It’s been a difficult few years for the New York City residential brokerage world. Tech pressures have risen, venture capital-backed competitors have stormed the market, and profit margins have been paper-thin. But that already hard environment has grown even more difficult in the last few months.
In June, Albany passed the most sweeping package of rent-regulation reforms in recent memory — a move that was billed as a way to ease the affordable housing crisis for tenants. Those measures, will be a financial hit, however, not only to building owners, but also to the brokers who rent out the units.
The changes came on the heels of the state’s new mansion and transfer taxes, announced in April, which pushed total tax bills to roughly 3.6 percent on sales between $2 million and $3 million, and nearly 6 percent for sales above $25 million. The taxes went into effect on July 1.
Meanwhile, the City Council is considering a proposal that would cap rental brokers’ commissions (in cases where the broker was hired by the landlord) to one month’s rent, or around 8 percent of annual rent. That’s down from the 15 percent they typically earn now.
Taken with the increased fees imposed by StreetEasy on posting rental listings, the additional resources needed to stay competitive and other new pressures, the residential space is being squeezed from all sides.
This month, The Real Deal talked to six players in the residential space about some of these new financial pain points. Below are their first-person accounts of this hard-to-navigate landscape. Their stories have been edited and condensed for clarity.
Sarah Saltzberg
Bohemia Realty Group
Sarah Saltzberg came to New York to make it as an actor, and only started working in real estate to earn some extra money. Today, Bohemia Realty Group, the boutique firm she founded in 2012, has 150 agents specializing in properties above 96th Street. The firm’s bread and butter is rentals between $2,000 and $3,000 and sales in the $750,000-to-$1 million range. Saltzberg talked to TRD’s Sylvia Varnham O’Regan about what’s at stake for her business with the new rent regulation laws.
I came to New York from Boston in 1998. At the time, I was involved in theater and creating a show. I was trying to put money into the show and was waitressing eight or nine shifts a week. I had a friend who was also an actor who had gotten into real estate and was like, “You would be great at this.” I turned my nose up and I was like, “I’m an artist, okay?”
After some careful consideration, I thought, “You know what? I’m going to do it for the summer.” I approached my landlord, because I knew there were a bunch of vacancies in my building. I called him and I said, “Hi, I’m a tenant of yours, I just got my real estate salesperson license and I would love to show the apartments in your building.” He hung up.
Once we opened the show — “The 25th Annual Putnam County Spelling Bee” — on Broadway in 2005, one of my castmates said, ‘This seems amazing. I think I’m going to get my real estate license.” We would do our matinee on Saturday, run up to Harlem, show apartments, come back for our evening shows, and do the same thing on Sunday. We opened Bohemia Realty Group on Feb. 1, 2012.
The new state law — where building owners need 51 percent of rent-stabilized tenants to go into contract in order to convert to condo — means that these conversions will now never happen. You used to need 15 percent, which, quite frankly, was challenging enough. You’re taking away an opportunity for people to own their homes. That is a terrible, terrible thing.
I really don’t understand why that change was made, but it certainly is impacting my business because we had plans in the pipeline to do the conversions: working with sponsors and guiding them through the process, working with lawyers, making sure everything is done by the book, drafting the Schedule A prices. We’re not going to do them now. Those buildings will stay rental.
I would like to have quality of life where I’m not just surviving. The money that would have come in for us on these conversions would have been very helpful for a business like mine. To say that we will not feel that loss would not be accurate.
The Individual Apartment Increase is now capped at $15,000 over 15 years, which will also impact us. First of all, what can you get for $15,000? Part of a new bathroom? It doesn’t make sense. I think those of us in the brokerage community are really fearful that the housing stock is going to deteriorate, because there’s just no incentive for these owners to do improvements.
We definitely have less on the market than we did this time last year. Our resales and our new developments are still moving along, but the conversions, which we projected to be a huge chunk of our business, have now completely stopped. It means figuring out other opportunities for our owners and ourselves. We have a lot of owners who are thinking of selling up and moving out of the city.
