The Real Deal New York

When you ve been at the top of the commercial real estate world in New York for as long as Stephen Siegel has, maybe it s time to take a break from running the whole show.

The legendary Manhattan leasing broker, who got his start in the business at age 17, was chief executive of Insignia/ESG until the recent powerhouse merger with CB Richard Ellis. His position in the new firm, the world s biggest real estate services company, is a step down on the chain of command. But it s a change he appears to welcome.

“After what seemed like a zillion years of building businesses and turning the lights off at night, it s a role I m happy to have,” said Siegel, 57, whose first job as a CEO was two decades ago at Cushman & Wakefield.

Siegel will be chairman of global brokerage for CBRE, which will have 14,000 employees in 48 countries. But don t expect the man who helped build the most important commercial real estate brokerage in New York to spend two weeks of every month schlepping around from Oslo to Osaka. Siegel still has his sights set on his hometown.

“No matter what the [global] title connotes, I m going to be doing a lot of business in the Tri-State area,” he said. “This is where my friends, relationships and clients are. I hope to do even more business in New York, now that I have less management-related responsibilities.”

Siegel seemed relaxed and expansive during a recent interview at his offices in the MetLife Building a few weeks after the merger was finalized, showing off the art on his walls and his collection of elephant figurines a fitting metaphor for CBRE s global dominance.

Siegel s new job was his decision, he said. “I had numerous discussions with Ray Wirta, the CEO, and Brett White, the President [CBRE]. It was put to me, What is it that Steve Siegel wants to do? What can we do to make him happy? ” Part of Siegel s new role on the global end will be making speeches at industry or client-related events, as well as some travel. “I hope to be a spokesman for the company and its platform, because I believe in it,” he said. Insignia brought strong operations in London and Paris to the merger, while CB Richard Ellis had a greater presence in Asia, where Insignia had a money-losing start-up operation, and Germany.

Siegel s reunion with Mary Ann Tighe, who left Insignia/ESG a year ago but returned as chief executive of CBRE s New York office, has been less a homecoming than a return from a long vacation. “We hardly knew they were gone, they came back so quickly,” he said. “Mary Ann Tighe and I resumed working on accounts together even during the interim period. We focused on business development, and continue to do so,” Siegel said.

Tighe heads the New York Tristate Regional office along with two other former Insignia executives: John Powers, who has the title of president of the regional office, and Robert Alexander, who is chairman.

Now that the merger is finalized, communication is key, Siegel said. “The important thing is making players at both entities understand that the change is positive, and that the reality is not as threatening,” as what one might imagine, Siegel said. While there have been a few departures locally, time will tell whether there will be a bigger exodus. Siegel said he thinks after six months, “people won t be thinking about anything other than doing business.”

As far as his own departure, only Charlize Theron could drag him away from CBRE. “I would never leave here for another brokerage company,” he said. “Well, I can never say never. If someone would like me to star with George Clooney and Charlize Theron in the next movie they do, I could be talked into it. I m at the place with the ultimate platform.”

Siegel received a $1.6 million signing bonus to stay at the company, plus a $5.4 million retention bonus the day the merger closed. If he resigns “without good reason” before five years have elapsed, he will be required to return a prorated portion of the $5.4 million, a recent Insignia proxy said.

One of the largest consequences of the merger is a combined company with broader lines of business. Insignia had a reputation for large, complex brokerage deals, while CB Richard Ellis brought expertise in facilities and project management and appraisal to the table. “The gaps we had, CBRE filled beautifully,” Siegel said. “They have a huge appraisal business that s as big as many full-service brokerage firms. I was surprised to learn that their per-broker production is among the highest in the industry.”

The two companies commission structures will come together as well. “They were fairly compatible to begin with,” said Siegel. “Eventually it will end up their [CBRE s] model. We ll try to unite it over a couple of years time.”

Finally, public Insignia becoming part of a private company in joining CBRE is a move in the right direction, Siegel said. “If I were still running the business, I would be dancing in the street not having to do some of the stuff you have to be responsible for as a public entity in a service business.”

Siegel got his start in the business at age 17, working for Cushman & Wakefield in New York. One of his first jobs was as credit and collections manager for rents in buildings the company managed. “There is no better way to cut your teeth than learn rejection. Hello, I ve come for your rent. You re about a month past due. Shut up, get out of here. It was a great training ground to go be a salesman, when you get rejected 90 percent of the time anyway when you cold canvass,” he said. In the following years, Siegel would rise up through the ranks. “I was fortunate in those days, because it was smaller and there were no restrictions on somebody who worked hard. No barriers were put up to success.”

By his 37th birthday, Siegel was president and CEO of the company. He moved to Insignia in 1992, some ten years later, after a stint in the development business in partnership with the Chubb Corporation.

Outside of real estate, Siegel s interests range from the culinary to the charitable. Along with Timothy Hutton, George Steinbrenner, and Arnold Penner, Siegel owns P.J. Clarke s, one of the oldest and most storied bars in the city. A haunt of Frank Sinatra, Jackie Onassis, Nat King Cole, Vince Lombardi and other celebrities, the bar and restaurant at Third Avenue and 55th Street recently reopened its doors after a $3 million restoration. Siegel also owns two other restaurants in New York, the Italian place Baldoria and the Knickerbocker Bar and Grill.

As for the elephants piling up in his office, they have accumulated like the big deals Siegel has done over the years, transactions for some of the nation s most prominent corporate clients including, among others, J.P. Morgan Chase & Co., Metlife, and Sanford C. Bernstein & Co.

Siegel said the first elephant was a housewarming gift during his bachelor days. “Within six months I had 11. Everyone who bought a housewarming gift said he must collect elephants. Now it s totally out of control.”

Michele Kleier likes to differentiate her company, Gumley Haft Kleier, from her larger competitors by drawing a comparison from the world of retail. Department stores may have a large selection, but sometimes you get lost amidst the shuffle and a boutique would be a better bet.

“A lot of people don t like to shop at Macy s,” said Kleier. “They d rather go to a store like Ralph Lauren where they offer you Perrier and more personal service.”

Kleier has made a career being the one there with the Perrier, and it has won her famous clients like John Travolta, Neil Diamond, Warren Beatty and Billy Joel. She started her own firm in 1989, which is now at 40 brokers, but still small enough that “I know every deal that is going on,” Kleier said.

More than mere numbers though, being among the best small to mid-sized boutique residential firms in the city is about filling a niche, whether it be focusing on luxury property, in the case of Edward Lee Cave, or in making the 789 townhouse buildings in Manhattan the entire focus of your business, as in the case of Leslie J. Garfield & Co. The Real Deal looks at the top firms with under 50 agents in a separate feature story, “Best of the Boutiques”.

At Garfield & Co., the limited number of townhouses means that Jed Garfield, son of owner Leslie, knows most properties cold. “People are always slightly taken aback when they call up and ask about a specific address,” says Jed. “I ll say, oh, that s Mr. Smith s place. People are surprised. But there s not that many buildings to cover.” The company has eight agents, mostly family members.

For broker Alice Mason, a legend who is known for her discretion in dealing with old-money clients, the specialty is bringing her 40-plus years in the business to work to help clients get into the right co-op. Mason, who outside of work is known for her dinner parties over the decades that have drawn the Clintons and other past Democratic Presidents, said the specialized knowledge of co-op boards she possesses is in short supply today.

“Anyone can sell a condo or house,” she said. “But most brokers don t understand [co-ops] at all.” Mason, who runs a 15-broker shop, said the situation is getting worse, with some of today s larger competitors having a view of housing “like it was commercial real estate.” But she is non-plussed. “This will always be a co-op city. Anything that is a co-op will never be a condo. Fifth Avenue is all taken up.”

Elsewhere, Corcoran CEO Pam Liebman has predicted the demise of two of the city s most prestigious small firms because she says big business will replace “chatting at a dinner party.” The statement has rankled some small firm owners. Most observers at bigger companies also say that isn t the case at all.

“I think there will always be a market for small boutiques,” said David Michonski, the Chairman and CEO of Coldwell Banker Hunt Kennedy, “There is always going to be room for specialization in the marketplace.”

Douglas Wagner, president of Manhattan brokerage firm Benjamin James Associates, Inc. said he ultimately expects a few large firms competiting with hundreds of smaller firms.

In the past, it s been the same situation big companies existing side by side with boutique firms, according to Phyliss Koch, another legendary broker. Koch started a company bearing her name 33 years ago. “There was no Corcoran,” she said. “But there was Ashforth Warburg, William B. May and Douglas Elliman. We started small and made our niche without any problem.”

Today the company has around 12 agents with offices on the Upper West Side, and does deals mostly on the Upper West and Upper East Side.

As far as the notion of big business being more important that social connections, Mason said that “anyone can learn real estate.” One of the most important thing for those who come to work for Mason is the fact that they already have a “netowrk” in place, she said. Former employees of Mason include Barbara Fox, who now heads her own 40-broker residential firm, Fox Residential Group, which started in 1989 by targeting upscale properties on the Upper East and Upper West Side, but now, like Gumley Haft Kleier, targets properties “across the board.”

Elsewhere in residential real estate in New York, niches abound for companies who have come up with innovative business models.

