Editor's note: The broker fee fall

Mar.March 02, 2020 11:00 AM

Stuart Elliott

Go ahead, pile it on.

It’s already hard enough being a real estate broker today with a sluggish market, rent reform laws, plunging stock prices, a looming recession and the coronavirus.

But when The Real Deal broke the news last month that New York City rental brokers were no longer allowed to charge tenants fees when representing the landlord, it threw many brokerage firms into turmoil.

A judge put a temporary hold on the new state rule less than a week later. But the ramifications for an already embattled brokerage business model remain, as many firms grapple with increasingly razor-thin margins.

That impacts everyone from giants like Elliman and Corcoran — two of a dozen firms fighting against the Department of State alongside the Real Estate Board of New York — to smaller shops.

“The sky is blue. Now all of a sudden the sky is red. Change your entire business model,” said Sarah Saltzberg, a founder of Bohemia Realty Group.

We look at the changes to the rental business in a series of stories, including how tech startups are looking to further disrupt the brokerage industry.

Tech disruption was also the name of the game at TRD’s second-annual Future City event in the Bahamas last month. The off-the-record VIP gathering brought together tech companies and startups focused on real estate and some of the largest developers, investors, owners and operators in New York and beyond to talk about the latest challenges and opportunities in the industry. 

At last year’s event, there were more than a few developers and brokers who cast a skeptical eye toward the ability of tech to completely uproot a brick-and-mortar industry.

But this year, there were no such illusions — the eventual transformation is a fait accompli. Developers (including big names like David Lichtenstein, Doug Eisenberg, Young Woo, David Kramer and Jules Trump) appeared to fully buy into the vision of the future presented by senior execs from Google Nest, Sidewalk Labs and other tech giants. 

Still, venture-capital-fueled disruptors don’t necessarily have an easy ride, either. That’s increasingly true of Compass, which several years ago set a goal of having 20 percent market share in 20 major U.S. cities by 2020. The SoftBank-backed brokerage spent heavily to lure agents and acquire other firms, but it hasn’t always hit the mark.  And don’t miss our annual ranking of New York’s top residential firms.

Meanwhile, with stocks in freefall, real estate could be more affected than ever before, according to Starwood CEO Barry Sternlicht. Scarily, it’s a whole other potential storm brewing. 

Essentially, the city’s office landlords have greater exposure than ever before to so-called FAANG companies (Facebook, Amazon, Apple, Netflix and Google). “These [companies] are driving these commercial property markets, and if they get in trouble in the stock market, they will get in trouble in the real estate markets,” he said. “The markets have never been more intertwined.”

And the even bigger wild card is political — if the government starts to crack down on the tech giants. “The thing that will stop these companies is regulation,” Sternlicht said. “And that’s the hardest thing [for real estate] to underwrite.”

Finally, when a court decision to chop floors off a near-complete residential tower is not the lead story here, you know it is a busy month. As part of a zoning dispute, that’s what’s happening at 200 Amsterdam Avenue on the Upper West Side.

The ruling could force the developers to deconstruct up to 20 stories of the project but not before an appeal plays out, which could take months. And it has raised some fears of a ripple effect across the industry, at a time when anti-real estate sentiment is at a high. 

Crazy times indeed! Enjoy the issue.


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