I also testified to the City Council about the proposed cap on rental commissions. I think those proposals — like with the legislation in Albany — show a fundamental misunderstanding of what we do. That’s why it is so important for us to explain how pulling out one piece of it is like a Jenga puzzle. Elected officials and advocates don’t understand that by changing that one thing, it affects all of these other components.
It’s very hard for me to see people on Facebook talking about how wonderful these rent laws are. I have many friends who say, “This is good! Power to the people!” And I say, “No, this is not good.” I understand we are culturally in a moment where people feel like big business and corruption are winning, and so something like this could feel like a victory for the 99 percent of everyday, working-class New Yorkers. But it’s not.”
John Burger
Brown Harris Stevens
He’s one of the country’s highest-ranked brokers, with a string of A-list clients reported to include Amazon CEO Jeff Bezos. In more than 30 years in the business, Brown Harris Stevens’ John Burger has seen a lot of change. The typically media-shy agent, who closed $152.6 million in New York residential sell-side deals in 2018, discussed the influence of new technology — and its potential to disrupt the industry — with TRD’s Sylvia Varnham O’Regan.
When I joined Brown Harris Stevens as a young man 30 years ago, we were an office with 32 people, right in Midtown.
The office was just becoming computerized. Listings were on index cards. That was an era when it was critical for the residential broker to be aligned with the managing agent. They had all the information at their fingertips: all of the sales information, all the historical information, all the floor plans, all the comparables, all of the requirements.
The knowledge that came by learning the business in a more traditional way — pre-internet — gave us a different set of tools. It’s sort of like being good at math before there was a calculator.
Our business is the most personal service business of any service business. I don’t have a team. When you don’t handle the client personally, you dilute the quality of the service. I answer my own emails and my own telephone.
Of the clients that come to me, I probably take on 50 percent. The other 50 percent I refer to other individual brokers.
I am very, very pro-technology. We as a brokerage community need to embrace technology. It helps us do our job more effectively. It’s forced us to become more knowledgeable, and in some respects it’s made our industry more professional.
In the old days, when a listing came on the market, you had to gather all the information, photocopy things, write a personal note, give the note to a messenger, and then that messenger would carry it to the client. Now all the listing information comes together in a link.
Technology definitely has the potential for disrupting the traditional brokerage business, but I don’t think it’s disrupted it yet. StreetEasy is the main go-to website for the Manhattan real estate consumer today, and they’ve built a very good website. But I still think there’s a lot of room for the broker’s input, because the single most important thing a broker does for their client is they tell them what not to buy.
When you look at the internet, everything will just say, “Buy this. Buy that. Buy this. Buy that.” It will never guide you on what not to buy. If all you do is replicate the internet and tell somebody, ‘This is good. This is good,” and use superlatives, it invalidates your role as an adviser.
The concern I hear from colleagues is that sometimes they will be contacted by a broker that really has no knowledge of the market and the property, and that broker has obtained a buyer lead through the internet. I have not had that, honestly; I have not been contacted by many Premier Agents.
It’s interesting how many clients come to me because they’ve Googled “Manhattan top broker.” It’s no different than when someone has to make a choice of a mutual fund and they Google “top mutual fund.”
It’s hard to predict the technology coming our way. Many buyers may choose to work with a listing broker rather than having a buyer’s broker. I’m seeing a pattern of that. Certainly StreetEasy has provided the technology whereby the buyer has the listing information and easy access to listing brokers.
The data that’s on a website like StreetEasy is so precious to the buyer. To the best of my knowledge, there’s not a single brokerage-house website that gives the historical data of the entire building.
Will we be charged more money eventually to access that data? Of course we will. This chapter in the history of StreetEasy has been one of building a great website and getting people to use it. Stage one has been charging the rental brokers to list each listing. It will be very interesting to see if stage two is charging the for-sale listings a fee to be there.