Perhaps nobody has done a better job than Massey Knakal Realty Services. The company, which specializes in finding buyers for small, mostly residential buildings under $20 million, was formed when Bob Knakal, who received his undergraduate degree from the Wharton School at the University of Pennsylvania, hooked up with Paul Massey Jr., a Colgate graduate, when both worked for Coldwell Banker Commercial after college.

The duo dealt with small building owners on the Upper East Side at CB. Seeing that the the small property market was underserved and that owners didn t care about the CB name, they resolved to strike out on their own in 1988.

Nobody followed. The company, which now has around 31 agents, has already completed some $400 million in transactions this year, and currently has exclusive listings totaling $1.3 billion, Knakal said. Typical transactions include sales of single family townhouses and apartment buildings with retail on the ground floor.

Another notable niche player in Manhattan residential real estate, on a completely different front, is Gil Neary, who started DG Neary back in 1988 in Chelsea. An authority on the neighborhood, it s also one of the only residential real estate companies in New York that explicitly caters to the gay community.

Neary says the 20-broker company being identified that way helps draw clients. “People looking for an apartment would rather have someone comfortable with their personal business. It s a very personal thing, pulling one s financial pants down before a co-op board.”

Other notables that have also successfully carved out niches include companies like Goodstein Realty, which takes a broad, family-centered approach to addressing clients real estate needs. Brokers build their practice more like a doctor or lawyer would, catering to real estate needs throughout the lifetime of a family, said President Lenny Bayer. The company runs age-specific programs like Goodstein Realty Senior Lifestyles, which helps relocate seniors to independent and assisted living facilities.

Prudential Douglas Elliman appeared to take a page out of the Goodstein playbook recently when it announced it had joined forces with SeniorBridge Family, a national, in-home eldercare provider, to better serve older adults and their families facing relocation challenges.

Barkin & Associates, which caters to the entertainment community, and Susan Penzner Real Estate, a pioneer in Soho in the 1970s, are two other firms with distinct niches.

Being the proprietor of a small firm, Neary said , “it always seems like you are struggling to keep your head above water.”

One obstacle he said he faces is the fact that bigger firms have more money to spend on advertising.

But Kleier said her company takes out “more advertising per exclusive” than Corcoran or Douglas Elliman.

Fox said that technology “is the big equalizer between large and small firms,” though a look on the Internet shows some of the smaller firms have rather rudimentary Web sites. Kleier said the New York Times website, where everyone looks for listings, “equals the playing field for everyone.” Neary sees good news in the fact that Manhattan is “closer than ever to having shared listings.”

Working at a small company also has advantages. Neary notes that brokers are often people who value their independence and don t like too many rules. At the big companies, he thinks it is “much more formalized, with rules about how people are expected to perform.”

“I think personal relationships are more important than big fancy names,” he said. “For some people, the name is more important.”

New York’s top small and mid-sized boutique residential real estate firms. (See story, “Big Small Firms,” on main page).

ALICE F. MASON LTD.

The Boss: Alice Mason

2002 Transactions: $30 million (Mason alone)

Agents: 15

Founded: 1960

Early on in her career, back in the 1960s, Alice Mason found her niche helping wealthy clients crack good co-op buildings they might not otherwise get into. Back then, that meant getting Alfred Vanderbilt, who was surprisingly considered “new money” by the Eastern Establishment, into a building. Sound difficult? Mason says today’s co-op environment is even more challenging, and that’s where her decades of expertise come in. “Back then it was about the social register,” she said. “Now, you’ve got to know who has power on the board. It’s more complicated than ever, and most brokers don t have a clue.” She takes exception to efforts by larger real estate competitors to subjugate Manhattan real estate by throwing money at it. “This will always be co-op city. Some people talk about it like it was commercial real estate. They don’t understand it.” The legendary broker is famous for dinner parties that have drawn the likes of Jimmy Carter and Bill Clinton. Mason has always maintained a staff of around 15 brokers, but every few years a larger company, like Sotheby’s, will come in and poach employees, which means that a lot of brokers out there were taught by Mason. “Anyone can learn real estate,” she said. “I hire people who have a network.”

DG NEARY REALTY

The Boss: Gil Neary

2002 Transactions: 178 sales and 43 rentals

Agents: 20

Founded: 1988

Gil Neary, who had been a broker at Bellmarc, was working for the Rockrose Development Corp. in 1987 when the market crashed and he found himself out of a job. “I thought, now I’ll do it myself,” he said, and opened up a brokerage in Chelsea with six agents. Today, the number of agents has grown to 20, and the company is a well-respected authority on the neighborhood. It’s also one of the only residential real estate companies that explicitly caters to the gay community. “We became known as an out-gay real estate agency,” said Neary. “We’ve been recognized as a firm that’s not afraid to be identified that way.” Neary thinks such openness provides a competitive advantage. “People looking for an apartment would rather have someone comfortable with their personal business. It’s a very personal thing, pulling one’s financial pants down before a co-op board.” The company also helps run the Gay Roommate Information Network, a roommate service “for people who call up and can only spend $700 on an apartment. It’s a community service type of thing,” Neary said. The DG in the company’s name is Dan Gerstein, formerly European Treasurer for Estee Lauder, who came aboard to manage the company in 1995. Neary and Gerstein have been around long enough to see Chelsea become a hot neighborhood and expand to the west, north and east. “It used to be you’d have to blindfold somebody to look at London Terrace [between 9th and 10th Avenues and 23rd Street] because it was so far away,” Neary said.

EDWARD LEE CAVE INC.

The Boss: Edward Lee Cave

2002 Transactions: N/A

Agents: 25

Founded: 1982

Edward Lee Cave, the doyen of high-end sales in Manhattan, entered the real estate world in a big way more than 25 years ago at Sotheby’s, when he started Sotheby’s International Realty, growing it to $200 million in annual sales within five years. In 1982, Cave struck out on his own, starting a boutique firm. The firm, with 25 agents, specializes in $10 million-plus properties on the Upper East Side and Central Park West. The company was responsible for the biggest sale ever in Manhattan (until the recent AOL Time Warner deal) when broker Kathy Steinberg sold corporate raider Saul Steinberg’s triplex penthouse at 740 Park Ave., which once belonged to John D. Rockefeller Jr. for $35 million in 2000. Another Cave broker, Linda Stein, completed deals for Billy Joel, Sting and Michael Douglas before leaving for Douglas Elliman. In December, the 63-year-old Cave said he was forming a partnership with Brown Harris Stevens because the two firms, one specializing in high-end properties and one specializing in properties across the board, could complement one another.

FOX RESIDENTIAL GROUP

The Boss: Barbara S. Fox

2002 Transactions: $200 million in sales

Agents: 40

Founded: 1989

When Barbara Fox created Fox Residential Group in 1989 with only five brokers, the focus was to “capture the upscale market on the Upper East and Upper West Side.” Fox has done that, selling to celebrities like Walter Cronkite and Robert Redford along the way. Now, having grown to 40 brokers, the company’s reach is wider, and “we do everything across the board,” she said. In 1994, in response to growing demand, the company created a corporate relocation and rental division which serves a number of foreign governments, investment banking houses, and Fortune 500 companies. Despite the growth, the North Carolina native maintains a hands-on approach. “I’ve structured things so that I can handle what’s going on at the office at all times. Our clients are always getting my 25-plus years’ experience” when they sign on, she said. The organization isn’t the first Fox has built; she created a 60-broker residential division of Cross & Brown Company in the 1980s. Fox was honored as the recipient of REBNY’s Henry Forster Memorial Award in 1997. She said she is seeing a move away from larger firms by brokers. “There is a tendency back towards smaller firms,” she said. “More and more brokers have had it with larger firms” and are applying to companies like Fox, she said.

GOODSTEIN REALTY

The Boss: Leonard Bayer

2002 Transactions: $320 million (includes NY, Long Island and Fla.)

Agents: 30

Founded: 1996

“We’re a family business that caters to families,” explains President Leonard Bayer of his company’s innovative approach to residential real estate. The firm was formed in 1996, as a spin-off of The Goodstein Organization, a development firm run by the family’s third generation. Bayer said his company is structured to suit a family’s needs throughout its lifetime from finding a place for kids graduating from college to locating an assisted living home for grandparents to helping Mom find an office through its commercial division. “Our people build their real estate practice like a doctor or lawyer would,” Bayer said. Strategies like Goodstein Realty Senior Lifestyles, which does relocations for independent or assisted care living, is just an example of the firm’s family approach.

GUMLEY HAFT KLEIER

The Boss: Michele Kleier

2002 Transactions: $70 million (for Kleier alone)

2001 Transactions: $352 million (company-wide)

Agents: 40

Founded: 1989

Michele Kleier, who started her firm in 1989, says it’s the personal service her company offers that draws clients. John Travolta, Neil Diamond, Warren Beatty, and Billy Joel would likely agree Kleier has sold to all of them. Initially a division of Gumley Haft Residential Management, the company is now owned by Kleier and her husband, Ian (the firms maintain a close affiliation). The company is much more than just Kleier and her celebrity clients these days with 40 agents, it’s what she considers a small to medium-sized firm. Young brokers cover the lower range, while experienced brokers do three-bedroom upmarket apartments. Kleier keeps a tight grasp on the firm’s day-to-day business. “I know about every deal that is going on,” she said. Kleier said she has been approached with “opportunities to be merged with another company or purchased,” but business wouldn’t be the same as part of some conglomerate. “We are here every day. Each deal is important to us.” Keeping it all in the family, daughter Sabrina Kleier Morgenstern is a broker there, too.

