Small firms, big money

When The Real Deal sat down last month with Horacio LeDon, the Manhattan real estate broker had just returned from the Cannes International Film Festival, where he attended a party on rapper Diddy’s $33 million yacht.

Cannes is “the second-most-important film event in the world” after the Oscars, said LeDon, a former Starwood Capital executive who founded his eponymous residential real estate brokerage in January. “And yet everyone was more interested in New York City real estate.”

LeDon is one of several high-end New York City real estate brokers who operate primarily on their own, or with a few carefully selected employees. More so than other brokerages, these tiny, exclusive firms — including Peter McCuen & Associates, the Modlin Group and Mercedes/Berk — operate under the radar. And they depend heavily on social and professional connections for their livelihoods, courting high net-worth clients who prefer working with friends or acquaintances to browsing the websites of large companies.

While a number of independent brokers joined forces with bigger brokerages when the recession hit, many of those who stuck around are now seeing business increase, due to the upswing in the luxury market.

“The pool of luxury buyers gets bigger every day,” said Noel Berk, a principal of Mercedes/Berk, an eight-agent firm with several high-profile listings, including a $26 million property at 15 Central Park West.

In the last few months, Berk said her firm has seen an increase in requests for apartments ranging in price from $15 to $50 million.

“We have clients who are ready to pay cash for their ideal apartment and are realistic about the market price for these units,” she said.

Knowing the right people

The business model for very small firms works best when agents specialize in selling high-end homes, brokers said.

“It’s very hard for a person to be a broker on their own, to maintain a first-class operation unless they sell expensive property,” Berk said.

For one thing, high-end deals provide large infusions of cash that help offset the overhead costs needed to keep the firm running.

“The deals in New York in the luxury market are big deals,” said Adam Modlin, founder of the six-agent Modlin Group, whose current listings include a $25 million home at 11 Gramercy Park South. “If you’re consistently selling apartments for between $5 and $10 million, and once in a while you’re selling a house for $30 million, there’s really no issue with health insurance or operating expenses.”

Luckily for him, Manhattan’s luxury market has seen a recent uptick in activity.
According to a StreetEasy market report, the number of luxury sales — deals above $2.93 million — in the first quarter of 2012 increased by 20 percent from the previous quarter, and 10.2 percent from the same period of last year.

The Modlin Group has seen the dollar volume of its listings rise in the last year. As of May, it had some $48 million in active Manhattan residential listings, according to The Real Deal’s annual ranking of boutique brokerages. That’s up from $31.9 million at the same time last year.
When Modlin talked to The Real Deal last month, he said his firm had done six major deals in the previous 10 days.

“That is more than normal,” he said.

Meanwhile, the two-agent firm Peter McCuen & Associates is currently listing a $35 million townhouse at 85 Jane Street and a $27.5 million penthouse at 66 Leonard Street.

The heads of these mini-firms say that some very wealthy clients gravitate toward them because they’re more confident that their secrets will be kept.

Top brokers at major firms like Prudential Douglas Elliman or the Corcoran Group pride themselves on confidentiality and, obviously, have their own star-studded client rosters. But at smaller firms, LeDon noted, “there’s not a whole lot of room for information dissemination.”

So far, LeDon has hired only one other agent to work at his firm: Colleen Newland, a former CitiGroup executive. He is considering hiring one other person, but that’s it for now.

Modlin said one reason he keeps his numbers small is to help keep big deals quiet.

“I don’t like to have lots of strangers working on highly confidential deals,” he said.

To ensure access to high-end buyers, agents at micro-brokerages need to have the right social connections.

Clients on the very high end “want to feel that you’re a friend of theirs,” said LeDon, who recently represented the buyer of a $13.5 million apartment at the Touraine at 132 East 65th Street. “You take advice from the people who are most like you, and with whom you share the same aesthetic sensibilities and social circles.”

LeDon is a former screenwriter, so he tends to socialize with people in the entertainment business. In early May, for example, he jetted to London for a party thrown by rapper Jay-Z at the Piccadilly nightclub District, then headed to Los Angeles for a stay at the We Care spa, a juice-fasting and spiritual retreat frequented by celebrities.

At Starwood, LeDon oversaw sales at various properties in Los Angeles, but decided to leave in July 2011 because so many of the condo projects he was working on went rental and his commission potential decreased substantially. He thought he could earn more by striking out on his own.

So far, the strategy has paid off: Since January, he said he has put more than $50 million worth of property in contract, $32.5 million of which has closed.

Like LeDon, Modlin has also parlayed his connections into real estate success. Thanks to a previous career in fashion, Modlin’s client list is said to include Fortune 500 CEOs as well as celebs like Christy Turlington, Will Smith and Alex Rodriguez (though Modlin is notoriously famous for declining to identify his clients).

In order to get new clients, Modlin said he relies almost exclusively on “warm introductions” from high-profile contacts and associates; he almost never represents walk-ins or strangers. To make sure there are plenty of these introductions incoming at all times, Modlin said he accepts almost every social invitation he receives.

“In a business that relies on finding new clients, it’s up to you to put yourself in a setting where you can meet people and be introduced,” he said. “You want to spend your time in places that attract the right kind of person. Is it the bar at the Four Seasons hotel? Is it a private club? Is it a museum benefit?”

Even off the clock, it’s important to look the part, said Modlin, who often sports a Rolex watch and clothes by designer Tom Ford.

“Your image and how you present yourself are everything,” he explained. “You can bump into anyone in New York, and you should be prepared.”

The downside

Having a very small firm has some downsides, of course.

It’s harder for independent brokers to get the exposure for their listings that large firms can provide, brokers said.

“We definitely don’t touch as many people or as many deals as larger companies have the capability to do,” Modlin said.

Joanna Cutler, a former model who now heads Joanna Cutler Real Estate, readily admits that when it comes to marketing properties to the widest audience possible, she occasionally relies on help from friends at the city’s major firms, like Prudential Douglas Elliman and the Corcoran Group.

“I feel fortunate enough to have a very friendly business relationship with [the Corcoran Group’s] Carrie Chiang and [Brown Harris Stevens’] Paula Del Nunzio,” Cutler said. “If I think they can help, I’ll sometimes invite them to do a co-exclusive,” she said.

The leaders of tiny firms also end up doing more administrative tasks than brokers at large companies. When asked why she sticks with Elliman rather than going out on her own, Joan Swift, the firm’s No. 1 broker last year, told The Real Deal that she values the administrative support that comes with being part of a larger operation.

“They handle all the administrative stuff, so I have more time to concentrate on what I really need to do,” she said.

For top brokers at big firms, the feeling of being top dog is also attractive, LeDon said.

“There’s an element of them being a star in that environment,” he said. By contrast, “no one’s clapping for me — I’m alone all day long.”