Dottie Herman, the president and CEO of Prudential Douglas Elliman (credit: Marilynn K. Yee / The New York Times), and Howard Lorber, the company’s chairmanPrudential Douglas Elliman has the most agents of any real estate brokerage in the city. Its offerings account for nearly one-quarter of Manhattan’s listed apartments, and it turns 100 this year.
But in recent months, the firm’s top-banana status may have slipped somewhat.
In the last year, Elliman has seen its Manhattan listings decline from 2,010 to 1,320 as of May 2011 — a drop of 34 percent, the largest dip among Manhattan’s major firms. Perhaps more important, the total value of those listings fell sharply, from $3.8 billion to $2.6 billion, according to The Real Deal‘s analysis of data from On-Line Residential.
A busier residential sales market may bear some of the responsibility for that slide. Because The Real Deal‘s data does not include properties that have recently sold, a drop in the value of a firm’s listings could mean that fewer homes are lingering on the market.
However, even if that’s the case, competitor companies seem to be replacing their sold listings at a quicker clip than Elliman is.
For instance, the Corcoran Group, the only other firm that rivals Elliman in size and influence, saw an uptick in listings in the past year, from 1,784 to 1,815, a 2 percent increase. Corcoran’s aggregate listing value also dipped — from $4 billion to $3.5 billion — but the drop in total value was less than half that of Elliman’s.
What’s more, a topsy-turvy market isn’t the only challenge facing Elliman.
Over the past few months, more than a half-dozen top-producing agents have quit to go to rival brokerages.
While brokers switching companies is not unusual, some of Elliman’s most high-profile stars have left, including Ilan Bracha, who headed Elliman’s biggest group before leaving to start his own firm earlier this year; Tamir Shemesh, whose Elliman team had ranked in the top 10 since 2003; and Efraim Tessler, who was named Elliman’s No. 2 broker in 2009. The Barak/Blackburn Group, led by Christine Blackburn and Lior Barak, which was Elliman’s top team in number of transactions in 2009, departed last year for Corcoran. Doron Zwickel, also a top-ranked agent at Elliman, joined Core in December 2010.
Elliman isn’t in danger of losing its status as a major player in the Manhattan real estate market, but many insiders say the rash of recent departures isn’t a coincidence. Morale at the firm has fallen as agents complain about mounting fees, management policies and a play-favorites culture in which a few top brokers are handed the juiciest listings and given more support than other agents.
Dorothy “Dottie” Herman, the firm’s president and CEO, argued that Elliman’s approach has benefited her agents immensely. “I let them do a lot of things that other companies don’t let them do,” she said.
In addition, Herman insisted her firm is not stingy, but generous: “No one has a more lucrative commission schedule and budgets than I do,” she said.
Firm management attributes any drop in morale to the market downturn, and points to the fact that the firm has added 289 new sales agents since the beginning of 2011.
Managers also pointed out that Elliman has recently landed some other big-name brokers, including Michael Bolla and Dennis Mangone (both of whom have worked with celebrity clients), and Core brokers Fredrik Eklund and John Gomes, who will be regulars on the New York City spin-off of Bravo’s “Million Dollar Listing.”
“We have had some departures, as have all firms,” the firm’s management said in a statement, “but we believe that our newest recruits more than make up for those departures.”
The turnover at Elliman comes after a year of contraction: From May 2009 to May 2010, Elliman saw its ranks ebb 3.3 percent, down from 1,513 brokers to 1,462.
It’s also taking place as the industry undergoes a major makeover: With many brokerages now offering models with heftier commission splits, the current competition to retain agents is especially fierce. Companies like Rutenberg Realty and Keller Williams, where agents pay a preset amount to the firm but keep the remainder of their commissions, have been some of the fastest-growing in Manhattan.
Salespeople, meanwhile, are concluding that having a brand-name firm on their business cards isn’t required for success, a shift that appears to be hitting Elliman — the city’s biggest brand-name firm — particularly hard.
“Agents are saying, ‘What is this company doing for me? They are charging me money, and there aren’t as many managers to talk to,'” said Donna Olshan, founder of the boutique firm Olshan Realty.
Brokers with a decent Rolodex, Olshan noted, might see little need to work for a big-name shop when they have become their own brands. “The whole business,” she noted, “is in flux.”
Perhaps mindful of the changing industry, Elliman is revamping its image, and industry insiders say the company is in the process of dropping its affiliation with Prudential, as evidenced by new marketing efforts that refer to the firm as simply “Douglas Elliman.”
That move could save the firm some cash, because the Prudential name costs 2 percent of gross income every year, according to brokers who are familiar with the company’s financial structure.
Herman would not confirm the amount her firm pays to Prudential, and said any talk of severing ties with Prudential is premature.