LESLIE J. GARFIELD CO.

The Bosses: Leslie Garfield, Jed Garfield

2002 Transactions: $63 million; 17 sales

Agents: 8

Founded: 1972

Called “The Dean of Townhouse Brokers,” Leslie J. Garfield & Co., Inc. is a true niche firm its entire business revolves around the 789 townhouse buildings in Manhattan. Managing partner Jed Garfield, who is Leslie’s son, said people are always slightly taken aback when they call up and ask about a specific address. “I’ll say, oh, that’s Mr. Smith’s place. People are surprised. But there’s not that many buildings to cover.” The business was started by Leslie, who “in his own quiet way, still does $40 million a year. There’s not a transaction he’s not involved in,” said Jed. Other family members also work for the firm, which has grown from two brokers seven years ago to eight brokers today. The key to success for the firm is “market coverage,” with each broker given a different slice of Manhattan to specialize in, said Jed. “Everyone in the office comes in and just canvases all day. Our business is not based on social connections.” Not that they don t have them, of course.

MASSEY KNAKAL REALTY SERVICES

The Bosses: Paul J. Massey, Jr. and Robert A. Knakal

2003 Transactions (first six months): $400 million (89 building sales)

2002 Transactions: $500 million (148 building sales)

Agents: 31

Founded: 1988

Paul J. Massey, Jr. and Robert A. Knakal decided to start this highly successful firm, which specializes in finding buyers for buildings under $20 million, back in the late 1980s while working for Coldwell Banker Commercial. In their mid 20s at the time, the duo was assigned to work on the Upper East Side for CB. “The only building owners that would listen to them were smaller building owners,” said Massey Knakal President John F. Ciraulo. “And they didn t care about CB’s national presence. So Bob and Paul decided to start their own business.” Last year, the company sold 148 buildings and brokered more investment property sales than any other firm, according to real estate information company CoStar. Currently, the company is on pace to nearly double last year’s sales total, and it has exclusive listings totaling $1.3 billion, Knakal said. The company is structured so that each broker covers an exclusive area. Ciraulo, for example, who joined the company in 1992, now specializes in the Murray Hill, Flatiron, and Grammercy Park areas. Massey Knakal has also encountered success in the outer boroughs. It started a Queens operation in 1997 and a Brooklyn operation last year, which now has six agents and which the company is looking to double in the next six months. “We feel we should have expanded there a long time ago,” said Ciraulo. “There are a lot of mom-and-pop shops that sell insurance, do mortgages and also sell buildings there.” Meanwhile, the company’s average sale in Manhattan has jumped from $3.5 million three years ago to around $5.5 million today. Focusing on helping sellers exclusively allows the company to “create a marketing frenzy,” said Ciraulo. “We d rather spend 100 percent of our time focusing on that instead of spending 50 percent of our time on buyers.”

PHYLISS KOCH REAL ESTATE

The Boss: Phyliss Koch

2002 Transactions: N/A

Agents: 12

Founded: 1970

Described as a “legend” among real estate brokers, Phyliss Koch has been in business for 34 years in Manhattan, including the last 12 in her offices on the Upper West Side. Koch has trained many of the other top brokers in business today, part of a real estate career that she claims predates the birth of the co-op and mortgages. “People didn t know what a co-op was when I started,” she said. “There were no mortgages.” Koch’s most memorable deal was selling Babe Ruth’s eight-room apartment at 110 Riverside Drive 25 years ago. Ruth had passed away in 1947, but his widow had lived on in the apartment before she died in the late 1970s. Koch, who does a majority of her deals on the West Side but also does a considerable amount on the East Side, prides herself on her discretion and straightforward approach. “You will never see my name in the paper on a deal,” she said. “My advertising is always no-nonsense. I also never give out my sales figures.” Koch, who lives in the San Remo and vacations in Atlantic Beach, has trained brokers like Michele Kleier, who worked with her for 17 years. “She’s a legend,” said Barbara Fox, another leading Manhattan broker.

P.S. BURNHAM INC.

The Boss: Patricia Burnham

2002 Transactions: N/A

Agents: N/A

Founded: 1983

Patricia Burnham, a power broker who has done deals for the likes of Calvin Klein and Connie Chung, is incredibly protective about divulging the details of her business, even the amount of employees she has working for her (many say it’s just her). That same approach has led to her success, she says. “I feel part of the reason that people come to me is that things stay confidential,” she said. Business is all referrals, of course, and Burnham doesn’t advertise. “I don’t get my doctor or dentist or lawyer out of an ad, and the same should be true for a broker.” One of her specialties: dealing with time-pressed CEOs. “I get deals done very quickly. I had a celebrity couple that was looking for two years and I found them a place in a half-hour. I know where you are going to buy, even before you look.” Lives on Park Avenue and brings clients around town in a black Mercedes, where they get access to her list of off-the-market properties whose owners “may sell for the right price.”

Downtown slipped into the summer doldrums in July as leasing waned, while Midtown and Midtown South saw similar slow leasing but avoided the spike in space returns seen in the Downtown market, a report by CB Richard Ellis said.

A Colliers ABR report said that the overall vacancy rate in Manhattan improved from 12.7 percent in June to 12.4 percent in July, fueled by leasing activity within the class B office market. The vacancy rate plummeted for class B inventory, dropping from 15.1 percent to 14.6 percent. Meanwhile, the class A market saw vacancy climb incrementally from 10.7 percent to 10.8 percent. The report said that tenants are pursuing class B property because they are sensitive to rent costs due to the struggling economy and are “on the hunt for good value.”

DOWNTOWN

Coming on the heels of a strong second quarter that featured two of the year s largest deals, the Downtown office market saw leasing activity drop and negative net absorption spike to its highest monthly level since January 2002, the CB Richard Ellis report said.

The high negative net absorption was caused by two large blocks that officially became available in July. One was 530,000 sf at 15 Broad St., where Bank of New York had been leasing the entire building on a month-to-month basis but is no longer in occupancy. The building had once been the planned future site of the New York Stock Exchange. Lehman Brothers is also offering 372,000 sf of space for sublease at 1 World Financial Center. Net absorption had been in positive territory going into July, but is now negative 512,000 sf for the first seven months of the year. That s still much better than last year during the same period, when there was 1.6 million sf of negative net absorption.

Leasing activity remained tepid Downtown, with 259,000 sf in July, 48 percent less than the month before and down 37 percent compared to last July. The largest transaction of the month was a renewal of 58,000 sf at 120 Broadway by Lester, Schwab, Katz & Dwyer.

As a result of large blocks of space becoming available, Downtown availability jumped from 14.1 percent to 15 percent. Colliers ABR also saw a jump, reporting that the vacancy rate in class A property rose from 12 percent to 12.4 percent for Downtown. CB Richard Ellis noted the overall vacancy number was particularly strong in the World Financial submarket, where it shot up from 24.5 percent to a record high 28.9 percent in July. Average asking rents ended the month at $33.94, a one percent increase. Rents have dropped by 9 percent in the last 12 months, CB Richard Ellis said.

MIDTOWN SOUTH

Despite weak leasing activity, July was a fairly good month for the Midtown South office market, the CB Richard Ellis report said. Net absorption was positive for the second consecutive month and the availability rate dropped below 13 percent for the first time since Sept. 2002.

Midtown South recorded 253,000 sf of leasing in July, a 61 percent drop compared to June s strong performance of 648,000 sf. But overall, there wasn t a high rate of tenants returning space, either. As a result, there was 240,000 sf of positive net absorption for July. Thus far this year, net absorption has totaled 335,000 sf, compared to a negative net absorption of 1.32 million sf for the first seven months of last year. This is a strong indication that Midtown South s available supply has stabilized, the CB Richard Ellis report said. At month s end, Midtown South s availability rate was 12.7 percent, down from 13 percent a month earlier. The Colliers ABR report supported those findings, and noted the class A vacancy rate in Midtown South improved from 7.3 percent in June to 6.9 percent in July.

The largest new lease in Midtown South in July was DoubleClick s 15-year lease for 76,000 sf of class B space at 111 Eighth Ave. in Chelsea, followed by advertising company Deutsch Inc. s renewal of its current 107,000 sf lease and expansion by an additional 25,000 sf. The Colliers ABR report said that activity for Class B office space was strong in the Flatiron and Chelsea submarkets. In addition to DoubleClick, deals within the B market included U.S. Concepts, Ovid Technologies and Bad Boy Entertainment.

The Chelsea submarket was responsible for 43 percent of leasing activity in Midtown South in July. Noho/Soho was the only submarket where the availability increased in July, though it also has Midtown South s lowest availability rate at 6.8 percent. Asking rents held fairly steady, dropping $0.14 per sf in July to $31.41 per sf.

