There is no scarcity of straight-from-college real estate agents hoping to make it big in New York. A twenty-something who is willing to dive into New York’s convoluted and risky real estate development business is, however, more rare.
Eric Brody, who has spent the last few years developing projects in Brooklyn, is one of them. But Brody and the small universe of other young developers in New York are, for the first time, seeing the wobbly and uncertain side of the New York market. And the new market realities and increasing stringent borrowing demands are posing the first big test for many of them.
The 29-year-old founded the Brody Group in 2004, when the market was booming and there seemed to be an endless line of lenders and buyers queuing to get a piece of the action. At that time, every deal looked like a winning financial equation.
Brody acknowledges that the stakes are higher for young developers. He said the main issue is his lack of liquidity. “A downturn only makes it more difficult,” he told The Real Deal from the basement office he shares with his father, architect Van Brody, on Seventh Avenue in Brooklyn.
“The problem is not creditability; it’s being illiquid,” Brody said. “When dealing with banking institutions, it’s hindered my ability to do more developments because of a lack of cash. I’m bankable, but I have to increase the strength of my balance sheet. It’s just a matter of time.”
He said, “As of today, the changing market has yet to affect my sales.”
Reba Miller, principal of the brokerage firm RP Miller and Associates, said building a reputation and creating the possibility for long-term success takes years no matter how smart or talented someone is.
“They haven’t cultivated relationships. They’ve run the numbers, but they need to understand that staying and working through issues will forever build their team,” Miller said of young developers. “They don’t have the history of the highs and lows; they don’t know what it means it to fail; they have to understand that it’s like any market. Are they able to handle it?”
Miller recently worked with developers Terrence Lowenberg and Todd Cohen, both in their late 20s, on a project at 985 Park Avenue. The Icon Group duo used architect Costas Kondylis in addition to veteran residential broker Barbara Fox, Miller and a third partner.
“I think it was a big learning curve for [them],” Miller said, but added, “They surrounded themselves with experts.
“The challenges were in what to build, what was it going to cost and funding,” she said.
There is a small cadre of young developers in New York, including Brody, Lowenberg and Cohen, who have had success. But that doesn’t mean it has come easy.
“There are a ton of disadvantages to being young compared to the older generation,” said Lowenberg, who is 28. “In the beginning, it was harder, but old-time sellers have worked with us because they want to see it passed down to the next generation.”
He said breaking into the business wasn’t simple. “The highest barrier to entry is having equity,” he said. “Finding a deal no one else knows about is a good place to start. If you’re not bringing any expertise to the table, and it’s been marketed, that’s one thing. But if you can find an off-market deal, either below-market or impossible to find,” that also provides an edge.
Cohen said being young is more of an advantage than a challenge. “We have youth and energy on our side – we look to be creative and see value that other people might not see either though being more creative with space, financing or structuring deals,” he said.
The duo is now converting the Allerton Hotel, a former SRO on the corner of 22nd Street and Eighth Avenue, to condos. They made the $18.5 million acquisition with financing put in place by Marathon Structured Finance. The building is scheduled to open by the end of the year.
The Icon Group also sold all seven units at the 15-story condominium tower at 985 Park Avenue six months after the sales office opened. The duplexes and triplexes – which range in size from 2,469 to 3,100 square feet – started at $5.3 million.
Meanwhile, Brody’s firm has developed more than 85,000 square feet of property in Brooklyn, including a 21-unit condo at 457 Atlantic Avenue and Nevins Street – which Brody said is selling for an average of $708 per square foot.
Brody noted that he has been cautious and that his condo projects could also work as rentals if the market turns. At 870 Pacific Street, an eight-unit project, financing is already in place. “Obviously, my goal is to sell units, but if I had to retain them, I wouldn’t lose the development,” he said.
Sealing the deal
Winning over those he needed in the real estate community was step one. Brody met Joe Owen, for whom he’s developing a property on Dean Street in Brooklyn, through Bill Ross, director of development at Halstead Property.
The project is a rental with retail on the ground floor in Carroll Gardens. When Owen hired Brody, it was to work in an owner rep project management role. In that situation, the young developer isn’t liable for any money on the deal. Instead, he manages it.
Owen said he was initially “shocked” and “skeptical” about Brody’s age. But the two signed on to work together on projects at 262 Pacific Street and 104, 106 and 108 Smith Street in Cobble Hill.
“Eric is the guy you want working for you,” Owen said. “He understands the economics of development, the logistical problems of getting a building up, and he knows how the city functions.”
The chairman and CEO of the Singer & Bassuk Organization, Andrew Singer, said that things could get tougher for those with less experience.
“The changes in the financial markets, which will certainly affect everyone seeking to borrow, will have a particularly hard impact with those people who have the least experience and the least capital on their own balance sheets,” said Singer, whose firm specializes in real estate financing. “Age alone won’t be the factor. It becomes self-limiting when you have people that have less experience than others.”
Singer said in the last four or five years, investors with “almost laughable” proposals did not have much trouble securing financing.
“We chose not to work on those projects, but much to our occasional astonishment, people with zero background and substance were often able to finance their transactions,” he said. “These were hardworking, intelligent people not afraid to be turned down, [and] rarely were. Now that the wheel has turned, it’s a whole different ball game.”
Brody’s banker, Ed Sirlin, senior vice president at Signature Bank, said, “Eric had two strikes against him when he walked into my door: his age and his relative lack of experience.”
But Sirlin said Brody’s approach and knowledge of the market were part of what made Signature take him seriously. “It was really more the lack of experience than his age. He didn’t have a lot under his belt,” said Sirlin. However, Brody managed to win him over.
“He knew his business very well. His budgets seemed very realistic,” he said. “He was very polished and confident.”
Brody’s story is emblematic of the unique ways that young developers have found their way into a high-stakes profession marked by an entrepreneurial work ethic.
His real estate career started by chance. He was managing a gym on 19th Street in Manhattan, but left after getting into an
argument with the owner and finding himself in need of a new career.
Brody started shadowing his father at his architectural firm and saw an opportunity to manage the firm’s projects. That business idea mushroomed, and soon he had a roster of other commercial and residential clients in Brooklyn and Manhattan.
A Brooklyn native, Brody attended construction school at the Institute of Design and Construction in 2002 and 2003. He spent the weekends hustling as a rental broker for Coldwell Banker to pay the bills. “Some would say that I’m more experienced than some of the big guys in that I went to construction school for two years and [grew] up in the business,” he says.
He got his feet wet in owner’s representative project management. When he launched his company in 2004, he was lucky to lure a host of landowners who were desperate to cash in on the development craze but lacked the know-how and financing.
Simultaneously, Brody bought two properties in Brooklyn. He purchased the Atlantic, which he acquired with his family and two silent investors, and where he is moving into a two-bedroom apartment. And he bought 870 Pacific Street with a partner. He expects units at the Pacific Street building to sell for $600 per square foot.
Brody says these projects helped him test his developer chops. He was responsible for signing the construction loan, getting the financing, and hiring the general contractor. But, he said, it was his father who prepared him for what was to come.
“My father was tough on me,” Brody said. “He was much trickier to win over than an investor. I had to convince someone who had known me my entire life that I knew what I was doing.”