Dexter Guerrieri co-founded Vandenberg, a boutique brokerage specializing in the venerated Manhattan townhouse market, back in 1990.
Over the years, he turned away suitors trying to get him to sell the small, independent shop. But two years ago, with the market taking a turn for the worse and competition intensifying, Guerrieri and co-founder Jane van den Berg Ordway, his wife, went hunting for a buyer.
Then this past August, Douglas Elliman, the city’s largest residential brokerage, announced that it was acquiring Vandenberg for an undisclosed amount.
“We were looking for a long-term relationship and the ability to grow in a different kind of way than we could grow organically,” Guerrieri said. “We wanted to take the next step.”
The deal brought something crucial to both brokerages at a time when running a firm is becoming more financially hazardous by the day: It gave Elliman a stronger foothold in the specialized (and lucrative) townhouse business and provided Vandenberg, which will continue to operate as a team under the same name, with more resources and less overhead.
And the Vandenberg deal — Guerrieri said he negotiated with Elliman Chairman Howard Lorber on and off over a 10-month stretch during meetings in both of their offices — is not an outlier.
Mergers and acquisitions among residential firms are skyrocketing, hitting a record $524.7 billion nationally last year, according to figures from Thomson Reuters. It’s a trend that The Real Deal has been exhaustively chronicling: Back in September, TRD wrote about how smaller firms operating in the less-sexy corners of the market were quietly joining forces — allowing them to remain independent and autonomous while also consolidating operations and cutting costs.
But there’s also another trend playing out across New York City’s residential world (and throughout the country): Big companies are getting more aggressive about scooping up (or trying to scoop up) smaller competitors. And the firms with the biggest targets on their backs are the ones with niches that can offer megafirms a foothold in a new market — whether that’s in a geographic location like an outer borough or in a sector like the townhouse world, where they may be leaving deals on the table.
Vandenberg is, indeed, among several under-the-radar boutique firms in the city that have been bought up by large rivals in the last two years. Others include Laurance Kaiser’s high-end Upper East Side firm, Key-Ventures, which was absorbed by Berkshire Hathaway last year; R.P. Miller, Reba Miller’s six-person shop, which was bought by Berkshire in February; and Space Marketing Shop, which was bought by Elliman in May.
But that small batch doesn’t tell the full story.
Behind the scenes, boutique brokerage chiefs say, they are getting regular phone calls and solicitations. While not all of them are interested in selling, almost all of them are being approached.
Robert Dankner, managing director at Prime Manhattan Realty, said he’s been contacted by two firms interested in striking a deal. He said that while he hasn’t really entertained selling, he understands that for some firms it’s a matter of survival. “Fortunately, that’s not our situation,” he said.
“If my interest was in exiting my business, then that would be something to discuss,” said Dankner, whose firm has 13 agents.
Wholesale acquisitions
On the national front, Compass, which is backed by $450 million from SoftBank, has made headlines for picking up 11 brokerages in the first eight months of the year, including the San Francisco-based Pacific Union International Realty, which had $14 billion in sales last year.
Elliman has also been inhaling firms, buying up Teles Properties in Los Angeles and Otis & Ahearn in Boston, among others.
Its acquisition of Space Marketing Shop was designed to boost its presence in Brooklyn and Queens. And at the time of the deal, Elliman touted the $500 million in transactions that the firm had closed since launching in 2011.
Space Marketing’s founding partners, Edward Cho and Aran Scott, will lead the Long Island City and Park Slope branches, respectively. They’ll also work out of their firm’s former offices with their nearly 30 agents staying on board.
Explaining the sale, Scott said a bigger support team and more resources translates into more business. “It just becomes easier to have that big brand name behind you,” he said.
In addition, he said, developers often enlist larger brokerages to handle sales at new development projects. Scott said he and Cho spoke to Elliman and a few other firms. While he declined to disclose specific dollar amounts, he said Elliman’s offer was on par with what they were looking for — plus they liked Lorber’s “straightforward” style.
Clockwise from top left: Aran Scott, Edward Cho, Reba Miller, Laurance Kaiser, Jane van den Berg Ordway and Dexter Guerrier
All of these deals are far from surprising considering how much margins have been contracting.