MIDTOWN

Midtown experienced a July similar to Midtown South s – lackluster leasing, but strong positive net absorption. The availability rate saw its first monthly decline in 11 months, to 12.4 percent. Colliers ABR reported class A vacancy as improving from 10.6 percent in June to 10.5 percent in July.

Leasing activity in July was the weakest thus far in 2003, with just two new leases for more than 25,000 sf, CB Richard Ellis said. Midtown recorded 588,000 sf of new leasing in July, down 28 percent compared to the month before. The month s largest new lease was for 81,000 sf at Times Square Tower by Clarendon Insurance Group. A bright spot not reflected in the statistics, however, was Estee Lauder s 15-year renewal of 309,000 sf at 767 Fifth Ave. Estee Lauder and a host of other Midtown companies – including KPMG, Bovis Lend Lease, Bank of New York, and others – have chosen to remain in place and renew early to take advantage of the soft market.

While leasing was slow in Midtown, fewer tenants returned space. At 291,000 sf, July was the first month of substantial positive net absorption in Midtown in 2003 (there was 40,000 sf of positive net absorption in February). Thus far this year, negative net absorption has prevailed, though it is 10 percent less than last year s total for the first seven months of the year. Only two submarkets, Times Square South and the Plaza District, have had positive net absorption for the year thus far. Asking rents inched down $0.34 per sf in July, settling at $49.54 per sf at month s end.

Business owners in two of Queens biggest commercial hubs are taking steps to clean up their neighborhood and spur business through the formation of Business Improvement Districts (BIDs).

Merchants in Flushing and Jamaica voted recently to approve the districts, which could mean increased sanitation, security and marketing programs in both areas.

While large national chains have flocked to both commercial centers in recent years, and continue to do so, impediments like lack of sanitation in Flushing and security in Jamaica have likely hurt business and limited the broad appeal of the areas.

For Flushing, the City Council was expected to approve the formation of a BID in late August, a decision which will then be passed on to Mayor Michael Bloomberg to sign. Bloomberg has been a big advocate of BIDs, signing a bill last year that allowed many BIDs to increase the amount they charge local businesses for their annual expenses. Bloomberg s support comes following years of effort by former Mayor Rudolph Giuliani to weaken BIDs, which he saw as abrogating his power, despite their role in the dramatic transformation of Times Square and other areas. As a result of Bloomberg s warm embrace, another four BIDs in the city are on their way to being formed, while half a dozen others are in the talking stages, said Jake Lynn, a spokesperson for the city s Department of Small Business Services, which oversees the BID program. There are currently 44 BIDs citywide, he said.

In Flushing, it s the battle to control the grease and food waste generated by dozens of restaurants and produce stands that a BID could help combat. The problem of “the foul odors of the summer months,” as Councilman John C. Liu has described it, has led to Flushing-based volunteer organizations like the Tzu Chi Foundation recently coming forward to clean up the downtown streets on weekends.

“Having some extra manpower to deal with sanitation through the BID would be a good supplement to city services,” said Lynn. A BID could also use its funds to help better market Flushing, which has an Asian downtown rivaling Chinatown. Lynn also said a BID would likely look at getting more “uniform language” on store signs in the area. The yearly budget for the Flushing BID would be approximately $350,000, smaller than the budget for big BIDs (like Times Square), which run up to $3 million a year.

Meanwhile, growth in the Flushing area continues. A new 373,000 square-foot center, called Atlantic Terminal, is scheduled to open in March 2004, anchored by Target. Another 100,000-square-foot mall is being proposed for Main Street and 39th Avenue. But even those won t likely satiate the demand in the area.

“There is such a demand by [national retailer] tenants to be in the boroughs,” said David Rosenberg, executive vice president of Robert K. Futterman & Associates. Retailers like Home Depot, Old Navy and Marshalls were the first to move into Queens and the other outer boroughs five or six years ago, while others “stood scratching their heads,” he said.

While taking over space from defunct retailers is one way to get in now, building new developments to house retail is a tougher proposition. “All of the no-brainer development sites have been gobbled up,” Rosenberg said. Meanwhile, the borough has one major mall, The Queens Center, for a population of two million people. In any other part of the country, there would be five to eight such shopping complexes for a population that size, developers say.

As far as other BIDs, Lynn said Sutphin Boulevard in Jamaica would likely gain approval from the City Council and Mayor in the coming weeks or months. There are already three other BIDs in different parts of downtown Jamaica, but this one would encompass the area around the new station for the AirTrain, a monorail service that will shuttle passengers from the Long Island Rail Road to Kennedy Airport.

A 300,000-square-foot office building is also planned on a city-owned site at 94th Street and Sutphin Boulevard, where the LIRR will consolidate its offices in 100,000-square feet of space. Nearby, the opening of the 200,000-square foot Jamaica Center last year was a major boon to the neighborhood, drawing national retailers like the Gap and Old Navy to the area for the first time and resulting in the first movie theater in the area in 30 years.

Despite the retail advances, Lynn said there is still a need for security in the Sutphin Boulevard area, especially if it s going to serve as a commercial area for commuters in the future. “After dark in Jamaica, it can sometimes get a little shady,” he said. “A BID would be able to hire the extra manpower to provide an extra set of eyes.”

In other areas of the city, Fordham Road in the Bronx could be voting on a BID sometime in the near future. The neighborhood will run a “BID for a month” program in September to show business owners the benefits of forming a district. Other BIDs in the works include the first one in Staten Island, in West Brighton; along 5th Avenue in Brooklyn, where there has been a big restaurant boom; Hudson Square in northern TriBeCa; and along Myrtle Avenue in Brooklyn.

Fifty percent of a district must vote in favor of a BID for the application to go forward to the City Council. Residential property owners pay a nominal fee usually $1 a year while business owners carry the load in running a BID, usually a few hundred dollars a year per business. Lynn said mom-and-pop businesses who are “barely scraping by” sometimes don t want to dole out the money, but that bigger business groups are usually supportive and “see the big picture.”

Despite a faltering economy, almost twice as many restaurants opened than closed, according to the 2003 Zagat New York City Restaurant Survey, and although the survey surfaced almost a year ago, the culinary trend of Manhattan eateries is still going strong, according to real estate brokers.

Rocco DiSpirito s and NBC reality series “The Restaurant,” aside, these days it s less about celebrity chefs and impressive spaces than about having a homey feel, good service, and of course, great food. The fact that many building owners are desperate for tenants has helped ease the way in opening up new eateries.

“A lot of people are looking [for restaurant space],” said seasoned real estate broker Cindy Glanzrock, vice president at Trammell Crow. “Chefs call me, owners of buildings who previously would not have wanted to rent out space for a restaurant, and are saying, we will take restaurants. The economy is open to other things.”

That applies to parts of the city where tourists and “Old New York” meet, as well as to neighborhoods like the Lower East Side that harbor trendy eateries like Salt Bar (Melissa O Donnell s downsized version of her Soho restaurant), and Bao 111, which serves French Vietnamese fare.

“The obvious trend is these East Village, Lower East Side restaurants,” said Glanzrock. “It s not just about the space, it s about quality service and a homey feel. A great example of this is the Blue Goose Cafe; it s a little gem. All of these rustic eateries like Supper and Home, you are sharing tables and there is such a mixed group there. There are a million great spots to go to in the city, but those environments are about letting down your New York intensity and edge.”

Buyers, whether they are chefs or restaurant developers, are all mainly looking for the same things. They want basement space, prep kitchens, and of course, cold storage is a necessity. Prices per square foot vary from $60 to $120 a square foot or higher, and most chefs and restaurateurs do not want to have to build their own kitchen from scratch, but they do want to bring in the newest and best equipment to set up shop.

“It s a time when people can afford to get prime space for decent rents, and to lock in affordable rents in prime spaces,” said Amira Yunis, a managing director at Newmark & Company. “If you look at the major restaurants, they are all on side-street locations, and if you think about it, a lot of the biggest restaurants don t have a lot of frontage.”

The Capital Grille, the high-end chain restaurant owned by Rare Hospitality, Inc., which Yunis just represented, will not be among those less visible restaurants. It will open a New York flagship in the Chrysler Center in the Philip Johnson designed Trylons wing and should be a welcome newcomer in the midtown area. The hearty steakhouse fare and select wine list of this multi-star restaurant should appeal to the midtown crowd and tourists alike.

“It was a marriage of the perfect tenant for the perfect space,” said Yunis, who brokered the deal between Rare Hospitality and Tishman-Speyer. (Andrew Goldberg, Eric Gelber and Loren Baron of CB Richard Ellis represented Tishman Speyer.) “The space [Chrysler-Trylons] is really interesting and that area is a very underserved market.”

Yunis said the 20-year lease was for about 9,900 square feet on the ground floor and 5,000 square feet on the lower level, which will anchor the space along East 42nd Street.

And, as the Trylons wing has stood empty since Tishman-Speyer created it, the urban myth of the “cursed restaurant” won t apply. The legend in the restaurant business goes that if a restaurant fails in one space, another restaurant may be cursed to fail, too, if they open in the same location.

