Ira Zlotowitz is leaving Eastern Union to start a company that he hopes will shake up the world of commercial real estate mortgage brokerage.
The commercial brokerage’s founder and CEO is raising $12 million in venture capital for his new firm, Gparency, which he says will allow landlords and developers to work directly with banks without the need for a broker.
Instead of charging clients a fee when a deal closes, Zlotowitz will have a flat fee upfront and hourly fees for certain services. The idea is to bill clients similarly to the way a law firm does.
Gparency already has investment commitments from 80 real estate investors, brokers, attorneys and lenders, according to Zlotowitz. He plans to bring staff from Eastern Union, including the banking team, tech team, data team, and his own team, and to launch an app for clients to track their deals.
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Zlotowitz believes brokerage fees will continue to decrease and said some companies are looking to automate the process. So he decided the best way to attract investment would be to launch an independent company outside of Eastern Union. Zlotowitz insisted Gparency is separate and will not use it to sell clients Eastern Union services.
“You can’t build a Netflix while you are at Blockbuster,” said Zlotowitz. (Once-mighty Blockbuster filed for bankruptcy in 2010 and is down to a single store; Netflix is worth $283 billion.)
Zlotowitz was a partner at Meridian Capital before founding Eastern Union in 2001. Headquartered somewhat incongruously in the Flatlands neighborhood of Brooklyn, Eastern Union is one of the larger commercial brokerage players in New York City with 60 brokers and an average of $5 billion in transactions annually. The company also has offices in New Jersey, Maryland and Florida.
Last year, Eastern Union lowered its fees on Fannie Mae, Freddie Mac and CMBS refinancing deals from 1 percent to 0.25 percent in an attempt to compete nationally. After the reduction, nine brokers at Eastern Union’s office in Howell, New Jersey, left and formed a new company to compete with their former firm.
Eastern Union sued, claiming the brokers violated their employment agreements, and the parties settled in May 2020.
It is unclear whether Zlotowitz will remain on the board of Eastern Union. Abraham Bergman, Eastern Union’s long-time managing principal, will become CEO and take over day-to-day responsibilities. Zlotowitz plans to step down in the next few weeks.
Gparency will offer customers two packages. For $2,500, Zlotowitz will recommend five banks for the client’s deal, estimate the interest rate it will get, make an email introduction to the banks, and track the quotes. All that, plus negotiating the deal until the client signs a term sheet, will cost $5,000. For an additional $500 an hour, Zlotowitz said he will take the deal all the way to closing.
“The market is going there anyways,” said Zlotowitz. “God willing, I could actually hit 20, 30, 40 percent of the market. I could do 10 times the business.”
The traditional brokerage model, however, offers some incentives that Gparency does not. Brokers working on commission have a large financial motivation to go out and source as many deals as possible.
Bergman, for one, does not see the commercial brokerage model becoming irrelevant. “There are clients who are going to need Eastern Union’s type of product,” he said.
Zlotowitz is among a few players attempting to disrupt the mortgage brokerage business. New York City–based Lev, which recently raised $30 million in Series A funding, uses data and automation to help building owners compare and secure financing. Investors included venture capital firm Greenspring Associates and First American Title.