Dangling carrots before brokers at new condos

Pouring on incentives to get units sold

Mar.March 03, 2008 04:30 PM

You’re a developer. What do you do when you can’t sell apartments in a new development? Offer price breaks? No. Waive fees? Nope. Provide upgrades? Nah.

Forget the buyers. Instead, offer brokers sexy gifts like iPods, AMEX gift cards and a package of goodies including airline vouchers and laptops.

That way, you can move units without resorting to lowering prices.

“[The] trend currently is developer[s] offering more incentives to the buyer’s broker to get them to show the project,” said Diane Levine, brokerage manager of the Downtown Manhattan office of Sotheby’s International Realty.

In a slowing residential market, offering incentives seems like an easy solution.

“I think there is a lot of fence-sitting right now — wondering which way the market will go. People don’t want to be the last person that buys high,” said Rena Goldstein, an
associate broker at Halstead Property. “I think [the incentives are] designed, I guess, to pressure people, or if you have a hot buyer, if you make a deal, you’ll think of us first.”

Developers are getting more ambitious in their attempts to entice brokers, and not just those in “fringe” neighborhoods. While some of these incentives are nothing new, like raising broker commissions beyond the traditional 3 percent and offering bonuses to brokers who sell multiple units in one development, they are being poured on thick.

SJP Properties promoted Platinum at 247 West 46th Street to brokers with the promise of an AMEX gift card with a $5,000 spending limit, on top of a 4 percent commission.

At Park Central, a renovation and conversion project at 220 West 111th Street, Tahl Propp Equities was giving away a so-called “sweetheart of a deal” for contracts signed between 5 p.m. and 7 p.m. on Feb. 12, two days before Valentine’s Day. Brokers could pick from $5,000 worth of gifts, including a flat-screen TV, gift certificates, airline ticket vouchers and a Bose Lifestyle home theater system.

The Clarett Group offered brokers an iPod Touch at Fort & eacute;
Condominiums, at 230 Ashland Place in the Fort Greene area of Brooklyn.

Cipriani Club Residences at 55 Wall Street promised 4 percent commissions, half given upon signing, as well as watches to male brokers and Bliss spa gift certificates to female brokers, said Robson Zanetti, a vice president at Sotheby’s. Prudential Douglas Elliman, the exclusive sales and marketing agent for 55 Wall Street, did not confirm the offerings by press time.

From a financial standpoint, generating business by
offering incentives to brokers rather than to buyers is smart — if brokers take the bait.

To drop a sales price to $1.3 million from $1.5 million, a developer loses $200,000. If, instead, the developer offers an extra commission point to a broker, he can preserve the comparable figures in the building, and it only costs him $15,000 to get the deal done.

Also, by offering behind-the-scenes broker incentives, the developer does not have to open herself up to renegotiations from buyers already in contract.

Many brokers do not buy into the incentives. They think dangling goodies in front of them is merely a marketing gimmick to cover up for a building’s or neighborhood’s failings.

“All of them are for projects that are not moving well,
although they never say that,” Halstead’s Goldstein said.

Soho Mews, a United American Land project at 311 West Broadway, across the street from Soho Grand Hotel, sent an e-mail to brokers in December offering a “50 percent advanced commission program.” The program was extended through last month.

“The sponsors wanted to acknowledge the brokerage community’s participation in the early success of Soho Mews,” said James Lansill, senior managing director at Corcoran Sunshine Marketing Group, the marketing team for the project.

The real reason for the incentive at Soho Mews, said Zanetti of Sotheby’s, is to compensate for the development’s location off Canal Street, in one of the city’s emergent
residential areas.

But incentives may not relate to the failings of an individual project. Developers may offer them to kick off sales, increase sales in a slow time of year, or to quickly offload the final units.

At Forte Condominiums, David Perry, director of sales for the Clarett Group, said the developer offered the iPod Touch during December because “December is typically a slow month, so that in January, when people are ready to pull the trigger, they will have already seen us and would remember how wonderful our building was, because they had come to preview the building.”

The approach was effective, Perry said.

Between the beginning of December and Feb. 20, 2008, Perry said, there were “at least two deals … brought to us by people that won the iPod previously.”

Incentives are not going to work in cases where a broker has a buyer with very specific preferences.

“You can give me a Mercedes, [but] it’s not going to make a difference,” said Darren Sukenik, a Prudential Douglas Elliman broker.

A number of experts said that successful projects and those priced accurately don’t need to provide broker incentives at any time.

“I find that the better projects don’t have to do it,”
said Michele Kleier, president and chairman of Gumley Haft Kleier.

But it can help a project stand out from the heap.

Sarah Burke, vice president of sales and marketing for the Developers Group, said she offered a $1,000 gift card to brokers who got a contract signed at 184 Thompson between Thanksgiving and New Year’s. She said it resulted in six
appointments a day rather than two, and five deals in that time period rather than one or two.

“It’s an extra grab for a broker who is inundated with these kinds of e-mails [informing them about new projects] on a daily basis,” Burke said.


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