Drawing the best chefs is a better hedge against failure. Brokers say the current trend is to recruit from outside New York. “Restaurateurs look for chefs. Bringing in new chefs from outside New York, whether they are national or international, is the new trend that help restaurants stay fresh,” said Glanzrock.

“For example, the new chef at Compass is Mark Andelbradt, and he was at True in Chicago. Inside the kitchen is what matters, and the chef exemplifies what happens inside of the kitchen. It s no longer about celebrity chefs.”

What s certain is that these firms are gunning for the big prize the most lucrative real estate market in the country the citadel of Manhattan.

The CEO of HomeServices of America, the second-largest home seller in the United States, said in late August that his company will be here in the next two years.

No advance troops for this army, which likes to buy the predominant brand in any market it enters. Meanwhile, the nation s third-largest residential real estate company, Weichert Realtors, based in New Jersey, already has one Manhattan office and said it is making inroads by targeting mid-sized players and creating beachheads in the outer boroughs.

Consolidation in New York residential real estate has already been happening, of course. The industry has been witnessing the trend since the 1990s, with bigger companies buying up smaller firms. But it is the coming of the big national and regional firms into the market in the last four years that has given the landscape a remarkable makeover.

“NRT and Corcoran was the water that broke the dam,” said David J. Knight, president of Manhattan-based residential real estate and relocation services firm D.J. Knight & Company. Prudential Long Island Realty (now Prudential Douglas Elliman) invaded from the suburbs this March, buying number two company Douglas Elliman.

The past few weeks have been a reminder that the trend is continuing unabated. Prudential CEO Dottie Herman, having just moved into her new offices at Elliman, is already shopping around for new companies and reportedly lost out to Coldwell Banker Hunt Kennedy in the purchase of Charles H. Greenthal s 60-broker residential arm last month (see story page 4). Coldwell Banker s purchase illustrates the quick growth of one of the first national franchises to start up in Manhattan, six years ago.

Now, with 250 brokers, the firm is one of the largest residential sales players in the city. The deal also illustrates the challenges facing mid-sized firms like Greenthal, which had been losing money in running its residential division.

The big fish that could likely eat all these smaller players is HomeServices. Already this past July, the affiliate of Warren Buffett s Berkshire Hathaway made some major acquisitions in the Southeast and West Coast regions by buying up Florida heavyweight realty firm Esslinger-Wooten-Maxwell and adding Prudential Hunter Realty to its California holdings, after its debut there last year with the acquisition of Prudential California Realty.

Although he would not disclose his company s exact plans for the New York market, HomeServices president and CEO Ron Peltier describes New York as a “prime market” for the purchase and sale of homes considering its population and huge inventory, and said he expects his company to make acquisitions in New York within the next two years.

Peltier said his company has no plans to start a business from scratch and will make its move in New York whenever “timing and opportunity” line up right.

“Our history is that we try to identify the number one or two brokers in any market. We like the predominant brand in the market and we always look for leaders who understand the market, and [situations] where the senior management team stays on board and we bring additional resources and strength.”

Knight said he thinks that HomeServices is well poised to buy in New York from a financial point of view. “They have a very large war chest to buy real estate companies. They re very careful with what kind of companies they buy and it s only a matter of time before they too come to the New York market,” he said.

But David Michonski, the Chairman and CEO of Coldwell Banker Hunt Kennedy, said he doesn t know if HomeServices will have a chance to realize its goals.

“Because their business plan says they go for dominant market share, I don t see them as having the opportunity” to make a deal, he said. Michonski said that NRT wouldn t be likely to sell Corcoran and Prudential wouldn t be likely to sell Douglas Elliman.

“They could go for Brown Harris Stevens and Halstead, but I think that would be unlikely,” he said, noting that it would be a mix of two different cultures (together Brown Harris Stevens and Halstead form Terra Holdings). Michonski also said that right now would be a bad time for high-end Brown Harris Stevens to sell because luxury sales are slow and that would negatively affect the price of the company. Michonski also said he expects other companies including Century 21 and RE/MAX to look at making inroads into Manhattan soon. Michonski said he has heard rumors that two relatively big deals may be coming in the near future. “I think we have a little bit more consolidation to do,” he said.

Another company that has the potential to make a significant impact on Manhattan is a giant from New Jersey.

Executives at Weichert Realtors said the company had already made its move into the Manhattan market and isn t going after the big industry leaders.

In January of last year, the company acquired the Manhattan real estate firm Mazzeo Agency, now Weichert Realtors, Mazzeo Agency and is looking to do more things in the area.

Already, Weichert, which is based in Morris Plains, now has franchises in Brooklyn, Queens, Staten Island and Long Island. “We offer franchise affiliations in the New York area and our targets are mid-sized offices with a need to compete with the very large firms,” said Martin Rueter, the president of Weichert Real Estate Affiliates, the franchising arm of Weichert Realtors.

Rueter said his company helps these companies by providing them recruitment assistance, business consulting, training programs for brokers and Internet services. “We re having zero resistance in getting new franchises,” he said. “Small companies are finding they need to get larger to compete effectively and offer more services to their agents.”

One deal that Weichert made in March, in which it merged with Relocation Resources International, headquartered in Norwalk, Conn., illustrates the company s possible expansion strategy, Michonski said. Weichert is likely trying to build up its referral base, so that if it makes a big move into this city, it will have that network to rely on, he said.

Coldwell Banker Hunt Kennedy functioned in a similar way when it started out here in 1996. The company would get calls from Coldwell Banker offices in California, or the Midwest, about people moving to New York. As a result, business at Hunt Kennedy, the 26-broker company which Coldwell merged with in the 1996 deal, jumped 106 percent in the first year of business alone, Michonski said. “They ll probably try to do the same thing we did six years ago,” he said of Weichert.

Like Michonski, other executives say these big combinations have made it easier for the member entities to do business in a changing environment. “We now get the benefit of being part of the NRT family,” said Pam Liebman, president and CEO of Corcoran Group. “This provides wonderful opportunities for networking.”

The story is much the same at Douglas Elliman, where access to greater marketing support and a broader slate of brokers within the same agency for selling opportunities and closer working relationship is said to deliver significant benefits to the customers. “Our relationship with Prudential Douglas Elliman has given us reach from Manhattan to Montauk, exactly where our customers live and want to live,” said CEO Herman.

On the flip side of that coin, buying into New York rather than starting from scratch here has helped make it easier for national companies to break into the New York market, a difficult nut to crack.

“The New York real estate market is unique because we have a totally different product than most of the country. The majority of New York apartments are co-ops and co-ops are a New York phenomenon,” Knight said.

Knight also said that the absence of an MLS (multiple listing service) makes the New York real estate market different from other markets.

In the past, these differences have made it harder for the huge national firms to play in the New York real estate market. “The city in general has been resistant to the larger market franchises. Historically, the New York market has been proprietary, with lots of small independently owned businesses competing for market share,” said Douglas Wagner, president of Manhattan brokerage firm Benjamin James Associates, Inc.

Despite national companies moving in, most experts don t believe consolidation is about to change the way New York s real estate firms operate, at least not in the near future.

Frederick Peters, president of Ashforth Warburg, said the players here see themselves as “special” and remain uneasy about the franchise model that works elsewhere. He said NRT/ Corcoran succeeded because no franchise deal was imposed on Corcoran. “It s not ERA Corcoran, or Coldwell Banker Corcoran, it is just Corcoran.”

Peters said the market players and their methods are still the same. “To a large degree it s still the same old New York market. All that has changed is the landscape.”

Wagner actually sees the national players themselves changing just so they can play in the New York market.

“The national firms will be more influenced by the New York style and will have some learning curve in New York because of the emphasis on co-ops and condos.”

Both Herman and Liebman said their brokers and other operatives still conduct business as usual, in spite of their acquisition by the national firms. Perhaps that explains why another big national player like HomeServices would only seek local leaders with a close knowledge of the market.

Knight sees the situation somewhat differently. He predicts that as the big national firms increase their market share in New York, they will introduce rules, regulations and procedures similar to the way they operate elsewhere in the country. “There is no doubt in my mind that in five years there will be an MLS [multiple listing service] here in Manhattan.” Knight said the New York firms being acquired by the giant national firms would be given independence to operate in the short-term only. “In the long run, I think the mothership will rule.”

What is not clear yet is how the large number of self-contained smaller players who dominate the New York market will be affected by the changing landscape of very few mega players brought on by consolidation.

Liebman said it is harder to make it as a smaller company these days because buyers and sellers want the advantages that come from being part of a larger operation.

But Wagner (who described his company, with 85 brokers, as medium sized) is more optimistic for smaller firms, saying that consolidation would ultimately create a handful of larger firms competing with hundreds of smaller firms. He said the smaller firms would not go away because there would always be the need for the kind of highly personalized service that only they can provide.

Peters is similarly optimistic, saying that ten years ago, he would have been worried about surviving as a small firm and holding his own against the larger players, but not anymore.

While small boutiques may be immune, however, it s the mid-sized firms that might feel more pressure. Peltier said cost of doing business is a major factor in the consolidation wave, especially for the smaller firms who have to operate in one of the most fragmented industries in the country. “It s a lot more overhead running a small company. The inefficiency of a small brokerage creates a drawback for a small principal and opportunities for consolidation.”

