A proposed cap on commissions. Sweeping new rent regulations. The Real Deal talked to six players in New York City’s residential space about the new pain points they’re feeling in a sector that’s getting squeezed from all sides. Below Bold New York’s Jordan Sachs discusses the gray areas in the state’s rent regulations, the lack of a grace period for the law and the financial burden that brokerages now face.
Read the full story — “Tales from the front lines” — here
Bold New York
Jordan Sachs is the CEO of Bold New York, which he co-founded in 2010. The firm — which claims to have closed more than $250 million in sales in 2018 — is currently marketing JDS Development’s American Copper Buildings, with 700-plus units, and Metro Loft Management’s 20 Broad Street, with 500-plus units, among others. Sachs talked to TRD’s Mary Diduch about the new rent-regulation laws and the City Council proposal to cap rental brokers’ commissions.
My partner Todd Jacobs and I started at the end of 2010. We were owners and operators on the Lower East Side, managing and operating about 260 rental units and 10 retail spaces.
We wanted to lease about 120 gut-renovated units, but we couldn’t find a big firm with the resources that would be willing to represent that kind of a property. We saw an opportunity that we could be that niche brokerage. We were young. I was 25.
Now we have about 120 agents. We aren’t feeling the squeeze the same way the bigger firms are. They’re competing with each other at a different level.
But it’s interesting that the state and city have taken such a strong interest in real estate. I don’t see this in any other industry. Nobody should be dictating how much we can charge to earn our living.
For the rally against fee capping [at City Hall], we sent everybody we could from the firm. The atmosphere was — it was angry, a little bit. A lot of the vibe was very much like: We are not an elite group. Why aren’t you going after industries that have high-fee structures?
On the exclusive side of the business, where owners pay our fees to represent their properties, I’m not concerned. In today’s environment, it typically averages a one-month fee. But in the cases where we’re exclusively representing the owner but still collecting a fee from the renter, that’s where it’s going to hurt. That gives us no ability to negotiate and go higher than a month.
I have one agent — with a five-person team — who represents 25 rental buildings. If that fee structure gets enacted, and they were averaging a 10 percent fee on their units, yeah, that’s going to be a major hit to revenue.
The rental rates are eventually going to go up as landlords absorb the costs of having a broker represent their property. Ultimately, the tenants are going to be paying for that. Net-net, we’re going to continue to be used because we offer a service that [building owners] don’t typically have in-house.
It’s not just a fee cap that’s going to affect brokerages. We have to look at the whole scope of what’s being done at the state and city level. I’m really concerned. When does it stop?
[As soon as the state’s rent-regulation legislation was adopted], we all hit the ground running, trying to understand what had just been put into place and how to interpret it.
The first call was to the attorney to understand what I have to do now as a brokerage owner to abide by the laws. It wasn’t like there was a grace period. I represent all of these business owners and management companies that are all going to be dramatically affected, and we’re transacting on their behalf.
There are a lot of details to make sure we’re falling in line with. Part of it is application-fee reduction, part of it is credit monitoring — renters can bring their own credit-monitoring report, which in the past we wouldn’t allow — and then, obviously, not getting the additional months’ security.
With any of these rent regulations, you’re taking away units to rent. Less inventory, less units to rent, less money to be made.
I think as the owner, developer or brokerage, you’re going to have to start thinking about the way you operate your business differently.
For Bold, we will potentially have to make some changes, but nothing significant.
There’s no ecosystem for any of these laws yet. We have to just track absorption and track our volume. Then we have to compare that year over year or pre- and post-rent regulations.
Either we’re going to have to invest more money into the brokerage or we’re going to have to reduce resources, depending on what revenue looks like. Then you have to look at agents’ incomes, goals and business plans.
We haven’t felt the hurt yet because it’s just starting. [But] I think it’s naive to not take [a loss of profit] into consideration. I’m not big on forecasting unknowns. Everything’s been thrown at us really quickly, and there’s a panic in the market over how to navigate this and what the cause and effect will be.
The next six months will be telling.