albert, president of The Marketing Directors.

The Real Deal

Lower Manhattan
29 John Street

Conversion of 80,000 square foot office building into 50 luxury condos. The developer is Y.L. Real Estate Developers a partnership between Yair Levy and Ezra Mashaal of the Kash Group. The architect is Arpad Baksa. Interiors and amenities are being designed by Shamir Shah, and include a rooftop gym. Contact: Douglas Elliman Development Marketing Group, 212-702-4060.

Midtown
325 Fifth Avenue

Construction scheduled to begin shortly on a 250-unit condo project between 32nd and 33rd Streets. The building, which is expected to be completed in early 2006, is being developed by a joint venture between Continental Properties, owned by the Fisch family, and Jeffrey Levine’s Douglaston Development. Prices are not yet announced.

Midtown
125-135 West 31st Street

Fifty-eight story project being built by a partnership of the Franciscans of the Holy Name Province, the Durst Organization and Sidney Fetner Associates. The building will include a residence operated by the American Cancer Society for patients in treatment, new facilities for the church and 460 rental apartments, 20 percent of which will be for low-income households.

Upper East Side
Hampton Court
333 East 102nd Street

Glenwood Management is now leasing an eight-story, 229-unit rental building at First Avenue. Net effective rents start at $1,765 for a one-bedroom, $2,015 for a two-bedroom and $2,655 for a three-bedroom apartment. Amenities include hardwood parquet floors, marble bathrooms, 24-hour doorman, virtual concierge service, fitness center, children’s playroom, shuttle to the 86th Street subway and a courtyard. This is the first luxury residence above 100th Street, according to Glenwood. Contact: Glenwood, 1-877-535-0500.

Upper East Side
The Carhart Mansion
3 East 95th Street

Formerly one of several Upper East Side townhouses belonging to the Lyc e Fran ais de New York, the 38,810 square foot building off Fifth Avenue is being converted into four luxury condos. The development will include a five-bedroom triplex and a four-bedroom penthouse, both asking $21 million, a duplex asking $15.5 million and a three-bedroom apartment asking $10.5 million. When completed in March 2005, the residences will include five powder rooms, a wine vault and a wet bar, private storage, 11-foot ceilings and two butler’s pantries, according to the New York Observer. London architect John Simpson is working on the project. Contact: Carrie Chiang at Corcoran, 212-836-1088.

Upper East Side
21 East 96th Street

Eleven-story condo with nine units, all exceeding 3,000 square feet and with prewar layouts. Four-bedroom, four-bathroom apartments are selling in the range of $4 million. The building is set to open in a year, and five units have already been sold. Contact: Sophie de Sanctis, Corcoran, 212-360-6486.

Construction Update:

Chelsea
555 West 23rd Street

A topping out ceremony was held last month for the 14-story luxury rental building between 10th and 11th Avenues. To be opened in spring 2005, the building will have 337 studio, one- and two-bedroom apartments. It was designed by the Stephen B. Jacobs Group and by interior designer Andi Pepper. The developer is Levine Builders. Contact: Leasing consultant Nancy Packes, Halstead/Feathered Nest, 212-508-7456.

New Developments From Previous Months

Atlanta

Residential/Commercial

There is a gusher of new condominium projects with no end in sight in Atlanta. The trend started when The Metropolis opened its doors in Midtown in 2002. Some observers say gridlock on major highways and streets is pushing an urban renaissance. One of the latest projects is being backed by former basketball star Magic Johnson. The $103-million Plaza Midtown has just broken ground on a full city block site that runs from Eighth Street to Peachtree Place, and will include two 20 story towers with 452 condos.

Commercial

Atlanta’s commercial real estate market could be on the verge of a significant upswing after a four-year period of dormancy, some observers say. Cousins Properties announced plans to break ground on the first office tower constructed in the affluent Buckhead district since 2001. The 31-story, 500,000 square foot structure will be in the center of Buckhead’s financial district at Peachtree and Piedmont Roads. About 50 percent of the building is already leased.

Boston

Residential

The sales campaign for The Residences at Battery Wharf has begun, and the North End luxury condos are expected to be among the most expensive in the city on a per square foot basis. They will likely rival the Residences at Mandarin Oriental, a Boylston Street condo and hotel complex expected to be completed in 2007. The Battery Wharf condos will range from $975,000 to $5.2 million, an average price per square foot of $1,150, record territory for Boston real estate.