What I do, when I send my buyers links, I never send them through StreetEasy. If it’s a Corcoran listing, I send them the link from Corcoran; if it’s a Stribling listing, I send them the link from Stribling; if it’s a Douglas Elliman listing, I send them the Douglas Elliman link. It’s my way of telling my buyer that I’m covering the entire marketplace on their behalf.
I think Compass has made very impressive inroads. They are today what Corcoran was in the 1980s: the young, energetic new firm. I have looked carefully at their technology, and it’s really no different than anyone else’s. So the concept they’re a technology company is not accurate.
Technology has made our profession much more efficient, and I embrace it. But the basic service that I provide has really not changed in over 30 years — and that is guiding buyers and sellers to make the right decision.
Jordan Sachs
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.
Clayton Orrigo
Compass
After a career in finance and a stint in the startup world, Clayton Orrigo moved to New York and started a third career in real estate. He now co-runs the Hudson Advisory Team, a nine-agent group at Compass that specializes in Downtown luxury sales, and closed roughly $78 million in New York sell-side deals in 2018, according to TRD’s latest ranking. Before the new mansion tax went into effect in July, Orrigo’s team closed a flurry of deals, including a $19.5 million Tribeca penthouse. Orrigo talked to TRD’s Sylvia Varnham O’Regan about how the tax could impact the market.
In high school, I was the kid who would drive around and look at houses. It was kind of cathartic. I grew up in Rumson, New Jersey. There were all these magnificent homes.
I began working in finance when I was in college at Villanova University. After that, I started doing hedge fund trading and then hedge fund recruiting. This turned into an online recruiting business called Identified. I moved to California in 2009 — more into the tech world — and was there for three years.
We were trying to build a LinkedIn for the younger generation. We raised $20 million. It was a real business. But the reality was, I had some doubts and wanted to make real money.
I came back to New York in 2012. I had always loved real estate. I had met Fredrik Eklund socially — a girl I was dating worked for him — and we started talking. I decided to get into the business. I realized that if I could treat it more like an advisory role, like an investment banker would treat an advisory role to a CEO, it’s the same principle.
I wanted to build something that felt like my own company within another firm. Our ability to be entrepreneurial at Compass is unparalleled. If I’m going to make a bet, why not bet with the firm that’s the most progressive in the industry? Meaning if I go work at Elliman or Corcoran or one of these other firms, I’m not getting equity in the firm. Where’s the potential upside, long-term? It’s not there. At least at Compass, I’ve got equity upside. We’re the Wall Street Journal’s No. 4-ranked team in the city. We’re No. 40 in the country.
This used to be a six-day-a-week job. It’s now seven days a week. Saturdays are no longer free. This is a very significant shift that happened just in the last year. Buyers don’t want to come to open houses any more. They want private showings.
We specialize in selling $3 -to-$6 million apartments. That’s really where the bulk of the business is done. This year, with the mansion tax, we saw a flurry of activity; we’ve had the best three months of my career because we got a ton of deals done in anticipation of July 1.
A lot of buyers held back last year. They thought the market was still going down. When the mansion tax kicked in, it was an additional spur.
Do I think the mansion tax absolutely destroys the market? No, I don’t. I think the additional cost will be borne by both parties. I think more people will wait longer to buy a larger asset, and they will rent longer.
It will be particularly interesting to see how developers and sponsors address their unsold inventory.
Where things get challenging is in the lower part of the market. In the upper end of the market, those clients are easier because the money means less to them. A 10 percent adjustment doesn’t change their life. For someone who is buying a $2 million apartment, that hurts.
[For the sellers who are] buying something on the other side [it all evens out]. The people who are hurting more are [sellers] who are doing single trades.
I don’t think anyone has correlated it to the mansion tax, but there are areas of the market that feel very challenging. Deals are taking longer. I feel like people are taking a real breather right now. The big question is what will happen in September.
