Using their powers for good?
Industry casts increasingly skeptical eye to brokers on co-op and condo boards
In late 2009, the owners of 15 apartments at the Atelier in midtown filed suit against members of the condo board, including its president, Daniel Neiditch. They claimed that Neiditch, head of the brokerage River 2 River Realty, was using his influence to gain a monopoly on real estate deals there.
Neiditch had been directing all leasing and sales inquiries in the 42nd Street building to his company, they claimed in court documents, treating it as “his own fiefdom.” Owners who listed their apartments with an outside broker, the suit claimed, would never make a sale.
“Leasing and sales activity … has been dominated by River 2 River and Neiditch, who effectively controls, as a result of Neiditch’s position as president of the board, the vast majority of units in the condominium,” the complaint alleged.
Neiditch, who currently has 32 of the 38 active sales listings at the Atelier, according to StreetEasy, declined to comment on the accusations.
The case was eventually dropped, on the basis that individual owners in a condominium can’t assert claims for damages against the common interests or finances of the building.
But the suit highlights the ethical issues that confront real estate brokers serving on the boards of their co-ops and condos.
There is no law prohibiting real estate professionals from serving on their building’s boards, and some of the city’s most prominent agents are currently members of co-op and condo boards. In fact, many in the industry say real estate brokers bring invaluable expertise to the management of their buildings.
Still, the question of possible conflicts of interest has become increasingly visible recently, due in part to a late March e-mail blast from Neil Garfinkel, residential counsel to the Real Estate Board of New York.
In his e-mail, which was sent to every residential member of REBNY, Garfinkel strongly criticized the practice of brokers serving on boards.
“I do not believe that a co-op board member (whether the president or not) should serve on a co-op board and act as a real estate broker in real estate transactions in the co-op building,” he wrote.
Despite good intentions, Garfinkel continued, it’s not always possible for brokers to properly balance competing obligations to their clients and to the board.
In one recent instance, he said, a REBNY broker was serving on her co-op board, which was considering a major capital improvement program. As a broker, she felt she had an obligation to disclose the existence of the project to a prospective purchaser, since it would impact the value of the property. But the board president had forbidden her to disclose the capital improvement project to anyone.
The situation put her in “an untenable position,” Garfinkel wrote. “She has a duty of confidentiality to her co-op board that directly conflicts with her duty of disclosure to the prospective purchaser.”
Still, a broker could serve a lifetime on a board without encountering a conflict like this one, Garfinkel told The Real Deal, and would likely not be able to foresee such a conflict until it’s too late.
But in recent years, some buildings — often after encountering situations like these — have instituted policies prohibiting brokers form serving on their boards.
In 2009, an Upper East Side building removed a real estate broker from the co-op board and amended its bylaws to prohibit other brokers from serving, said Aaron Shmulewitz, a partner at the law firm of Belkin Burden Wenig & Goldman, who currently represents the board.
The move stemmed from what the board felt were the brokers’ efforts to “take advantage of his position and benefit monetarily,” Shmulewitz said.
A few isolated incidents like these have sullied the perception of brokers who serve on co-op and condo boards, said Core broker Tony Sargent, a former board member at 31 Jane Street.
Whether it’s warranted or not, he said, “shareholders can have a negative connotation with brokers being on boards,” suspecting that agents will “use the building as a personal piggy bank.”
As a result of perceptions like these, some brokers, like Elaine Mayers of Citi Habitats, have purposefully opted out of serving on their boards to avoid potential conflicts of interest.
“I think I could be totally impartial,” said Mayers, who resigned from her co-op board at 205 Third Avenue when she started working in real estate seven years ago. “But I don’t want any appearance of impropriety. Even if I recuse myself on certain issues, someone might think the board viewed my deals more favorably because I was a member.”
Big time board members
Other real estate professionals disagreed, saying it’s entirely possible to serve on boards without crossing any lines of propriety. Moreover, they noted that brokers often use their industry know-how to benefit their buildings.
Roberta Axelrod, director of sales and marketing at Time Equities, represents the developer on 10 co-op and condo boards across the city. She said that brokers, provided they conduct themselves ethically, can bring a great deal of value to their buildings.
“Most people on the board are not professionals,” she explained. Real estate brokers, by contrast, can advise on resale values and lender requirements. Plus, few residents are willing to give their time to serve on the board, so it’s often appreciated when real estate brokers are willing to do so.
Indeed, some of the city’s most high-profile brokers sit— or have sat — on the boards of their buildings.
Eastern Consolidated senior director Adelaide Polsinelli is past-president of the co-op board at 2 Fifth Avenue. Sonia Stock, a top sales agent at Prudential Douglas Elliman, has been on the co-op board of 16 Hudson Street in Tribeca for two years and is currently vice president. Prudential Douglas Elliman broker Jared Seligman serves on the condo board at 184 Thompson Street.
Gil Neary, president of the brokerage DG Neary, not only serves on the co-op board at 255 West 23rd Street, where he lives, but sits on the co-op boards of two buildings where he owns investment units. The advantages of having a broker weigh in on building issues are tremendous, he said.
“As much as a co-op is a place to live, it’s also an investment,” he said. “It’s valuable for people who are deciding what to spend the building’s money on to know what improvements will have the highest dividends in the market.”
Sotheby’s International Realty power broker Elizabeth Sample is serving her fourth year as president of the condo board of the Time Warner Center, one of the city’s priciest buildings. Sample and partner Brenda Powers currently have five of the nine active sales listings at the property, including a 75th-floor unit listed for $60 million.
Sample said her profession “has never been an issue” for the board, and in fact, she’s used her negotiating skills to vastly improve the building’s financials.
“I have a very vested interest in increasing values in the building,” she said. “Who’s going to know the building better than a broker?”
When she was first elected as board president, “we went line-by-line through every expense and existing contract, and renegotiated every contract where we felt we were being overcharged,” she said. For example, “our Christmas expenses were $38,000 — that’s absurd.”
Since then, the board has built the building’s reserve fund up to $2 million, she said, and has been able to refund carrying charges back to owners.
Of course, she noted, the potential conflicts in a condo are less than in a co-op, where board members must approve each resident who moves into the building.
Most real estate brokers who do serve on co-op boards say they voluntarily recuse themselves from decisions affecting buyers they bring into the building, or the listings they market. Some go so far as to absent themselves from all decisions involving approvals.
In some buildings, these requirements are written into the bylaws, but most operate with a type of honor system, leaving the decisions up to the brokers themselves.
And Garfinkel said brokers recusing themselves doesn’t go far enough to prevent conflicts of interest.
“There is no appropriate way for the real estate broker/co-op board member to filter the information that he or she receives in the ordinary course of serving on the coop board,” he wrote. “Once the information is received, the real estate broker may have an obligation to disclose such information.”
There are other ways a broker can participate in their building’s affairs, Garfinkel said, without “potentially putting themselves in harm’s way.”
For example, they can provide the board with recent market information, he said.
These considerations may not be practical, however.
There are plenty of other professions or affiliations that could present a conflict of interest on a board, Axelrod noted.
“Would you say you can’t have an architect, a contractor or lawyer on your board?” she said. “Where does it end?”