In the last five years, average gross margins across all types of brokerages nationally have dropped by about one-third, according to studies conducted by the Colorado-based consulting firm Real Trends. And one obvious way to address those financial realities is to crank out more deals.
Boutique firm Modern Spaces — which is headquartered in Long Island City and has offices in Astoria, Williamsburg and Chelsea — has been another target.
The firm, which has 100 agents, is currently representing Corte, an 85-unit condo in Long Island City, and BRiQ, a 110-unit rental in Downtown Brooklyn, among a handful of other new developments.
Eric Benaim, founder and CEO, told TRD that he’s turned away interest from other firms, including franchise companies. The latter, he said, would diminish the company’s brand.
Instead, the brokerage is preparing to open a new 8,000-square-foot Long Island City office and looking to grow its headcount by about 30 people, including staff and agents.
But he acknowledged his approach is not for everyone.
“We’re happy growing organically,” Benaim said. “Obviously, it’s a really competitive market right now. Some people get a little more nervous than others.”
It’s not hard to see why an outer-borough brokerage would be attractive to a bigger Manhattan-centric firm. While nearly all of Manhattan’s major firms have a presence in Brooklyn and Queens at this point, buying a firm wholesale provides overnight market share.
The rental giant Citi Habitats pulled off such a move back in 2015 when it acquired David Maundrell’s Brooklyn-based firm Aptsandlofts.com. The deal gave the rental giant 110 agents and staff and three offices in Brooklyn and Queens.
If the price is right
Taking a meeting never hurts. And sometimes it can even help make a company more valuable.
Jed Garfield, president of the Manhattan townhouse brokerage Leslie J. Garfield, said he’s received unvarnished feedback from past conversations with other brokerage chiefs about a possible acquisition. During those conversations, which took place several years ago, he was told that the firm’s lack of an international presence was a weakness.
“It was always a glaring hole for us,” said Garfield.
In 2015, the company — which is currently marketing a $29.9 million townhouse at 7 East 88th Street and a $21 million townhouse at 46 East 66th Street, among dozens of other pricey listings — struck a partnership deal with Beauchamp Estates, which has offices in London, Cannes, Mykonos, Florence and Israel. The goal was to beef up its international operation.
But, Garfield said, he’s not looking to sell — at least not right now.
“If we had this conversation in 15 years, I might feel differently about it, or if business were terrible,” he said. “For the time being, we seem to be doing fine. We have virtually no turnover.”
Nonetheless, that type of international arrangement can not only expand a company’s reach and help its short-term bottom line, but also make it more valuable to bigger firms down the road. Other firms have also doubled down on their international business.
Domus Realty, for example, works with high-end foreign buyers who require a significant amount of personal attention, said the firm’s president and founder, Giampiero Rispo.
The firm also provides property management — it claims to oversee $1.3 billion in assets — as well as investing and interior design services. Rispo said he hasn’t seriously considered a merger or acquisition so far.
And despite all the courting, some say now is not the time to sell.
Joshua Arcus, president of the Manhattan-based firm the Siderow Organization — which has about eight core residential agents and five core commercial agents — said it would be “pretty risky” to sell in today’s market.
“If I were ever going to be interested, it would not be right now,” said Arcus, noting that the firm has had conversations with bigger firms in the last two year.
That might very well be because smaller firms are not getting aggressive enough offers.
Barbara Fox, the founder of Fox Residential Group — which has 30 full-time and 20 part-time agents — acknowledged that recruiting and retaining agents has become more competitive as other firms have dangled generous commission splits, hefty marketing budgets and other perks to lure agents.
“There are always going to be people who leave and think that the grass is greener,” she said, adding that she offers a hands-on approach she believes keeps her brokers loyal.
The brokerage, which focuses on high-end Manhattan properties, has drawn interest, but Fox said she hasn’t had serious discussions. And she noted that she likes not reporting to anyone.
Still, she said, that doesn’t mean she wouldn’t reconsider if the price was right.
“I would always hear somebody out,” she said. “But I’m not in any position, at this point, to jump — even though I might at some point.”
But she added: “If the money were right, I would probably think about it harder.”