I just hired another person in my back office to make sure we have an appropriate infrastructure in place to handle listings for a longer period of time. I don’t have the bandwidth to manage it. I’m having to do more marketing, more selling and more client management — keeping our sellers calm as the tectonic plates below are shifting.
Eric Gordon
RealPlus
Eric Gordon
Eric Gordon launched the back-end listings system now known as RealPlus in 1985. The firm created a listings database and a program for managing listings and customers, which was later coupled with a better faxing system than what brokerages were using at the time. The company has had rivals along the way, most notably On-Line Residential, but in the last few years it’s faced venture-backed startups that have eaten into its market share. Gordon — who sold a 50 percent stake of RealPlus to Terra Holdings (parent company of Brown Harris Stevens and Halstead) in 2001 — spoke to TRD’s Sylvia Varnham O’Regan about the challenges of retaining clients and evolving in this highly competitive environment.
It was 1984. My father owned a series of drugstores in the Bronx that I was being groomed to run. I left that and I decided I wanted to go to Wall Street. But I don’t have a college degree and I had no experience, so it was very tough to get a job. The next best thing was real estate.
I went to work for a company called J. Rodman and Associates on 57th Street. While I was waiting for my real estate license, which took about four months, they had an IBM PC XT. It was the second generation of personal computers.
I taught myself programming. I ended up writing a small application for the agents there, and they began to rely on it. Then an agent from that firm went to another firm — and the second firm hired me. I decided, “You know what, I’m in the technology business.”
From there, the program kept evolving. All of a sudden, people were calling us up. There was really nothing else at the time.
I went into business with a friend, but we split up after a year. Early on, I worked in my parents’ home in New Jersey, in my sister’s old bedroom, on a Ping-Pong table.
What the firms did back then to share listings was put their exclusives in a fax machine every night and just distribute them to every firm that they wanted to share with. So every firm, when they would open up in the morning, would have this mound of paper coming out of their fax. They put it in front of a data-entry person who would enter each listing into their respective systems. Crazy stuff.
In the early 2000s, it dawned on me that we should be able to do this electronically. We built R.O.L.E.X., the RealPlus Online Listings Exchange, which took away the need for faxing.
Corcoran and Elliman came on board. We had 75 percent of all the listings going through our system. Stribling was a client of ours for a long time — 10, 15 years. Sotheby’s was a client of ours for 10, 15 years. Fox Residential was the same. It was heartbreaking to lose them to Perchwell. Because my head was down, just focused on developing our current application [the listings program dubbed All Access NYC] for two or three years, I didn’t pay enough attention to the Sotheby’s, the Striblings. I hope I get them back.
I have 25 people now, and I would say probably 20 of those are programmers. That’s up from 17 in March 2018.
It’s nonstop, and I love it. Everything is new: new thoughts, new ideas, new suggestions from clients, new technologies we can work with.
We’re going to build a mobile app because I think emotionally people want them. We do a lot with acquiring data and giving agents access to third-party data sites. Agents need the data.
I think the philosophy for many, many years in the real estate industry was to spend as little as possible on technology. That set the New York market back in terms of technology. I’ve seen national companies come into New York. They think it’s a pot of gold, but they give up because they don’t recognize the idiosyncrasies of the New York market.
There are some local ones that do a good job. Perchwell is relatively new. Founder Brendan Fairbanks was a client of ours for three years and then decided to develop his own platform. He’s done a nice job. OLR has been around as long as I can remember.
I would prefer that there was never any competition, but the competition makes us do a better job. We’re constantly looking at pricing, we’re constantly thinking of different ways to market the things we do.
The listing is ubiquitous now. We’ve begun to adjust our pricing model and are adding services like company websites to stay competitive and affordable.
It used to be that the only way agents could get access to listings was through a product like ours. Now StreetEasy is free. There are other places firms can go.