Residential

Philippe Starck, who recently completed his first New York City residential project at 15 Broad Street, is moving on to Boston. The French designer is involved in two condo projects: the conversion of a South End police station to 24 luxury condos and an inner courtyard of gardens and a Charlestown Navy Yard apartment complex which has been renamed Parris Landing.

Commercial

In a big surprise, a partnership of local mall developer Stephen Karp, The Related Companies and Boston Properties signed an agreement to purchase the coveted Fan Pier site on the city’s waterfront, stepping in after Florida-based developer Lennar Corp. failed to make a down payment on the property. Considered one of the most promising development sites in the Northeast, Fan Pier has full approvals for about three million square feet of mixed-use development.

Chicago

Residential

Street gangs are using real estate deals to launder money and committing mortgage fraud on an unprecedented scale, Chicago police said last month. An ongoing probe of such activities, called “Operation This Old House,” involved search warrants that uncovered more than 100 fraudulent mortgage applications involving more than $70 million. More indictments are expected.

Commercial

Equity Office Properties Trust, the nation’s largest owner of office buildings, said it expects its earnings per share to double next year because of newly signed leases and higher rents. The REIT said it plans on doing at least $1 billion a year in deals, aiming to be a net buyer of $500 million in assets a year. It currently owns or manages 699 buildings comprising 125 million square feet in 18 states and the District of Columbia.

Las Vegas

Commercial

The Related Companies was selected by a committee of Las Vegas city officials to develop a 61 acre parcel of downtown land. Related beat out Howard Milstein’s MB Real Estate and Triple Five, a local group. Related’s plans include an academic medical complex and performing arts center both of which the city is requiring as well as a hotel, office, residential and retail space and a park, according to The Slatin Report. The selection was a coup for Related, which was also recently chosen for the massive Grand Avenue Development Project in downtown Los Angeles.

Residential/Commercial

A $1 billion condominium-hotel will be built near the Hard Rock Hotel & Casino by developer Peter Morton. The 1,500 apartments, spread throughout four buildings, are expected to range from $420,000 to more than $4 million, and will be marketed to wealthy young professionals.

Los Angelos

Residential/Commercial

The first condo project in downtown Los Angeles to be built from the ground up in more than 20 years is under construction in the once-desolate blocks around the Staples Center. The $250-million project eventually will include as many as 750 for-sale properties in townhouses and high-rise towers. It is being built by Portland developers Williams & Dame Development and Gerding/Edlen Development Co.

Commercial

Los Angeles County’s office market will continue strengthening and will likely slip half a percentage point to 14.5 percent vacancy by year’s end, according to a recent study by Marcus & Millichap. One reason for the improvement is that some companies are taking space before they need it to obtain favorable lease rates ahead of a full market recovery.

Miami

Residential

In the wake of several hurricanes, buyers in South Florida are changing how they look at their next home purchase. Some are deciding they don’t want to live on tree-lined streets, brokers say. Others are gravitating towards condos, where they feel more secure and don’t have work as much to ready their homes for the next hurricane.

Philadephia

Commercial

The industrial market in the Philadelphia area recently saw its 12th quarterly vacancy rate increase, according to Grubb & Ellis. One reason for the weak performance is job growth while the Philadelphia region added 11,900 new jobs in the past year, many were white-collar positions. Although the immediate nine-county region lost ground again, activity in outlying areas, particularly the Lehigh Valley, began strengthening, Globest.com reported.

San Francisco

Commercial

The East Bay office market is faring better than the San Francisco office market, according to a report from Marcus & Millichap. Occupancy in the East Bay is slated to grow to 85.4 percent by the end of the year, the company said, while occupancy in San Francisco is expected to reach only 79.1 percent. Also, while there is no major office development under way in San Francisco, the East Bay has four large projects, totaling close to 500,000 square feet.

Commercial

The Citicorp Center one of San Francisco’s finest trophy properties has been put on the market by its German owners, who hope to get a jaw-dropping $400 a square foot. If that number holds up, the 20-year-old building located at One Sansome Street would sell for $218 million.

Residential

Brokers report that the luxury home market $2 million and up – in the Bay Area is seeing rising levels of unsold homes. Still, inventory market-wide is doing well there were 1.3 months’ worth of homes on the market in August compared to 2.6 month’s worth the year before.