Elliman also announced last month it is partnering with United Kingdom-based real estate agency and consulting firm Knight Frank Residential in a bid to promote exclusive properties among their combined international client pools and boost sales. European and other global properties should begin to appear on Elliman’s website in the coming weeks, according to Crain’s.
Elliman also recently tapped its new hire, Bolla, along with Carl Black, to launch a new, national sales-side interior design service called Elliman Equity Design.
Finally, also last month, Dawn Doherty, formerly responsible for strategic development and brand awareness at listing website StreetEasy, moved to Elliman to assume the newly created role of chief digital officer.
In defending the firm, Herman and other executives say that when a company is a juggernaut, it’s bound to attract criticism, and that the comments of disgruntled former employees need to be taken with many grains of salt.
Privately held Elliman “has no debt,” added Herman, who noted that 2010 was her most profitable year to date.
By contrast, Elliman’s chief rival, the Corcoran Group, is, through corporate holdings, a subsidiary of the debt-saddled Realogy Corporation.
Founded by Douglas Ludlow Elliman on Madison Avenue in 1911, the firm that would become Manhattan’s largest started with a high-end, white-glove approach.
Indeed, an early focus, according to historical accounts, was to convince the city’s aristocrats to leave their Upper East Side townhouses and live side by side with other families in new multi-unit co-ops.
Mr. Elliman died in 1972, leaving a leadership vacuum in his wake. After years of infighting, exacerbated by a real estate downturn, the firm’s principals sold the company in 1989 to the Milstein family for an undisclosed price.
A decade later, in 1999, the Milsteins sold to Andrew Farkas’ Insignia Financial Group.
Then, in 2003, Herman, an ambitious single mom who started as a real estate agent on Long Island, purchased Elliman for $72 million with help from moneyman Howard Lorber, president and CEO of the Vector Group. Vector’s holdings include tobacco companies Liggett Group and Vector Tobacco, while Lorber’s non-tobacco holdings include the hot-dog chain Nathan’s Famous.
Herman, who had previously purchased Prudential Long Island Realty in 1989, was determined to offer services, in the words of the firm’s slogan, “from Manhattan to Montauk.”
Since the arrival of Herman and Lorber, who serves as the firm’s chairman, Prudential Douglas Elliman has grown steadily, consolidating its position as the city’s largest brokerage with the help of superstar brokers like Dolly Lenz (who is reported to have sold $748 million worth of real estate in one single year during the real estate boom). In terms of number of agents, Elliman has been the top firm in Manhattan for each of the past five years.
Elliman now has 12 offices in Manhattan, out of its nearly 60 in the region.
Most heads of rival firms would not comment, citing a general policy of not talking about the competition. Still, some critics said that being sold three times in 22 years has harmed the company more than it has helped it.
For one, Elliman’s corporate structure is resistant to innovation, a problem that has worsened every time the company has been sold, insiders said.
“It’s a big company, and they are set in their ways,” said a former Elliman broker who is now with a different firm, noting that the company did not close offices to save money during the downturn, as other firms did.
Andrew Gerringer, former head of Elliman’s new development division, logged two decades at the firm before leaving last year for the Marketing Directors.
“I was growing increasingly unhappy with how the program was being run,” said Gerringer. In terms of a lack of consistent rules, “it’s like the Wild West over there,” he noted.
Gerringer also said that the firm seems to overly reward superstars over others in the company.
What particularly rankled him, however, was that Elliman brokers who were supposed to be marketing new developments were grabbing buyers and bringing them to see their other listings, he said.
Plus, the firm’s agents were regularly using inflated comps to price units in new buildings, which stalled sales, Gerringer claimed.
Indeed, others in the industry pointed out that Elliman’s recent track record with new developments hasn’t been great. Elliman lost the behemoth conversion Manhattan House, one of the city’s largest projects, to Corcoran Sunshine in 2009. The same thing occurred at 515 East 72nd Street (formerly Miraval Living), and last fall at the Upper West Side’s famous Apthorp.
Of course, switching brokers was a common tactic used by developers to goose sales during the worst of the real estate downturn. And Elliman has certainly taken over developments from other firms, notably the Azure on East 91st Street, as well as Jean Nouvel’s 100 Eleventh Avenue (though Elliman took over the latter from Corcoran Sunshine after Lorber lent capital to the project, providing the funds necessary for construction to continue).
Lorber did not return a call seeking comment.
However, a statement from Elliman’s management, delivered via a spokes-person, disputed Gerringer’s claims, and said he was asked to leave the firm.
In an e-mailed statement, managers said: “Unfortunately, Andy could never embrace the concept that [Elliman] is an agent-driven company — Andy did not like or want to deal with agents or managers. Any criticisms of [Elliman] or its Development Marketing Group are merely sour grapes.”
