Rental agents re-audition

<i>Landlords reconsider exclusive contracts after ditching them during the downturn </i>


Andrew Barrocas, CEO of residential brokerage the Real Estate Group New York, at 230 East 44th Street
Rental brokers who lost exclusive contracts with building owners after the market crash are now re-auditioning for those roles as the market picks up.

Still, some say the economic downturn has permanently altered landlords’ reliance on exclusive relationships.

Adina Azarian, founder of the rental brokerage Adina Equities, recalled the rude awakening she got just after Lehman Brothers collapsed in 2008. In the blink of an eye, she lost several long-standing clients who said they wanted to start managing their vacancies in-house.

They ended the relationship because of “their concern about how the recession would affect their bottom line,” said Azarian (now the new CEO of Keller Williams New York City), who at the time was forced to scramble for new contracts to replace them.

With rental vacancies on the rise during the economic downturn, New York City renters were unwilling to pay brokers’ fees. That meant if landlords wanted to work with brokers, they had to pay the fees themselves. And with more empty apartments than usual suddenly on their books, many opted to save money by terminating their exclusive relationships, doing away with contracts — usually a year long — that entitled the broker to be the sole person showing their apartments.

Instead, landlords began to rely on websites or their in-house leasing departments. That left rental brokers — many of whom had depended on these exclusive contracts for their livelihood — scrambling to make up the difference.

“Landlords were trying to be as creative as possible to increase demand [for] their properties,” according to Gordon Golub, Citi Habitats’ director of rentals.

The good news for brokers is that the tables are now turning. Renters have begun to pay brokers’ fees again, and so landlords all over the city are back to signing exclusive contracts with brokers.

“Landlords are flocking to us again now that they don’t have to pay the commissions,” said Andrew Barrocas, CEO of residential brokerage the Real Estate Group New York.

Jordan Vogel, principal of Benchmark Real Estate, is one landlord who thought he could rent his portfolio of 250 Manhattan apartments faster and cheaper without exclusive broker relationships. After the Lehman collapse he canceled his existing contracts with three major city brokers, and instead sent his listings out to about 100 brokerage firms around the city.

The more agents that could bring clients his way, he thought, the more exposure his units would get. However, the results of his new strategy — which lasted all of six months in 2009 — surprised even Vogel.

“There were a lot more showings but a lot less renting activity,” Vogel recalled. “I thought it was a good idea because renting is a numbers game, but since no one broker was responsible, brokers were bringing anyone through, and [I was] getting a lot of people that were just shopping and had bad credit.”

He quickly returned to his old blueprint: exclusive contracts with individual brokers.

Other landlords are having similar experiences.

“There were definitely instances where the owners attempted to do it on their own, and then came back to us,” Golub said.

The major reason that landlords are now willing to work with brokers is that customers have started paying brokers’ fees again.

“Across the board, it was the mind-set that renters did not want to pay commissions, and there were no incentives for landlords to work with exclusive brokers,” said Barrocas. “A lot of them are coming back now, because tenants are paying commissions again, so it’s advantageous for landlords to be [hiring] brokers.”

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But for brokers, reviving old, exclusive relationships isn’t as easy as it sounds. Landlords, often looking for fresh blood, don’t always go back to the agents they used in the past.

Vogel’s new plan of action involves trying out some new agents, and offering them exclusive contracts if they do a good job.

“It should be treated as a reward, for the brokers that perform,” he said.

When Citi Habitats saw landlords returning, “in some cases, they gave us back the exclusive contract,” Golub said, but not always.

TREGNY had a unique method of preserving its landlord relationships during the downturn, Barrocas said. One of their large exclusive accounts is Mermelstein Development’s 230 East 44th Street, a 164-unit residential rental project with four commercial units.

Two years ago, “we actually went to the landlord and explained that although we would love to continue the exclusive relationship with them, we felt it would be better for them to open the listings up to the entire brokerage community,” Barrocas said. “We were proactive; we didn’t wait for them to terminate the relationship.”

The landlord appreciated that the firm wasn’t “hoarding” the listings, Barrocas said, and now that the market has bounced back, TREGNY has the building as an exclusive again.

Some landlords, however, completely revamped their approach to doing business, and may never go back.

During the downturn, many turned to websites like On-Site.com to help them screen and qualify potential renters, according to Jake Harrington, who cofounded the site. (Harrington noted that On-Site.com does much of its business in New York, and counts Rose Associates, Durst Fetner Residential and Silverstein Properties among its users.) The site continued to add clients and buildings during the downturn, as landlords turned away from brokers and tried other means to rent out their vacant properties, he said.

“[Landlords] had their eyes opened in a couple of ways [by the recession],” Harrington said, noting that many property owners are now more involved in the rental process. “When their vacancy rates increase to a scary amount, they know they have to try harder. There’s been a permanent shift in their mentality.”

Icon Realty Management, which owns and manages some 1,000 New York City apartments, has also “expanded our web presence greatly over the past three years” in an attempt to reach clients directly rather than using brokers as intermediaries, according to Zach Levine, the company’s director of leasing.

“Our website gets syndicated to over 10 different major search engines,” Levine said.

He added: “[Clients have] really gotten savvy and they contact landlords directly because they feel they can get a better deal,” Levine said. “So we get direct calls from clients now instead of brokers.”

But Azarian isn’t worried. She’s adamant that most New York landlords will continue to rely on broker exclusives to fill vacancies.

She said Adina Equities now has a full roster of new clients, some with larger buildings than those it lost during the downturn. (Adina Equities is now affiliated with Keller Williams but will continue to be a separate company.)

And she’s sanguine when it comes to the exclusives that she lost when landlords were unnerved by the flailing market.

“Listen, when you move on from each other, sometimes you move on and you go on with different relationships,” she said. “But then you get a new relationship. That’s the nature of the business.”