Peters notes that consolidation has been going on “all over the country, in every industry” in recent years.

In the case of Greenthal, Chairman William West said he decided to sell his company s mid-sized, 60-broker residential arm to Coldwell Banker Hunt Kennedy because he had been experiencing high overhead costs relative to revenue. Greenthal will contine to operate its main property management arm, some 200 employees.

“A desk alone can run from $10,000 to $15,000 without adding advertising,” said West. “If that s greater than the net on sales, you have a problem.” A small boutique firm, without the need for secretaries, human resource employees, and other services, would face fewer difficulties. “The overhead would be miniscule,” West said.

It s unlclear whether the case of Greenthal, in which the company sent out signals last year that it wanted to be bought, is indicative of a larger trend.

Michonski said he believes it is. “You can t be stuck with between 30 and 80 agents,” he said. “Even with three or four offices, you need a bigger reach. Bill [West] saw that national is the trend.” Said another broker about firms who occupy the middle ground between boutiques and big corporations, “at that size, you re neither fish nor fowl.”

A surge of apartment buyers and lookers, hoping to catch interest rates before they rise any further, leapt into the Manhattan housing market in August, competing for the small number of properties available during the traditionally slow month.

The combination of an increased number of buyers and low inventory created an upswing in bidding wars on properties, according to some brokers.

“There is no inventory now in the market and buyers are competing for what s out there,” said Jacky Teplitzky, a vice president at Corcoran, who said she had bidding wars on three properties she brokered recently. “People traditionally don t put their home on the market in August, so the people that are doing it are really benefiting,” she said.

“Buyers are worried rates are going to go up further and they will get left behind,” said Steven L. James, senior executive vice president and director of Eastside sales for Douglas Elliman. “People are still getting 30 year lows, instead of 40 year lows. The rates are still low enough.”

Other brokers said they didn t see much increased buying, but more looking.

“There have been more people looking,” said Gary Kiyan, Listings and System Manager for DJ Knight.

In mid-August, rates reached a new high of 6.625 percent before settling back a bit. The six weeks prior to that saw the sharpest increase in any six-week span since 1987.

James said that rates will have to go to “seven or eight percent before they have an impact” on buying activity.

Teplitzky said she had a bidding war for a 2-bedroom, 2-bath apartment on the Upper East Side that was listed for $655,000. She said the owner received three bids above the asking price on the property, which would have sold for $630,000 a few months ago.

James gave the example of a bidding war on a $145,000 one bedroom apartment his company was selling in the East 70s. “There have been bidding wars all summer in different price categories,” he said. “At this point, buyers are very frustrated with what s out there.”

Kiyan had a more modest assessment of the situation.

“I wouldn t say it s an incredible anomaly,” he said. “There have been a lot of people shopping. Interest rates are generally low, and some people are saying I don t want to miss the boat. ”

Another indication of the market in August was the number of brokers who were still sticking around the office. Of the 230 brokers at Elliman s Eastside office, few had left for vacation as of the middle of the month, James said. “They have to notify the company if they are out of the city for more than two days,” he said. “They could be out in the Hamptons, or in Martha s Vineyard. But looking at the vacation sheets, very few are gone. On paper, it shouldn t be that way.”

James said that since the middle of April, Elliman has seen an increase in contracts signed, and that the number of contracts over $1million has doubled since April, though there was a slight drop off in mid-August. He said he hoped the overall good news would continue through September. “At a recent meeting we had, I asked how many brokers had an exclusive coming after Labor Day, and more than 90 percent raised their hands and said they did,” he said.

Kiyan said that September, when more inventory comes on the market, will be the real test of how the market is doing.

Mortgage rates will be the big question. The Federal Reserve left its overnight interest rate unchanged at 1 percent last month, and strongly suggested that it would not raise interest rates until at least some time next year. But with concerns about deflation, there was also no indication that the central bank would lower the federal funds rate below one percent or that it would pump money into the economy by buying longer-term Treasury securities. That makes a decline in mortgage rates unlikely.

Rising mortgage rates are affecting how buyers are financing. Shorter term rates, such as the 1-year ARM (at 3.75 percent in mid-August) have shown a bit more stability, rising more slowly than the fixed-rates have. This has caught the attention of recent home buyers who are opting more and more lately for the lower starting rates of the ARMs as opposed to the somewhat higher fixed-rates.

Borrowers are also increasingly taking out loans in which their monthly payments for the first few years are used to pay only the interest. One of the nation s largest mortgage lenders, Wells Fargo, said last month that applications for interest-only mortgages worth $200,000 or more jumped 28 percent in July and had increased another 11 percent as of mid-August. Buyers are trying to keep monthly payments what they would have been two months ago, unwilling to accept the still historically low rates that 30-year fixed mortgages carry.

The Mortgage Bankers Association of America said last month that nationally requests for refinancing are off nearly 60 percent from their recent peak, and had been declining for the previous five weeks.

Overall, the National Association of Realtors (NAR) is predicting that even with the sharp rise in mortgage interest rates in recent weeks, housing markets will maintain strong levels. “We now think the 30-year fixed should stay below 6.5 percent for the balance of 2003, and that s still very favorable when you look at where rates have been over the last four decades,” said David Lereah, chief economist for NAR. “Home sales in the second half of the year won t be as robust, but we ll still see an annual record.”

When the lights went out at 4:11 p.m. on Aug. 14 in the former offices of Charles H. Greenthal, David M. Michonski didn t miss a beat.

The Chairman and CEO of Coldwell Banker Hunt Kennedy was holed up in a conference room there, talking to Greenthal brokers about the benefits they would be eligible for now that CBHK had purchased part of the company.

Michonski didn t ask why the power was out, and candles were brought in as the meeting continued without interruption. The CEO appeared less concerned about the citywide blackout than about building a bridge to the newly acquired troops.

After the meeting, Michonski appeared ebullient about his company s latest acquisition, the residential sales arm of Greenthal, which includes around 60 brokers.

CBHK beat out Prudential Long Island Realty, which had also been courting Greenthal, in acquiring part of the company for an undisclosed sum, Michonski said.

“Dottie [Herman, CEO of Prudential] was pursuing the company,” said Michonski, saying he had no further details on the matter.

“We decided to pass,” explains Herman. “The numbers didn t make sense.”

William West, who as chairman of the family-owned Charles H. Greenthal Group will retain ownership of the property management arm of the company, said he decided to go with CBHK because he felt there was more “synergy” between the two companies. He expects his property management company, which has been in business for 40 years and has around 200 employees, to work closely with CBHK in the future.

“Other companies sat down and spoke to us,” he said. “We may have gotten offers for more money, but without the synergy being there.”

The newly expanded CBHK will now have 250 agents in five offices, and Michonski said he likes where his firm is competitively situated.

“We re now just shy of $1 billion in sales,” he said. “We think that puts us in the number three or four position, depending on where you place Halstead.” A look at property sales reported in Crain s, however, would put the company closer to sixth largest residential real estate brokerage, behind Terra Holdings (Brown Harris Stevens, Halstead and Feathered Nest), Douglas Elliman, Corcoran, Sotheby s and Bellmarc.

While Michonski said Greenthal brokers are now looking forward to being a part of CBHK, that wasn t the case with some brokers when the deal was first announced on Aug. 7. “Now, they are just so excited,” he said. “But they weren t last week.”

Michonski said a group of eight or so agents led by broker Bonnie Brown voiced concerns in the first days following the deal. “There are definite cultural transition issues,” Michonski acknowledged. “Brokers were part of a boutique firm and now they are part of a national firm there is a definite difference in culture.”

To address concerns, Michonski began holding information sessions three times daily, telling the brokers about CBHK and the company s plans. One selling point is the company s innovative stock option plan for employees, which has been profiled on CNN and is now in its eighth year. Michonski also brought in a transition advisor to help deal with any problems. He said he now expects “no loss of brokers” as a result of the acquisition, though the next few months may be the real test.

CBHK plans to use the former Greenthal office at 555 Madison Ave. as its new headquarters. “We didn t have an office in Midtown before,” Michonski said. “So now, our Manhattan coverage is complete.” Michonski recently relocated to the oldécorner office of Susan Renfrew, president of the Greenthal residential sales arm, who was the only casualty of the acquisition. “There wasn t room

for two presidents,” explains Michonski. From his new office, Michonski noted that he can look down at Dottie Herman s offices at 575 Madison Ave.

The acquisition is another step in the growth of CBHK, which has expanded at an average compound rate of 34 percent since it was founded in 1996. The company got its start when Michonski, who was given the Coldwell Banker franchise rights for Manhattan, teamed up with brokerage Hunt Kennedy, led by JoAnne Kennedy and William Morris Hunt 3d, who are co-presidents of the organization today. CBHK, which started with around 25 brokers, then went on to acquire three other companies before buying Greenthal s residential arm.

Michonski said much of the company s growth has been a result of the referrals it gets from Coldwell Banker offices throughout the nation.