Seattle

Commercial

Microsoft’s presence in Redmond, where its headquarters is located, could get even bigger. Safeco has announced plans to move next year from the area around Microsoft’s campus, freeing up 218,500 square feet of space, and AT& is expected vacate some of the 582,000 square feet of space it occupies in the area pending regulatory approval of its merger with Cingular Wireless. In the past several years, Microsoft has spent more than $300 million to expand its campus through a series of buys.

Washington, D.C.

Residential/Commercial

Residential building permits issued in the Washington, D.C. area plunged 9.6 percent from 24,426 between January and July of 2003 to 22,149 during the same seven-month period this year. Nevertheless, construction activity is continuing at a pace that could set new records this year. Some experts attribute the decline to local building restrictions, which play a greater role than the status of the overall housing market.

Commercial

The District is getting a professional baseball team, the former Montreal Expos, whose relocation is contingent upon the sale of the team and passing by the District Council of a $440 million financing package to renovate RFK Stadium and build a new ballpark on the Anacostia River waterfront in an area scheduled for economic development. Once home to the final incarnation of the unlamented Washington Senators baseball team, a renovated RFK would house the former Expos for the next three seasons.

Should REBNY be allowed to dictate which technology company its members use to access its listings system?

Lala Wang, who has battled the Real Estate Board of New York for the better part of a decade over listings, thinks not.

Last month, Wang, who heads Klickads Inc., a multiple-listings service company that does business under the name BrokersNYC, filed suit charging REBNY with breaking federal and state antitrust laws. The suit filed in the Southern District of New York also named others, including Brown Harris Stevens and individuals including REBNY chairman John Zuccotti.

The suit argues that it’s unfair of REBNY to make access to listings contingent upon its members using its database services ROLEX and RealPlus. Saying it is being unfairly excluded, BrokersNYC is seeking access to the listings system as well as monetary damages for lost business.

“Why impose the necessity of centralization when everyone already has their existing system?” asks Wang, who thinks REBNY is trying to make a power play with its newly unveiled plan. “By controlling access to the system, they can control requiring membership to their trade organization.”

Steven Spinola, president of REBNY, says that is not the case. He says he is not trying to limit the choice of REBNY members, but trying to best serve their needs.

Spinola said the “overwhelming majority” of members said they wanted to use either RealPlus or another system, OLR, under the new arrangement.

While RealPlus was the database service chosen, efforts will be made to figure out how members who currently use OLR can be accommodated so that they can use the new system, too, he said.

“Our duty is to provide members with what they want,” Spinola said.

Spinola also said the reason BrokersNYC isn’t part of the new plan is that few people are interested in using the service.

“There have been a number of people attempting to provide services to our members,” he said. “She [Wang] happens to be a vendor who is seeking business. And not many people are interested in buying her service.”

“She thinks special rules apply to her,” he added.

Spinola also pointed out that no other listing system in the state even allows more than one vendor, according to information provided to him by the New York State Association of Realtors.

“They were unaware of any other listings system in the state that permits two vendors,” he said.

But Wang said REBNY is in a different situation because it is not an MLS.

“They should hold discussions and be voting on this issue,” she said. Wang added that she had sent a letter to REBNY from 13 brokerage owners who use the BrokersNYC system.

Wang said she named certain members of REBNY’s Board of Governors individually in the suit because she had only limited success getting a response from REBNY when pursuing the issue before.

“It’s nothing personal,” she said. Brown Harris Stevens is also a target of the lawsuit, in connection with its development of the ROLEX system.

Spinola also pointed out that REBNY didn’t want to use Wang’s service because she has had her broker’s license revoked. But Wang said the issue is “irrelevant,” and said she lost the license when she declined to take an apartment information vendor license as a form of protest, because it “misapplied regulations that were detrimental to consumers.” She was cited by Fast Company magazine and others for her efforts.

But Spinola said the issue of Wang’s “integrity” is at play.

I take exception to wasting people’s time with a frivolous lawsuit,” he said.

Williamsburg Rezone Begins
The city planning department announced the beginning of the formal public review process for a plan for Greenpoint and Williamsburg that will reclaim the waterfront and create 8,250 units of housing. The rezoning proposal encompasses approximately 184 blocks, including a two-mile stretch of Brooklyn’s East River waterfront.

Red Hook Ikea Gets Early Approval
A City Council panel approved a plan for an Ikea along the Brooklyn waterfront in Red Hook. The approval came despite opposition from some residents to the 350,000 square foot store with a 5.5 acre waterfront esplanade and new ferry terminal. The full Council has not yet voted on the plan.