In general, one reason for agents’ disgruntlement is the firm’s fees, sources noted. Elliman agents pay desk, technology and legal fees (lumped under the heading of “business fees”), as well as covering the industry-standard “errors and omissions” insurance.
What’s more, when buyers purchase homes at new condos represented by Elliman, the company takes a “referral fee” out of the sales agents’ commission, brokers said.
The fees were imposed during the real estate downturn to pad the company’s bottom line, and “were basically created so as to never show a loss,” according to one former broker at the firm, echoing others.
Other large firms have similar fees, brokers noted. The firm’s management said through a spokesperson that overall, “our costs to agents are less than the competition.”
Indeed, Corcoran’s fees are slightly higher on an annual basis — more than $2,000 a year, versus just under $2,000 a year for Elliman, brokers familiar with both firms said.
However, brokers complained that Elliman’s fees can seem randomly applied. For example, large teams of agents pay the same desk fee as brokers who work alone, which unfairly punishes those without teams, brokers point out.
Also, these fees might be small change for top producers, but many say it’s the principle that counts. Brokers noted that some other agencies, like Brown Harris Stevens, don’t charge extra fees at all.
At the same time, brokers said they have seen budgets sliced. One former agent said that he was told the firm would no longer pay for his two assistants and “blamed it on sales dynamics and sales volumes and Lehman Brothers.”
He ended up shelling out for most of the assistants’ salaries out of his own pocket, which prompted some self-reflection. “I thought, ‘What the hell am I doing here?'” he said.
Though frequently the subject of rumors about her own exit, Elliman’s top agent, Lenz, said she is staying put. But other brokers who have recently left Elliman are also names that often grace top-producer lists.
They include Bracha; Shemesh, who went to Corcoran; and Vickey Barron, who departed for the boutique brokerage Core, headed by Elliman alum Shaun Osher.
Efraim Tessler, the son of Yitzchak Tessler, developer of 240 and 260 Park Avenue South, joined Bracha at Keller Williams last month.
Many of these agents regularly cracked Elliman’s top 10, either as individuals or as teams. Bracha was No. 1 and Tessler No. 2 in terms of commissions in 2008, for example.
These brokers mostly stayed mum about conditions at Elliman and cited boilerplate “new opportunities” as their reason for leaving. “Sometimes when you are in the same place for many years, you want to try something else,” said Shemesh, who took his six-member team with him.
In response to questions about problems at Elliman, he said: “You will always see happy and unhappy people. I see it at Corcoran, too.”
Other agents who have departed in the last few months include Laurie Bloomfield, who went to Corcoran, and Robert Dvorin, who went to Town Residential. Ronald Tardanico, an executive vice president and manager of Elliman’s 980 Madison Avenue office, also confirmed to The Real Deal that he has left, though he declined to talk about his reasons.
Some said personality clashes between agents and higher-up managers have played a part in some departures, like that of Jay Flagg, the erstwhile manager of Elliman’s Southampton office.
After 11 years with the firm, Flagg left last year after he was demoted for running a magazine advertisement he was told didn’t conform to company standards.
Flagg said the ad was approved by the firm before it ran, and attributed the demotion to a personality dispute with Lorber.
Elliman, for its part, has denied this.
Flagg, who is now with Hamptons brokerage Saunders & Associates, said that Elliman takes an inconsistent approach to supporting its agents, noting that the firm pays for pricey print ads for some agents and forces others to cover advertising costs themselves.
In addition, he was responsible for finding his own photographers for those ads, which was a chore, said Flagg, whom the Wall Street Journal once listed as among the country’s top 50 agents. At Saunders, on the other hand, there are three photographers on staff.
Finally, a remodel of Elliman’s Southampton office had been promised since 2008, but never happened, Flagg noted. “I think it’s an extremely dysfunctional organization,” said Flagg, who added that four other agents left Elliman’s Southampton office over the winter, which is a relatively large percentage.
Sifting the data
By the overall numbers, Elliman doesn’t seem to be doing badly. In fact, it posted a 3 percent gain in the number of agents in the last year, from 1,462 to 1,506, after a 3 percent drop from 2009 to 2010.
And in The Real Deal‘s 2011 rankings of East End firms, Elliman is number one in the Hamptons; it had 320 agents last year, versus 319 this year.
But the fact that so many of the departed agents were top producers, who often took home awards from Elliman’s annual February dinner, is what counts, industry observers said.
What’s more, their leaving is worrisome to those concerned about the firm’s drop in listing volume.
Besides its 34 percent drop from 2010 to 2011, Elliman saw a 14 percent drop in total listings between 2009 and 2010, from 2,342 to 2,010, according to The Real Deal‘s analysis.