We survived 34 years. Somehow, we figured out how to do it. Nobody’s getting richer, but the bills get paid and my wife doesn’t yell at me.
The future of real estate, I think, is being able to do predictive models. Don’t tell the customer what happened yesterday, let’s figure out what those prices are going to be tomorrow. There are a whole bunch of business schools that now offer these business analytics programs. I’m enrolled in an 18-month one at Harvard. I started in January, and I’ll graduate next September. I’m taking it for the sole purpose of being able to better understand the data.
Barbara Fox
Fox Residential
Barbara Fox
It’s been 30 years since Barbara Fox founded her brokerage, Fox Residential. One of the city’s last remaining independent firms, the company developed a niche in Upper East and Upper West Side co-ops but later expanded throughout Manhattan and, about five years ago, to Brooklyn. The firm claims to have closed $97.1 million in sales in 2018. As larger brokerages continue to gobble up the smaller players, Fox talked to TRD’s Mary Diduch about what’s it like to run her 40-agent firm.
I was 21 years old when I moved to New York from North Carolina, by way of Boston. I got a job working for Doubleday Publishing with one of the big editors.
But I realized I needed to do something where nobody limited how much money I could make.
My brother-in-law Joseph Hilton, of MHP Real Estate Services, was in commercial real estate in New York. He introduced me to Alice Mason, the grande dame of residential real estate at the time, and later to the president of Cross & Brown [whose residential division was later sold to Elliman].
I was 30 or 31 years old at the time, and he hired me to run the firm. My mother was very sick. I ended up leaving and taking off a couple of months that summer until my mother passed away.
My husband said to me, “Why don’t you take off a year and reacquaint with your own life and your friends and have some fun?” A month later, I started my company.
I started it in the worst market, in January of 1989. When I first started, I had two brokers who were my good friends. One of them was very pregnant. One day during a snowstorm we went out canvassing for listings. Everything was done on cards, and you had to really go out and find listings. We were tromping around in a snowstorm talking to doormen. They felt so sorry for us that they kept giving us great listings, and that’s how we thrived for a while.
Technology changed everything. The big firms had the edge because of their expensive websites. But the playing field has leveled; people don’t go to the big firms anymore to find their listings. They go to the big aggregators.
[As a smaller player,] whatever we need to do, we do. When we needed to do a new website, we did a new website. I can do anything I want to do for a client. Very often, if an estate is selling an apartment and a lot of work needs to be done and the estate doesn’t have the cash, I can pay for it in advance. Then they pay me back once it closes.
I’ve been approached by everybody that’s acquiring. If I had a financial issue, I would probably have done something. But I don’t, knock on wood.
We had the best June I think we’ve ever had. Any of the changes that come from the government — like the changes in the mansion tax — take a while to [become] the new normal. I remember when the first mansion tax was instituted and everybody was up in arms: “I’m not buying.” Two months later, they were buying.
This is a more difficult market to navigate. I think in a difficult market, it’s easier for a small boutique firm. We make money the same as everybody else does, maybe a little less, but it doesn’t cost us as much. When you have one of these huge mega-firms, it has umpteen offices — it’s a fortune.
I haven’t considered opening other offices. So much of our business today is done virtually. And about three or four years ago, I looked around and I saw that I had 38 desks and they were always empty. So I decided to scale down the office and do hotel desks. It works brilliantly.
I’ve been very prudent in terms of putting away money for a rainy day. So I haven’t needed massive influxes of money from investors. I don’t worry about downturns because I have a cushion. When you have a huge firm, there’s no such thing as a cushion for downturns; there’s not enough money. Maybe Compass has it, but their investors aren’t going to be happy if they’re not making money.
People always say to me, ‘What’s your five-year plan like?’ I don’t know. I function on a day-to-day basis. I believe in rolling with whatever needs to get done at the time that it needs to be done. I’ve never been a planner. My husband is ready to kill me half the time because of that. I really plan to go out feet first from my office.