Gehry Chosen for Ground Zero Theater
The Lower Manhattan Development Corp. selected Frank Gehry as architect of the Ground Zero Theater Center. The center will house the Joyce International Dance Center and the Signature Theater in a 250,000 square foot building scheduled to be completed by 2009.

Congress nixes JFK NYC rail link funds
In a blow to Governor George Pataki, Mayor Michael Bloomberg and Lower Manhattan business leaders, the House of Representatives blocked a measure to convert federal tax credits into $2 billion that would go toward a rail connection between Kennedy Airport and Lower Manhattan.

Hudson Yards Relocation Effort Begins
The city’s Economic Development Corp. has hired a company to help relocate businesses on Manhattan’s far West Side, where the city is planning a massive rezone. Roughly 72 occupants including both residents and businesses would be displaced for parkland or a subway extension, according to the EDC.

High Line Funds Go Higher
The city announced it would pump another $27.5 million into a plan for a park set on the abandoned elevated railroad line on the West Side. City funding for the High Line now totals $43.5 million. A final construction tab is estimated at up to $100 million.

Affordable Housing Plan Making Progress
A $3 billion plan by Mayor Bloomberg to build or renovate 65,000 units of affordable housing over five years is moving along well. Bloomberg recently announced that the city will have started work on 26,000 of those units, or 40 percent of its goal, by the end of this year, the New York Times reported.

In a major victory for proponents of real estate settlement cost reform, a federal appellate court has ruled that “marking up” mortgage fees charging home buyers hundreds of dollars for services or documents that cost the lender less than $50, for example violates federal law if the lender performs no additional services that justify the increased charge.

The decision by the 2nd U.S. Circuit Court of Appeals in New York opens the way for possible Supreme Court consideration of the highly controversial settlement fee markup issue. Three other appellate courts already have sanctioned the widespread practice of marking up fees, arguing that federal law is ambiguous on the subject.

Markups of credit report fees, appraisals, title work, document preparation, flood zone certifications and underwriting fees can be significant revenue sources for some mortgage lenders and settlement agents, but can also add substantially to the cost of buying a house or refinancing a mortgage. The U.S. Department of Housing and the Justice Department have fought markups aggressively during the past three years, but have had a rough time in federal courts. Now they have a solid win under their belt.

The New York ruling involves a class action suit filed by home buyers against Wells Fargo Home Mortgage Corp. The suit alleged that Wells Fargo, one of the country’s highest-volume lenders, routinely marked up fees for its customers without adding any valuable services of its own.

For instance, according to the complaint, Wells Fargo contracted for loan origination documents from third-party vendors that cost the company $20 to $50. Wells then allegedly charged borrowers “flat fees of between $150 and $300″ for the same documents a markup clearly prohibited by federal law, according to the plaintiffs.

In a potentially farther-reaching charge, the suit challenged Wells Fargo’s alleged markups of Fannie Mae and Freddie Mac automated underwriting fees. When lenders take home loan applications, they frequently run the applicants’ credit and property information through Fannie or Freddie’s electronic underwriting systems online. The systems render quick, low-cost underwriting decisions indicating whether, and on what terms, Fannie or Freddie might purchase the applicants’ mortgages.

The online systems, which now evaluate millions of loan applications a month, cost lenders trivial amounts typically about $20 per application.

Yet many lenders charge borrowers substantially more at settlement for “underwriting” often $250 or $300. In their class action complaint, the buyers alleged that Wells Fargo’s charges of up to $300 for underwriting constitute an unlawful markup of the $20 Fannie or Freddie fees.

Wells Fargo denied the allegations in its response, and noted in a statement to this reporter on Sept. 17 that the decision by the appellate court “does not in any way address the specific claims of the plaintiffs,” but instead sent the case back to a lower court for reconsideration.

A Wells Fargo spokesman said the firm has not yet decided whether to appeal directly to the U.S. Supreme Court, given the sharp differences in conclusions reached by other appellate courts. Currently lenders, title agencies and other settlement service providers in 15 states are free to mark up fees charged to home buyers without limit as the result of three federal appellate court decisions.

In the states covered by the 2nd Circuit decision New York, Connecticut and Vermont lenders and settlement service providers are now prohibited from marking up fees without providing additional services. In the rest of the states, federal housing officials say closing cost markups are illegal, but lenders and title industry lawyers argue that that’s not necessarily the case, absent a Supreme Court ruling.