Corcoran also saw a 10 percent drop during that time period, from 1,981 to 1,784 listings. However, as pointed out above, it posted a gain from 2010 to 2011, rebounding 2 percent to 1,815 listings, currently the most in the city.
Indeed, Bracha alone had hundreds of millions of dollars of listings when he left Elliman, though not all of those listings moved with him to Keller Williams.
Herman, meanwhile, said that the talk about defections is overblown, because brokers come and go all the time. She also suggested that she hadn’t seen the last of some of them.
“I wish everybody well, and if they are happy with where they are, so be it,” Herman said. “I don’t want to buy agents — I want them to want to be here,” she added. “I put my money on the fact that some of those people will be back.”
Moving from mega
Changes in the industry may also be also responsible for the turnover at Elliman.
Olga Alexakos, who left Elliman in March 2010 after an eight-year stint, touched down briefly at Core, and is now at Keller Williams, which gives all of its agents a 70 percent commission split and opportunities for profit-sharing.
When she began her career in the 1990s at the now-defunct Greenwich Village firm Swift and Watson, Alexakos recalled, the city was full of mom-and-pop-type boutiques, which vanished with the rise of the Corcoran Group.
“There were no mega-companies until Barbara Corcoran came around,” she said.
These mega-companies have ruled the roost for the past decade. But Alexakos, who holds a Ph.D. in economics, argued that the industry is undergoing a profound shift away from that model, which could explain Elliman’s current tests.
“The real estate firms as we know them are changing,” she noted.
Though her commissions promise to be larger at Keller Williams than they were at Elliman, Alexakos said she feels that it’s also a more nurturing environment than the larger firm. “It’s very supportive, they’re big on education, and they’re a team culture,” she said.
Moving away from the top-producer strata, meanwhile, critics complain that the firm hires lackluster agents merely to fill its large offices and ensure that the rent is paid. Some statistical evidence does appear to support that trend. According to The Real Deal‘s analysis, the number of Elliman agents with at least one $10 million-plus listing dropped 26 percent between 2010 and 2011.
Meanwhile, 70 percent of Elliman’s brokers have no active residential listings, which is up 15 percent from a year ago.
Certainly there are firms with far more brokers in this category: At Bond New York, for example, 97 percent of brokers have no active sales listings, the data shows. Of course, since many of Bond’s agents focus on rentals, the contrast may not be the most apt; a fairer point of reference might be Corcoran, where 48 percent of the brokers currently have no active sales listings.
The differential, sources said, indicates that Corcoran is choosier about the brokers it hires (or at least more likely to fire nonproducing brokers).
Elliman, meanwhile, defended its numbers as reflecting a new strategy: encouraging brokers to avoid taking on overpriced listings with little chance of selling.
Herman does not dispute that her firm is in the midst of changing its image.
It hired an outside marketing team and spent more than $1 million to redesign Elliman’s website, which launched to much fanfare last fall. To boost Elliman’s social media presence, it hired Doherty, an alum of StreetEasy, the online listings service.
Also, last month, the company’s quarterly market reports bore the title “The Douglas Elliman Report” for the first time. The word “Prudential” appears only lower down on the title page, adding to rampant suspicion that Elliman is planning to dump its national parent.
Herman said such speculation is premature, since the firm’s licensing agreement with Prudential, an insurance company, is firmly in place through 2014.
“Prudential Douglas Elliman is such a long name,” she said, by way of explanation for the report title change.
Casting off national ties and refocusing on local markets might help Elliman shore up its ranks, say critics, who argue the firm has spread itself too thin with offices in Westchester and Florida.
While Elliman’s image may be undergoing a retooling, the makeover is not necessarily going smoothly. Critics have blasted the firm’s new website, whose launch was delayed for months, as being too unwieldy.
“It’s not easy to navigate and there are lots of bugs in it,” said a former broker. “And since this is where most of [the] leads come from, that’s a problem.”
Of course, not all of Elliman’s top producers are jumping ship. And the recent big-gun hires — like Bolla, from Luxury Lofts & Homes, Eklund and Gomes from Core, and Mangone from Brown Harris Stevens — are already bringing on business. As of late last month, the brokers had a combined 36 listings valued at $167 million.
Mangone, who started at Elliman in February, said he joined the firm for precisely the same reasons that others slam it: It’s big, it’s national, and it’s not a startup. Though some brokers have criticized the firm’s new offices, Mangone approves. “They have a great distribution network,” he said, adding that Lorber is a “make-it-happen guy.”
Also, he likes the vibe of the place. “I am driven,” said Mangone, who denied his move had anything to do with a larger commission split. “And I like to work for people who are constantly striving to be better.”