Gary Malin, president of Citi Habitats (seated), and Cliff Finn, managing director of new development marketing, at rental tower New York by Gehry
In the past, top-of-the-line, modern finishes just weren’t available in most New York City rentals. Not so in 2011. The economic conditions of the past few years have ushered in an era of new luxury rental buildings, catering to would-have-been condo buyers looking for high ceilings, European-designed appliances, and plush amenity packages that have traditionally only been available in apartments for sale.
For the major players in new development marketing, this shift toward rentals has been shaking up the field. Firms that have always excelled in leasing are now benefiting from an influx of new inventory that fits their niche, while some sales-focused companies are expanding their repertoire to include rentals.
This month, The Real Deal surveyed the city’s new development marketing firms to find out how they’ve adjusted to the changed landscape.
The research looked at New York City units marketed by new development firms between January 2010 and July 2011, as well as those scheduled to come to market before the end of 2011.
The consistently dominant Corcoran Group and its new development subsidiary, Corcoran Sunshine, marketed more new projects than any other brokerage by far, the data showed. Corcoran maintained the No. 1 ranking it achieved the last time The Real Deal conducted its new development survey, in 2009. However, it fell to No. 2 — slightly — behind its sister company Citi Habitats, the city’s largest rental brokerage, in terms of the total number of units represented.
Citi Habitats marketed 2,966 units in 12 projects in 2010 and 2011, 903 of which were in Forest City Ratner’s New York by Gehry at 8 Spruce Street, easily the largest project to launch in the city during that time.
Citi Habitats has long been a force to be reckoned with when it comes to large new rental buildings. And since those types of projects represent the bulk of what’s come online recently, it’s no surprise that the firm climbed to the top of the ranks (up from fourth place in 2009) over some of the large firms that represent mostly condos.
Cliff Finn, the managing director of new development marketing for Citi Habitats, said some 400 apartments at New York by Gehry have been leased since the project officially launched in February.
“With the financial crisis, there have been even more people in the rental marketplace looking for higher-end rentals, [people who] might have purchased, but are now renting,” Finn said.
However, as a result of the recession, the entire field of new development marketing — encompassing both condos and rentals — has shrunk significantly since the last time The Real Deal completed its survey. All firms that appeared on both our 2009 list and our current list saw a drop-off in listings volume during the time period surveyed.
The culprit? The vastly fewer projects launched in New York City due to the downturn. According to data compiled by Corcoran Sunshine, 11,302 new condo units came online in the five boroughs between 2007 and 2009, but only 1,767 new units hit the market in 2010. Just 1,111 new units are projected to have come online by the end of this year.
Top-ranked Corcoran, which allows Citi Habitats to do the lion’s share of new development rental marketing while it focuses on sales, represented 6,661 units in 200 projects in the years leading up to The Real Deal‘s 2009 survey, but marketed just 2,651 units in 74 projects in 2010 and 2011.
This drop in new developments, prompted by a lack of financing for ground-up projects, could soon cause a significant shortage of new inventory. And while there are some condo projects now getting off the ground again, large-scale deals are still few and far between, Kelly Kennedy Mack, president of Corcoran Sunshine, said.
“The ‘Four Seasons’ of the world — the really big [deals] that we’ve been working on for a couple years — that kind of construction financing is still slow,” Mack said. “That’s a big challenge.”
Rental boom
But for new development rentals, there hasn’t been a noticeable drop. According to a mid-2011 Manhattan rental market report by veteran leasing guru Nancy Packes, an average of 2,545 new rental units per year hit the market between 2007 and 2009. Last year, 2,803 new rental units opened. By the end of 2011, Packes projects that 2,492 will have become available.
David Maundrell, founder of Brooklyn-based brokerage aptsandlofts.com, echoes the point. “In the last two years, if a job was getting off the ground, it was getting off the ground as a rental,” Maundrell said. “That was where the financing was.”
Aptsandlofts.com adjusted its business model accordingly, Maundrell said. That meant taking over some failed condos — like 163 Washington Avenue in Clinton Hill and 349 Metropolitan Avenue in Williamsburg — and turning them into rentals, while reassuring developers that the brokerage would be equipped to handle either sales or leasing, depending on market conditions.
“Between 2005 and 2007, we were signing condo buildings left and right, and the new development business for us was mostly condos,” Maundrell noted. “The rental market has really exploded [since then], and that aspect of my company has grown tremendously.”
Indeed, aptsandlofts.com, which marketed 1,705 units in 2010 and 2011, ranked third on The Real Deal‘s list, up from eighth in the 2009 survey.
The brokerage also ranked second in terms of the number of projects it represented during that time period — 50, of which 12 were rentals — ousting Prudential Douglas Elliman from its second- place spot in the last survey.
“It is extremely important for a firm to have a high level of competence in both the sale and rental markets today,” said Packes, who branched out from under the Brown Harris Stevens umbrella in 2009 and has since been growing her eponymous marketing company. Especially at the entry level in the market, “the possibility of a development going either way is very great.”
Packes’ company made its debut on The Real Deal‘s list this year with an eighth-place ranking by number of units — with 611 apartments in three projects. Two of them — Tapestry in Harlem and Ohm in Chelsea — are rentals. The other, 1212 Fifth Avenue, is a condo. Packes is also acting as a consultant to developers on the marketing of some 5,000 rental units citywide, including the 903 at New York by Gehry, where she’s working in tandem with the leasing agent, Citi Habitats.
