Say you are a Manhattan real estate developer, and you are trying to convince savvy apartment shoppers to buy in your building — at prices per square foot that are two, three and even five times the average. A degree of secrecy, some say, is the best strategy.
Indeed, the developers of the city’s two most audacious residential skyscrapers — 432 Park Avenue and One57 — are keeping the lights low and the curtains drawn by using their own in-house brokers and by keeping their listings out of the public eye. Neither CIM Group and Macklowe Properties — the sponsors of 432 Park, a 1,396-foot tall building between East 56th and East 57th streets — nor Extell Development — which is building the 1,004-foot-tall One57 four blocks to the west — has released listings on broker databases, such as the Real Estate Board of New York’s Residential Listing Service (RLS), On-Line Residential or consumer-facing sites like StreetEasy. And neither has gone the traditional route of hiring third-party brokerages to market and sell out their buildings.
While this lack of transparency is not necessarily evidence of a trend, the cloistered marketing of the buildings – surprisingly – underscores the startling weakness of residential brokerages within the structure of REBNY, the industry’s leading trade group, compared with property owners.
REBNY’s bylaws require brokers — including those hired by developers to sell out entire buildings — to list their units on the RLS in a timely fashion, typically within 24 hours. The rule was made to encourage co-brokering and foster transparency in an industry where an imbalance of information can easily lead a buyer into overpaying — or worse. Nevertheless, REBNY’s rules include an exception so that owners who market their own properties are not required to list their units.
“Developers, like any individual sellers or owners of property, are not bound by RLS or UCB (REBNY’s Universal Co-Brokerage Agreement) rules and are free to choose how they market, sell or rent their properties and how they circulate information to brokers and the public,” REBNY said in a statement to The Real Deal.
Some insiders, such as Adam Leitman Bailey, the pugnacious attorney whose eponymous firm is often battling landlords, expected that this particular apparent bias to owners will change.
“REBNY does so many wonderful things for the real estate industry and no real estate trade group is more respected and powerful,” Bailey said. “That being said, REBNY only takes on the biggest issues and for the very biggest property owners.”
“I doubt REBNY purposely made this rule to benefit owners over brokers and they will probably change the rule,” Bailey added.
An air of mystery for profit’s sake
In practice, virtually all developers that handle their own sales, from mid-sized builders like Alchemy Properties to global behemoths like Related Companies, list their units publicly. After all, it’s risky not to promote a product, and brokers might forget the homes are for sale. (Toll Brothers, which recently sold out the 22-unit Touraine at 162 East 65th Street in Lenox Hill, is one of the few exceptions that often does not publish listings.)
But at extremely high-profile projects like 432 Park and One57, it may make sense to maintain an air of mystery. Besides, bringing marketing in-house is likely adding a jolt to the developers’ bottom line, insiders said.
Gary Barnett, Extell’s founder and president, told The Real Deal earlier this year that his company decided to go that route at One57 for financial and strategic reasons.
“The commissions are very significant and we wanted to keep it. And we wanted a little better control of the team,” he said in January in a wide-ranging interview not conducted for this article. Extell, Macklowe and CIM declined to comment for this story.
In a new development condominium project, the sponsor will typically budget about 4 percent to 6 percent of the total sell-out price for broker commissions. For these two projects, with each expecting to sell out for more than $3 billion, developers would expect to pay commissions of between $120 million and $180 million.
“Most developers want to stick to their knitting and the marketing is something they have to outsource,” said Andrew Gerringer, managing director for new business development at the Marketing Directors.
While $100 million here and $100 million there may seem like rounding errors in such mega-buildings, it’s a big chunk of the potential profit, normally pegged at about 25 percent to 30 percent of the revenue. Not surprisingly, the developers want to keep more of that for themselves. Bringing sales in house should save about 15 percent of the gross profit (or in these cases $45 million to $90 million) that typically goes to an outside marketing firm.
