TRD Special Report: You’ve heard the tale a dozen times before: From 2012 to 2014, Manhattan’s luxury condominium market was on fire. Buyers couldn’t get enough of new development product, and brokers were selling, selling, selling. Act fast, or else!
But there’s more to the real story. Though those years did see a remarkable increase in sales velocity and prices, many brokers and developers anxious to lock in buyers appear to have inflated their success — and by extension the market’s — through a variety of tactics.
Fredrik Eklund and John Gomes, for example, rose to the top of the New York luxury-broker food chain in part by mastering the art of publicity. Their listings and deals routinely get ballyhooed on reality television, Eklund’s popular social- media accounts and all over the international press.
In October 2013, Eklund sent The Real Deal an email noting he had sent out contracts for eight of 16 available units at VE Equities’ 11 North Moore Street, which he claimed made the building “50% sold in 72 hours.” Shortly after, TRD published an article noting that the building is “50 percent sold out after only 72 hours on the market, according to a release from the Eklund-Gomes team,” without mentioning that this number was based on contracts sent out. Eklund then shared the article on his public Facebook feed, in a post in which he repeated the claim.
In fact, public records show that by the end of October of that year, just four units had gone into contract. The eighth contract at the building wasn’t signed until June 2014. The problem here is that just because contracts are sent out doesn’t mean they will be signed. “’Contract out’ means nothing,” Olshan Realty’s Donna Olshan said. In this case, the onus falls at least as heavily on TRD as it does on Eklund for pretending otherwise.
When asked to comment for this story, Eklund denied misrepresenting any information. He also threatened to sue TRD.
The 11 North Moore case is just one example of what has become a deep-rooted problem in New York’s luxury residential real estate market. Sales updates, strategically dished out via interviews and press releases, are a crucial marketing tool. But developers and their brokers, operating in a market lacking clear rules and oversight, often provide murky and misleading numbers, according to brokers, attorneys, and market observers.
“There’s an innate desire amongst some of us to distort information,” said Leonard Steinberg, president of Compass. “I’ve heard people say ‘it’s completely sold out’ and the next week, four units were available. It’s not a healthy practice.”
Deceptive numbers can impact buyers’ decisions by creating an embellished picture of a project’s success. Competing developments that don’t engage in the practice could see their projects fall behind as buyers flock to the hottest new building in town. And as the city’s luxury market slows down, the problem is bound to get worse.
“There’s so much pressure on these guys to sell,” Olshan said. “They’re just trying to invent ways to show their property is more successful than another one.”
Sleight of mouth
Developers rarely (if ever) get called out on the practice because sales numbers on new projects are hard to verify. Unlike closings, which appear in the public database ACRIS within a week or two of the event, information on signed contracts isn’t quickly available.
But once a sale closes (often several months or years after the contract was signed) the contract date enters public records as part of the deed document. Examining the deeds allowed TRD to track contract signings over time and compare them with public sales updates.
We found no instances of outright lying. Far more often, developers and brokers round up numbers or use figures selectively to make their projects look hotter than they actually are.
[vision_pullquote style=”3″ align=”right”] “There’s an innate desire amongst some of us to distort information.” – Leonard Steinberg, Compass [/vision_pullquote]Consider Chelsea Green, a 51-unit condo at 151 West 21st Street. Even in 2012, a robust year for the luxury market, the project by Alfa Development seemed to stand out. Sales kicked off in May 2012, and by mid-August, the New York Daily News had dubbed the project “New York real estate’s biggest summer success story,” referencing its sales prowess. On Oct. 17, 2012, Alfa’s Mike Namer told the New York Times the project was “90 percent sold.”
But public records indicate otherwise. Just 34 units, or 67 percent of the project, were in contract by Oct. 17, 2012, ACRIS data show. The building didn’t officially hit the 90 percent-sold mark until December 2014. According to a source, Namer had decided to buy eight units in the building for himself or family members at a later date and treated these units as sold. Even if you include them in the tally, the building was 82 percent sold by the time he spoke to the Times.