Family-run Rose Associates, better known as a veteran developer and manager, has also been a beneficiary of the rental development boom, using its long track record to get more involved in marketing.
Absent from the list in 2009, Rose now ranks fourth with 1,264 units marketed. Those units were spread among five large high-end rental buildings, all containing 100 or more apartments.
That’s Citi Habitats’ territory — and Rose is taking advantage of its management experience to grab market share. Next month, Rose will take over leasing at two rental buildings currently marketed by Citi Habitats: Extell’s the Ashley and the Aldyn, according to Rose Director of Marketing Robert Scaglion. Rose is already the managing agent at both buildings.
“The fact that we manage and market rentals gives us an advantage over typical brokerage agencies,” Scaglion noted.
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Shifting gears
Unlike their rental counterparts, most of the new condos that did launch in the past two years were small, boutique buildings.
Halstead Property Development Marketing’s recent trajectory illustrates this trend. Taking on 26 buildings in 2010 and 2011, Halstead took third place in number of projects marketed, and surpassed Elliman, which signed on to market only 18 during that time. However, Halstead fell from third place to sixth place for number of units, as it repped just 1,136 apartments. Only two of Halstead’s projects over the past two years exceeded 100 units in size: the 149-unit Columbia Commons condo in Brooklyn, and the 160-unit Fifth On the Park condo in Harlem.
“We focus on bringing in more boutique, higher-quality products,” said Stephen Kliegerman, president of Terra Development Marketing, which oversees both Halstead’s and Brown Harris Stevens’ marketing divisions. Those include “medium-sized developments that some marketing divisions might pass up because they’re under the number of units that they normally take on,” he said.
Currently, the vast majority of Halstead’s portfolio is condos, but according to Kliegerman, the firm is now beginning to talk with more developers about doing rental projects because of the boom in new product.
“A lot of our clients who were condo developers are now looking at rental development, because financing [for condos] … is more difficult to obtain,” Kliegerman added.
For its part, the Marketing Directors has also been taking on more rental projects in the past 18 months, said Jackie Urgo, president of the firm.
One of the most dramatic dives in market share over the past two years came from Elliman’s new development division, which has been without a leader since April 2010, when longtime executive Andy Gerringer resigned from the company to join the Marketing Directors.
Elliman had sat comfortably as the second-most-prolific new development marketing firm in the city in The Real Deal‘s 2009 rankings, both by the number of units and projects it marketed. This year, however, the firm fell to fifth place in units (1,210) and fourth place in projects.
In June, Elliman finally found a replacement for Gerringer in Susan De Franca, who left her position as president of sales at the Related Companies to become president and CEO of Douglas Elliman Developments.
“The purpose of me joining the company was to strengthen and expand the new development marketing team, which, frankly, had been in somewhat of a transitional year in 2010 through 2011,” De Franca said.
De Franca plans an expansion that will include delving further into the rental sector. She said Elliman is currently in talks with developers of rental properties in Manhattan, Brooklyn, Long Island City, Westchester and Long Island.
On the sales front, “my goal is to align our new development discipline with our top brokers,” de Franca said. Among those top brokers, she noted, are Raphael De Niro, Fredrik Eklund, Dennis Mangone and Leonard Steinberg, all of whom will be working on high-profile new developments Downtown.
Elliman announced last month that De Niro and Eklund had signed on to spearhead the domestic sales efforts at the 391-unit Trump Soho. Prodigy International, which has been marketing the project since its inception, will continue to be involved in chasing down foreign buyers for the tower’s condo-hotel units.
The practice of putting resale agents in charge of new developments has a slew of critics within the industry, however, and some say that’s been an obstacle for Elliman in landing new development projects. Developers worry that resale listings take brokers’ time, attention and possibly loyalty away from their projects, competitors say.
But De Franca said the top-broker model actually gives developers an advantage. Top Elliman brokers already have a pool of clients to draw from, helping developers “get a head start” on sales at new projects, she said.
Grabbing market share
Meanwhile, newcomers on the scene are threatening to grab market share from some of the stalwarts in the coming years. Andrew Heiberger’s eight-month-old brokerage, Town Residential, launched its new development marketing division in January, under the direction of former Brown Harris Stevens managing director Reid Price. Town, which did not make The Real Deal‘s list, has only marketed some four dozen units since then, but Price said the firm is preparing to launch two small Downtown projects in the fall.
The company is also in pre-development planning for a 40-unit Upper East Side project and a 50-unit Tribeca rental, both of which are slated to hit the market in mid- 2012, Price said.
Brown Harris Stevens, which was ranked 10th by units this year with 337 units in six projects, plans to expand its marketing division now that it’s under the umbrella of the Kliegerman-led Terra Development Marketing. “We’re looking to continue to focus on high-end projects, [but to] increase volume,” Kliegerman said.
With signs emerging that the financing climate for condo construction is beginning to thaw, though, it’s possible that there may be more projects to go around in the coming years.
Mack, of Corcoran Sunshine, said the firm has a pipeline of over $7 billion worth of projects that it is scheduled to bring to the market over the next few years. Some already have financing, including the 145-unit 56 Leonard Street, which is expected to re-launch in the first quarter of 2012. Corcoran Sunshine projects that, citywide, approximately 5,250 condo units will hit the market by 2015.
The company may soon grow as a result. “Now that our pipeline seems to be growing significantly by the week, we’re now entering a time frame for us to go back out and attract some new talent,” Mack said.