Second, by not publishing the listings, they are effectively weakening the value of the buyer’s broker, potentially reducing the number of co-brokered deals. That is because many buyers are foreign and don’t know local brokers, and furthermore local brokers are hamstrung because they don’t have inside information on closed sales and listing prices from RLS.
And each direct deal, in which the buyer comes directly without a broker, can save the developers another 3 percent of the sale price that would normally go to the broker. This strategy is not particularly valuable for buyers based in New York, who would often already have a broker, but will be for out-of-town buyers, who would be more likely to call the marketing numbers on the developers’ websites directly.
In some cases at less publicized projects, developers are at the mercy of brokers, who can direct clients to and away from projects, real estate professionals said.
“If you turn the brokerage community against your project, you are screwed. You want as many brokers as possible,” said Cary Tamarkin, founder of development firm Tamarkin Company, which recently launched sales at the 15-unit project at 508 West 24th Street.
But another veteran broker, who did not want to be named speaking critically of the industry, said marketing firms limiting the number of co-brokered deals was one of the profession’s “underbelly secrets.”
Insiders had no consistent estimate of how many deals are typically done directly on a new development project.
Kenneth Horn, founder of Alchemy Properties, said only about 10 percent of his deals were direct. Susan De França, who cut her teeth at Related and is now the CEO of Douglas Elliman Development Marketing, put the figure at about 25 percent, as did Karen Duncan, who worked at Zeckendorf Development on the marketing of 15 Central Park West, and is now an associate broker at Fox Residential.
At a higher range, a long-time developer, who specializes in converting office buildings to condos and also asked not to be identified, put the figure at about 40 percent.
A different kind of marketing
Bringing sales in-house is hardly reinventing the wheel. Related, after hiring Sunshine Group, now know as the Corcoran Sunshine Marketing Group, to manage sales at three projects starting in the 1990s — including the then-record breaking Time Warner Center in 2001— launched its own division to handle sales.
Other firms, such as Alchemy and Toll, have been doing it for years.
Tamarkin gave it a try in 2003 with 42 East 91st Street, but found it better to stick with an outside firm. He ended up hiring Stribling & Associates, which sold out the project.
However, the lack of transparency distorts industry reports, some say, because contract signings are not revealed. In addition, brokers and buyers do not have a clear idea of how many units are in contract, weakening their ability to negotiate.
Bailey summed up the sentiment: “I wouldn’t trust anyone that does not list [the units] publicly.”
For years, Extell hired Corcoran Sunshine Marketing Group to handle sales in its developments, from traditional condos like the Ariel West at 245 West 99th Street where most apartments sold for between $1.5 million and $4 million in 2008, to the luxury 995 Fifth Avenue conversion, where the bulk of the units sold for more than $10 million.
So it was a change when Extell, instead of hiring Corcoran to do the marketing at One57, hired several of the firm’s brokers to handle sales from within the developer’s walls. In all, Extell hired at least four of its 10 agents from Corcoran, including Daniel Tubb and Jean Woodbrey.
Although Corcoran is not marketing Barnett’s project, it was involved in strategy, Pamela Liebman, the brokerage’s CEO said. And the company could stand to profit through the experience. She’s hoping some of the former Corcoran agents will return to the fold.
“We have people that hopefully will come back to work at Corcoran one day,” she said. But she is not looking to extend such an open relationship with other firms.
“Gary is really the largest developer in New York City. He has the right to choose to market in the way he sees fit. We certainly would not do that for every developer,” she said.
The group, headed by Richard Wallgren, a former senior vice president at Brown Harris Stevens, and director of sales for 15 Central Park West, also includes four agents and brokers from Corcoran, including Gabrielle From and Jennifer Marie Taylor, among its nine licensed agents, according to New York State Department of State records.
“It is a different kind of marketing,” said Donna Olshan, president of the residential brokerage Olshan Realty. “I am just a big believer in getting it out there because you never know who has the clients and where they come from.”
Correction: In an earlier version of this article, the future height of 432 Park was given as 1,096 feet tall, when in fact it will be 1,396 feet tall.