West, of Greenthal, said he was excited by the prospect of a close association between the two companies. “I think the name is a terrific name,” he said, noting that his brother-in-law works for Coldwell Banker in California. “Hopefully, we ll enjoy more management and they ll enjoy more sales, and we ll develop a friendship outside of money.”

West will also join the Board of Directors of RealShare, CBHK s parent company (which Michonski also heads).

West said talks between the two companies had been going on “for a year or so.” West said part of the reason he sold the residential arm was that the division “wasn t as strong as I would have liked it to have been,” and that he had been experiencing high overhead costs relative to revenue.

Michonski said CBHK has annual revenues of around $20 million. He said going from $20 to $40 million in revenue will be an easier climb. “It s like a spaceship,” he said. “It takes an enormous amount of thrust to get off the ground, and then it s less work after that point.”

In August of last year, when the city signed an agreement with squatters on the Lower East Side to give them legal ownership of 11 buildings for $1 each, it was considered a major victory for the squatter community.

Residents in 146 apartments, many who had helped fix up the scores of abandoned buildings that the city foreclosed on during the 1970s and 1980s while illegally living in them, were now legitimate homeowners.

Joining the ranks of apartment owners in the city has not been without its problems, however. Those who relied on their home repair skills to create their living space in the past, now must focus on the realities of mortgage payments and maintenance costs.

Under the agreement with the city, squatters who, for example, once voluntarily contributed $100 a month in building dues for a 700-square-foot, one-bedroom apartment in the East Village, will pay roughly $650 in combined mortgage and maintenance charges.

To be sure, the squatters are still getting a bargain by open market standards, where a comparable apartment in a co-op in the same increasingly gentrified area in Alphabet City would cost approximately $2,100 a month.

In addition to those payments, the squatters will become limited equity co-op shareholders only upon completing an estimated $5.5 million in renovations to be paid off in mortgage loans secured by the Urban Homesteading Assistance Board (UHAB), the non-profit developer that negotiated the deal between the city and the squatters.

But after living on a shoestring budget for so long, some squatters are concerned that they won t be able to come up with the monthly rents. Most are trying to limit expenses by doing the renovation work themselves and yet there is great concern among the squatters that they ll exceed their budgets or not complete the work within the two-year time frame required under the agreement.

“What s changed is that we now have accountability for what happens here,” said Josh, 28, who lives at 155 Avenue C, one of the younger and less organized squats where the residents are attempting to renovate the five-story, 16-unit building for under $100,000, a sum considerably less that UHAB s $484,000 estimate.

“A lot of people envy us but they wouldn t last a day because we exist with the bare minimum,” said Josh of a building that has one communal shower and toilet and, at the present moment, resembles a dank cave more than it does a home for 16 residents.

At 377 East 10th Street, one of the quieter, more well-established squats, Eric Rossi, 50, found a building that in 1989 was caving in on itself, its structural supports having been removed by vandals.

“We cleaned out the whole building and carted it out to a vacant lot on 11th Street and we demolished the whole inside of the building, installing new plumbing, roofing and air vents,” said Rossi, who s since become an interior renovations contractor.

Rossi, whose building recently suffered fire damage and is undergoing major reconstruction, believes he can bring the project in under UHAB s $423,500 estimated budget, but balks at UHAB s insistence on using its own contractors to fix the roof, which will increase costs.

Rossi also said he believes affordable housing could be made available to more New Yorkers under similar “land trust” agreements like the one reached with the squatters. “If a land trust can renovate a building and come out paying $400 and $500 a month rents, that to me is affordable, not the triple rents they re getting across the street.”

Under the agreement, the squatters can only sell to individuals or families making no more than 80 percent of the median income of New Yorkers: $45,200 for a family of three, for example. And for the next three years, sales are limited to between $7,000 and $9,000, depending on the size of the unit.

One enigma surrounding the deal between the squatters and the city is why it happened in the first place. The deal may set a precedent for other squatters after the city had tried to displace the squatters through three mayoral administrations, at times using tanks, helicopters and riot police to intimidate and remove them. Negotiations with the squatters began in 1999 during the Giuliani administration.

According to Carol Abrams of the Department of Housing, Preservation and Development, it was a pragmatic solution entered into with a partner that could deliver on the deal. “UHAB presented a proposal and the proposal was financially viable,” Abrams said.

“It s a unique situation,” added Abrams. “There are no parallels. I don t have buildings like that in Harlem. The parallel I would make is that local demand is huge.”

Despite the squatters reclaiming scores of apartments, the impact on the real estate market in the area will be negligible, said Andrew Heiberger, president and chairman of Citi Habitats. “Yes, it can impact the 5-story tenement building on Avenue D and 13th Street, but that s just one building on Avenue D and 13th Street,” he said. Heiberger believes neighborhoods like Harlem will become gentrified as soon as construction costs lessen or the economy improves.

There are perhaps hundreds of other squatters around the city, including in the Bronx, Brooklyn and Harlem, says Bertha Lewis, executive director of New York ACORN, a housing advocacy group.

Rossi said some people squat because there is a severe shortage of affordable housing in the city. The city has a $3 billion plan to preserve and create 65,500 units of affordable housing over the next five years for low, moderate and middle income New Yorkers, which may help put a dent in the problem.

Already the vacancy rate is down from 4.01 percent to 3.19 percent, reflecting the city s attempt to rehab all city-owned properties. Yet from 1996 to 1999 the number of doubled-up households increased from 203,000 to 221,000, according to city statistics.

Said Rossi: “There s a housing shortage and people are living out there, squatting. The city just doesn t know it.”

It used to be that the only reason to trek to the City Hall area for many Manhattanites would be to contest a ticket or serve on jury duty. The area has generally been known as a five-day-a-week, 9-to-5 neighborhood, a hub for city government surrounded by fast food joints and functional, low-end retailers.

But that image has been starting to change. Several recent transformations of office buildings into luxury dwellings are bringing in families, Wall Streeters and singles, and providing cachet to an area that, until recently, had little.

Some brokers are touting the area, centrally located in terms of subways, as an eastern annex of TriBeCa, with considerably cheaper loft dwellings, and still only a five-minute walk from Nobu. Others note the fabulous architecture of the area, with City Hall, Tweed Courthouse and the Woolworth Building numbering among the countless historic, mostly government-related, structures. There s also City Hall Park, restored under Mayor Giuliani, as well as nearby South Street Seaport and the Brooklyn Bridge.

With a new influx of residents, brokers say the bustling daytime area will eventually become a bustling nighttime area as well, with more upscale restaurants and retailers.

“It s a very vibrant area,” said Shaun Osher, an executive vice president at Douglas Elliman. “I m finding people are coming here from all over. There are Wall Streeters who want to walk to work, Upper East Siders, singles and foreign investors. It s a very wide demographic of people, and not one particular group. I think that will add to the character of the neighborhood.”

Evelyn Cole of Stribling & Associates, who defines the core of the neighborhood as “any place you can see City Hall Park from,” said she is seeing a lot of young families moving to the area, particularly from the Upper East Side.

“Young families come down here on the weekends to the Seaport and parks, and that s a draw,” she said. “You can get more square footage down here than Uptown,” and some of the newest buildings have “the same services that you d find on Park Avenue.”

Children who live in the City Hall area are also eligible to attend P.S. 234, the excellent elementary school in TriBeCa that first drew families to that neighborhood in the 1980s, Cole said. “The families I see are usually also looking elsewhere in TriBeCa. Many have a baby on the way, and one in a stroller. They all ask about P.S. 234, even if they don t end up sending their children there.”

While sharing some of the advantages of TriBeCa, the City Hall Park area is considerably cheaper. “People who can t afford a three bedroom for over 2 million in TriBeCa can find one here for 1.35 million,” Osher said. “And those numbers will appreciate,” particularly as money is pumped into the nearby Financial District during the rebuilding effort there, he said.

Two developments leading the way around City Hall are a 23-story condo known as 150 Nassau at City Hall Park and Tower 270 at 270 Broadway.

The 150 Nassau Street building, which overlooks City Hall Park, was erected in 1896 as the tallest “skyscraper” in Manhattan at the time and was known as “the crown jewel of Park Row,” according to Douglas Elliman, which is doing the marketing for the building. Conversion of the former office building to lofts began before Sept. 11. There are four residences per floor, ranging from one-bedroom apartments for around $550,000 to a 9,000 square-foot penthouse apartment on the market for $10 million. Around 80 percent of the units have been sold, and around 50 percent of the building is occupied.

Tower 270 at 270 Broadway, another conversion, is being marketed by Stribling & Associates. Cole said the building is notable for the amenities it provides two shifts of doormen (“rare for the TriBeCa area”), a 24-hour concierge and an on-site manager. The development, which mostly houses larger units, is about 75 percent sold at this point. A three bedroom, 3.5 bath unit in the building runs about $1,695,000. A potentially four bedroom, 3.5 bath 4,000 square foot unit in the building runs about $685 a square foot, Cole said. 80 Chambers Street is part of the same structure, but has a separate entrance because the developer of the building retained ownership of that portion.