“Alfa Development communicates with full transparency and accuracy about the sales performance of its buildings,” a spokesperson for the firm told TRD.
On June 28, 2013, the New York Daily News gave the Schumacher, a 20-unit boutique condo at 36 Bleecker Street developed by Stillman Development and marketed by Eklund-Gomes, the full-page treatment. The story, which ran with a gushing headline, “Gallery-like units at The Schumacher fit for a fine art show,” said that just two weeks after hitting the market, half the project’s 20 units were already in contract. And Gomes made it sound like he could have sold the rest as well if he had really tried.
“We don’t want to sell too fast because we might sell ourselves short,” he said.
In fact, Eklund-Gomes hadn’t sold a single unit at the time of the article’s publication, public records show. Roy Stillman, president at Stillman Development, told TRD the building’s condo offering plan hadn’t been approved at the time. No actual sales contracts had been signed; instead, potential buyers had merely signed nonbinding reservation agreements with the help of a special permit from the New York attorney general — not actual sales contracts. According to Stillman, some of those buyers later changed their minds and got their deposits back.
It wasn’t clear whether Gomes or Stillman had relayed that crucial bit of information to the Daily News, and whether the latter had simply neglected to include it in the article. The article’s author, who no longer works for the publication, did not respond to a request for comment. Either way, the piece was never corrected. On July 19, an article in the Wall Street Journal repeated the (still inaccurate) claim that half the building’s units were in contract.
Asked to comment via email, Gomes denied that no units had sold by the time the Daily News article was published and accused this reporter of “dragging our names in the mud for your own benefit.”
Another common trick is to pick an artificially late official sales launch date to make sales velocity appear faster than it is. On June 5, 2014, for example, sources involved in the Stella Tower project told TRD that 60 percent of condos at the property sold “one month after hitting the market.” But public records show that the first contracts were signed on April 1, meaning they were likely up for sale as early as at least March — not May, as suggested. A spokesperson for JDS Development Group, which developed the project along with Property Markets Group, declined to comment.
And even if a public sales update is technically accurate, it can still be a misleading indicator of financial success. “The larger the unit, the slower the absorption rate,” said Jonathan Miller, CEO of appraisal firm Miller Samuel. “Typically, the initial units tend to be small to midsized.” Because smaller, cheaper units tend to sell faster, even if 50 percent of units are sold their combined sales revenue may be far less than 50 percent of the total projected sellout. At Stella Tower, for example, 53 percent of units have a contract date prior to June 5, 2014 – but their combined sales price only amounted to 39 percent of its projected sellout.
And developers don’t just enhance sales numbers. They sometimes use tricks to exaggerate sales prices.
Petro Zinkovetsky, an attorney who specializes in working with condo buyers, said that about 10 percent to 15 percent of deals he has worked on include a so-called price-concession. The publicly recorded condo sales price on ACRIS may be $10 million, for example, but the parties attach a rider document to the deed detailing a $1 million discount. In this scenario, the buyer only pays $9 million, but anyone who searches public records thinks she paid $10 million because the concession rider doesn’t hit ACRIS. Potential buyers may think that other units in the building sold for more than they actually did, which might persuade them to cough up more money themselves.
All sources interviewed by TRD insisted that false or misleading sales updates are not the norm. Jacky Teplitzky, a broker at Douglas Elliman, pointed out that condo sales in New York City are far more tightly regulated that than in other states, such as Florida, where practices like this are far more widespread.
And sometimes, even the most outlandish-sounding numbers turn out to be accurate. In April 2013, for example, Witkoff’s condo development 150 Charles Street reported that almost 80 percent of its 91 units had sold a mere two months after sales launched. A review of public records shows that this was indeed the case. Still, brokers and attorneys say fuzzy math is far too common.
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