Where does that leave home buyers or refinancers who’d prefer to pay as little as possible at settlement and avoid junk fees and padded charges? For the time being, if they are buying or refinancing in any of the 15 states where appellate courts have sanctioned markups, they have no protection from federal law, though they may have recourse under state law.

In the three states covered by the 2nd Circuit ruling, home buyers or refinancers can challenge settlement cost markups and expect success in federal court, provided they can demonstrate that no additional services were rendered to justify the extra fees.

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Ken Harney is a real estate columnist for The Washington Post

When a home buyer has a high credit score in the upper 700s, is self-employed with an annual income of more than $100,000, owns a few rental properties, is purchasing a house priced well above the area average and is buying it alone, what comes to mind?

Solid citizen? A good addition to the neighborhood? An excellent bet to get a big mortgage with a great rate? Sure. But would you believe fraud? Would you believe that statistically the buyer with that profile is more likely than other loan applicants to be involved in some form of mortgage rip-off skullduggery when the lender he is applying to specializes in loans for home buyers with imperfect credit?

Welcome to the booming and sometimes bizarre world of mortgage fraud. With larceny in their hearts and sophisticated electronic document-preparation programs in their laptops, unethical mortgage loan officers, brokers, real estate agents and lawyers can create fake FICO scores, fake tax returns, fake identities and order up inflated appraisals.

And, according to witnesses at an Oct. 7 congressional hearing, mortgage fraud is now one of the hottest con games going.

An FBI assistant director testified that fraud is “pervasive” in the mortgage market and is growing fast. Rep. Bob Ney, R-Ohio, the chairman of a House financial services subcommittee, cited industry studies suggesting that “between 10 and 15 percent of all home loan applications involve some fraud or misrepresentation.” The potential costs to home buyers and mortgage lenders could be in the billions of dollars a year.

Some of the fraud may seem minor a little fibbing on the application about a borrower’s income, or a lack of candor about where the buyer’s down payment cash really came from.

But other fraud is far more organized. In Charlotte, N.C., the FBI last month cracked a ring of 35 “mortgage industry insiders” who had combined to obtain 380 fraudulent home loans exceeding $70 million, according to Chris Swecker, assistant FBI director for criminal investigations. In Phoenix, 48 out of 64 home loans originated by one loan officer involved “pervasive document fabrications,” according to HUD’s Inspector General Kenneth Donohue Sr.

Frequently, mortgage fraud ends up hurting not only lenders but innocent consumers too, witnesses told the committee. Marta McCall, senior vice president of San Diego-based American Mortgage Network, cited the example of a first-time buyer who was persuaded to purchase a property that was significantly overvalued because of a fraudulent appraisal. The seller pocketed big profits, but now the buyer finds herself unable to refinance and unable to pay off her loan by selling the house because the property is worth less than the mortgage amount.

Faced with more fraud than ever before, lenders nationwide are adopting defensive tactics to sniff out con jobs before they succeed. In one instance described at the hearing, a large national lender has developed its own risk alert system based on extensive statistical analysis of “red flags” associated with documented cases of fraud. HSBC Mortgage Services Inc, which specializes in loans to borrowers with credit problems, uses its proprietary “FraudScore” on all of its new mortgages. Some of the red flags are counterintuitive.

For example, Loren Morris, HSBC senior vice president, said in an interview that among the key telltale signs of fraud in applications are unusually high FICO scores combined with high incomes, higher-than-average mortgage amounts and home values for the neighborhood. That may sound strange since all these characteristics would normally be associated with cream-puff, problem-free applicants.

But in the murky world of mortgage fraud, the bad guys know this too, and they often try to make a loan application “look as good as possible, so it will sail though” automated underwriting systems without a hitch, said Morris. Other red flags: self-employed, single purchasers who are buying a home but say they already own one or more rental houses.

HSBC’s FraudScore system weights these and other factors – including city and state on a scale of zero to 52. When an applicant presents combined factor weights exceeding a score of 30, an alarm goes off and the company’s fraud investigation procedures kick in.

What’s the takeaway here for home buyers and borrowers who harbor no fraud in their hearts? First, be aware that mortgage cons are rapidly on the rise. Not all appraisers or loan officers you encounter are necessarily playing the game straight. Though they often target big lenders, con artists frequently harm innocent purchasers who end up with loans they don’t want, can’t afford and can’t get rid of. Worse yet, if lenders keep losing millions of dollars to fraud, they’re going to pass along those costs to all borrowers in the form of higher fees and interest rates.

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Ken Harney is a real estate columnist for The Washington Post