Other developments in the area include 15 Park Row, a 28-story Beaux-Arts office tower partly converted to rental apartments in 2000. There have also been plans to convert the upper floors of the Woolworth Building to residential use or a hotel, “but nothing appears finalized,” Osher said. Osher said he expects people to move to the City Hall area because there is still authentic conversion space available there, not the new construction seen in TriBeCa now that much of what s convertible there has already been converted. “People want a downtown loft with character,” he said.

Loft space in the City Hall area is high-ceilinged, with big windows, but consists of concrete and terracotta, not brick and wood like in Soho. “It s a cross between the great lofts and the prewar type apartments with multiple bedrooms,” said Cole. As far as new construction, there is little open space for new development, though one significant plot of land was put on the market in July. NYU Downtown Hospital s parking lot could fetch as much as $100 million as home of a 50-story tower topped with luxury condos. The site, which is being marketed by Cushman & Wakefield, is just steps from City Hall Park and is next to 150 Nassau, and is known to many as the Beekman Hospital parking lot.

With its proximity to TriBeCa (“Five or six of the best restaurants in the city are within walking distance”), Battery Park City, the Financial District and the Seaport, Osher sees the City Hall area as a hub “where several different worlds are meeting.” Transportation is another plus. “You can walk two blocks and get onto any main subway line in Manhattan,” he said.

Osher said he also expects the City Hall area to become a destination address for retailers and restaurants in its own right eventually. “I think over the next five years retail is going to change,” he said. “You ll see more upscale restaurants coming here. Even some of the delis are already getting hipper, and you re not as concerned you might get ill from something you eat there,” he said. “There is now also a Starbucks around the corner from my office, though I regret using that as an example,” he said. Cole also said she sees signs of transformation, noting a home accessories and furniture store and an art poster shop that recently moved in.

“I think some things are changing right now,” she said. “But a lot of store leases have to expire for new tenants to come in. So it s going to take a little time.”

By the standards of any co-op board in New York, David Pullman would likely have been judged a bad neighbor.

In the nine months after he moved into a co-op at 40 West 67th Street, the 41-year-old bond salesman allegedly made noise complaints against his upstairs neighbor about his TV and bookbinding operation (the 70-year-old retired college professor neighbor had neither of these), got into a physical confrontation with the retiree, launched four lawsuits against the board and tenants in his building, and wrote 15 letters in one month claiming sexual affairs andécorruption on the part of building residents, among other issues.

In the watershed legal case that followed Pullman getting voted out of his co-op, a state appeals court ruled that boards can evict tenants for objectionable conduct without first taking the matter to court. The court ruled that co-op boards are akin to boards of corporations, and can get rid of tenants as part of pursuing the “best interests” of the corporation.

So what legal developments are likely to come next, and how are boards going to “Pullmanize” (yes, it s a verb now) obnoxious and unruly residents in the future?

John T. Van Der Tuin, the lawyer who was responsible for the Pullman decision, said he expects a few boards will likely wind up being overzealous in pursuing undesirable tenants in the future.

“I think a few boards will abuse it,” he said. “They will likely be slapped down by the courts and a stasis will eventually be reached.”

Van Der Tuin was part of a panel discussion on the Pullman case held by the Council of New York Cooperatives last month. Incidentally, the same night, a law firm across town was holding a party to celebrate a different legal victory over Pullman. Pullman has long claimed he was the creator of so-called Bowie bonds, in which entertainers like the rock singer David Bowie sell bonds backed by their song royalties. The New York State Supreme Court ruled it was the Rascoff/Zysblat Organization which actually developed the product, while a company Pullman worked for was only the marketing agent for the bonds.

As far as the implications of the co-op case, one lawyer on the panel said it is likely that, during the next two or three cases, the courts will have to look at how to resolve instances when boards and ousted tenants differ over the facts of the case. Pullman didn t argue the facts that he wrote 15 letters in one month, for example, or that he filed four lawsuits against board members.

“How the court deals with factual issues is going to be the big question,” said Marc Luxemburg, president of CNYC.

Van Der Tuin had practical advice for boards on how to go about removing undesirable tenants. Language in the court decision is unclear on whether getting rid of tenants requires a shareholder vote, or a simple vote of the board.

“I think the court may have [inadvertently] fudged that one,” said Andrew Brucker, a partner at Schechter & Brucker, on the haziness of the ruling.

Brucker and Van Der Tuin both said they think a vote of the board is enough to get rid of a tenant.

But only getting a simple majority of the board, rather than a supermajority, would make it “a tough battle” in court, Van Der Tuin said. Both also said that a shareholder vote makes more sense in a smaller co-op (Pullman s building had 32 units), rather than a large building, where all the tenants might not be aware of the problem posed by a particular tenant.

Van Der Tuin said a notice to a tenant to stop objectionable behavior, called a “conduct continue after” notice, might or might not be the right step depending on the specifics of the tenant s proprietary lease in the case. It s also important to keep a careful log of objectionable behavior.

Van Der Tuin also noted that there might be differences in what is acceptable to a co-op depending on the particular community where it is located. “Guitar playing or the smell of paint might be more acceptable on the Lower East Side than the Upper East Side,” he said.

Van Der Tuin and the other lawyers emphasized throughout that a co-op board should only try to get rid of tenants in extreme circumstances where a tenant s unpleasantness makes life in a building “unbearable.”

“If the court decision ends up sanding a little off the edges, that s a good thing,” Van Der Tuin said. “It would be bad for co-ops if it was widespread. It should only be saved for the most egregious circumstances and as a last resort, not for the sort of New York jerk in your apartment building.”

Meanwhile, Pullman, despite two years of legal proceedings, is still living in the West 67th Street apartment, though it is in the process of being sold by lawyers. Van Der Tuin said a lien had to be placed on the apartment for unpaid attorney s fees. Lawyers also had to get a use of occupancy order for Pullman to pay maintenance costs.

Mary Ann Rothman, executive director of CNYC, said the case illustrates the need to be completely thorough in looking at prospective tenants. “This is a wakeup call to do a better job in the admissions process,” she said.

A proposed New York City Council bill that would make it harder for landlords to opt out of the Mitchell-Lama program is drawing concern from some tenant advocates, who say the bill would undercut attempts in Albany to expand the rights of tenants.

A bill introduced by City Council Speaker Gifford Miller a month ago would require that landlords notify tenants of their intentions to opt out of the program 18 months in advance instead of the current 12 months, levy a $1,000-per-apartment fee on landlords and require impact studies on tenants if landlords want to leave the program.

The measure would apply to some 14,000 city-supervised rental units built after 1974, or about 12 percent of all Mitchell-Lama units in New York City.

The speaker s proposal is the latest parry in a battle by tenant advocates to block landlords from leaving the Mitchell-Lama program or from charging market rents when they do. Currently, if owners of Mitchell-Lama rentals built after 1973 leave the program, the apartments can be rented at market rates.

If the bill passes, landlords are expected to sue to overturn the measure, a move that could result in months of legal wrangling. The bill is also being opposed by the Real Estate Board of New York. REBNY is charging that it is improper to modify regulations that were set out in the Mitchell-Lama program some 50 years ago. Under that law, Mitchell-Lama owners can withdraw from the program after a minimum of 20 years.

“Changing the rules now would be a serious breach of faith and would dissuade investors from creating much-needed units of new affordable housing in the future,” the group said in a statement. “The Mitchell-Lama program stands as a contract between government and the private sector, and any change being proposed by the City Council would clearly be a breach of that contract resulting in the loss of trust in government. We also question the City Council s authority to enact such changes, but even the attempt to do so is sending a terrible message.”

On the other side of the fence, several tenant associations and community groups have signed on in support of the bill. But some members of the Mitchell-Lama Task Force, created by Manhattan Borough President C. Virginia Fields in 1999, worry that the bill is too narrowly focused to help most tenants, and could divert attention from more expansive bills pending in Albany, where the fates of most Mitchell-Lamas are controlled.

Since the bill only applies to 12 percent of the 120,000 Mitchell-Lama housing units in New York City (i.e. the city-supervised rental units built after 1974), it threatens to divide the broader movement, some say.

“This is directed at city-owned Mitchell-Lamas, not state-owned ones, and it s geared mostly toward rentals and not co-ops. I think there is a danger in pitting tenants [against each other],” Louise Sanchez, co-chair of the Mitchell-Lama Residents Coalition, told City Limits magazine.

Others have expressed concerns that the legislation might not stand up to a constitutional challenge. “My prediction is it s going to be beaten down by the courts,” Bob Woolis, also a coalition co-chair, told City Limits.

Some supporters say the city legislation won t get in the way should the state legislation be passed, however.

One state bill, sponsored by Assembly member Vito Lopez (D-Brooklyn), would offer landlords another period of tax breaks if they stay in the program. It has already passed both houses and only awaits Gov. George Pataki s signature.

Currently, 12 projects are seeking to leave the city program, including Downtown s Independence Plaza, a 1,332-unit project being purchased by Larry Gluck for $100 million. The complex is the home of former City Council Member Kathryn Freed and has been a recent focal point in the Mitchell-Lama battle.

Overall, of the more than 60,000 units in the city-sponsored program, only about 5,000 have gone out of Mitchell-Lama program since 1989.

The legislative process for the City Council bill will begin when the Council reconvenes in September.