When Dottie Herman and her investment partner, Howard Lorber, inked a deal to acquire Douglas Elliman this past spring, creating a regional powerhouse with 50 offices and 2,000 agents, the $71 million they spent was the second highest amount ever paid for a residential brokerage firm in Manhattan.
While the price tag topped by Elliman’s sale six years earlier to Insignia for $75 million wasn’t exactly pocket change, the two real estate partners still have ample funds in their piggy bank.
They intend to spend that money, with ambitious plans to grow in the next few years. Lorber, chief executive of Westbury-based Nathan s Famous Inc., says he has $150 million in cash for expansion enough to buy two Ellimans.
It was Lorber who knew Andrew Farkas, the chief executive of Insignia, the connection that led to the successful purchase of Elliman in March.
Now, Lorber and Herman’s expansion plans touch on almost every aspect of the business – from rentals to property management to mortgage services to relocation. Herman, who expanded into Manhattan from her perch as head of Prudential Long Island Realty (now Prudential Douglas Elliman), has plans to acquire 15 more firms on Long Island. The duo also has their sights set on acquiring companies or increasing their presence in Brooklyn, Florida, and of course, Manhattan. Consultants have periodically been sent in from Prudential Real Estate s Irvine, Calif.-based head office in the past few months to help Herman and Lorber evaluate their options.
“We see many opportunities for expansion,” said Herman, who has said that her dream at Prudential Long Island Realty had always been “to connect Manhattan to Long Island through a real estate firm.”
Most immediately, the company is about to do a “small acquisition” on the North Fork of Long Island which should be announced in the next couple of weeks. Herman broke into the East End in 1997, and now has six Hamptons offices and branches on the North Fork.
To fulfill the company’s slogan “from Montauk to Manhattan,” Herman is also looking to make her first big foray into Brooklyn. Her company has already done a number of development jobs there, and is on the local real estate board, but doesn’t have a storefront. Rather than starting from scratch, Herman said she might prefer to acquire another company, benefiting from brokers who already know the area. “If we find a good company, I’d rather it be an acquisition than starting something new,” she said. Prudential already has offices in Queens.
In Manhattan, the company is also looking to acquire mid-sized firms. Lorber said the company considered buying the 60-broker residential arm of Charles H. Greenthal, which was purchased by Coldwell Banker Hunt Kennedy in August, but ultimately decided against it. “There was high overhead, and business was trending downward,” he said. “There was nothing there.” Charles H. Greenthal Group recorded $275 million in residential sales according to Crain’s New York Business Book of Lists 2003.
The second-home market, which Herman notes has grown for the last five years straight and is expected to continue expanding, is another area the partners are targeting. The company is looking to increase its efforts in Florida and California. “Florida is one of the main destinations for people from Long Island and Manhattan,” said Herman. California has the highest number of million-dollar homes in the country, and Lorber notes that there are “a lot of people from California buying in the Hamptons.” Even so, there are no plans to open satellite offices in either location anytime soon. Instead, the company will try and boost its relocation business not a big revenue generator but hopefully a place to get leads on clients who want to buy second homes elsewhere. Lorber already has real estate investments in Florida, serving as president of Miami-based real estate firm New Valley Corp.
Besides sales, the company is also looking for growth in other areas like rentals and property management. Lorber has high hopes for increasing Elliman s presence in the sub-$5,000 Manhattan rental market. The market has undergone change in the last decade, with many smaller neighborhood firms disappearing. Citi Habitats has taken a lot of the market share. “[CEO] Andrew [Heiberger] did a great job in the rental market,” said Lorber. “They are trying to grow their sales now. We want to grow rentals. I think it will be a lot easier for us to go where they are, than for them to get where we are.” Herman said she has a “customer for life” approach to rentals, taking account of the fact that today s young renters will be tomorrow s buyers.
Property management will be another focus, with Lorber looking for opportunities in both New Jersey and Long Island as well as Manhattan. Lorber said he aims to the double the size of Douglas Elliman’s property management division, which now consists of 60,000 units. The key is to focus on property management in its own right, rather than seeing it as an adjunct to sales. “We’re the largest by about three times the next competitor,” he said. “We realize there is a lot of upside to property management. You can t look at it just for leads, you have to provide great services. It is a great stand alone business.”
Prudential is also looking to maximize the money it makes from each sale. The company has started its own mortgage and title business, and has been considering providing property and casualty insurance services. The company first entered the mortgage business two-and-a-half years ago on Long Island, partnering with industry veteran Marcia Kaufman. The firm, Preferred Empire Mortgage Co., expanded to Manhattan in the wake of the Elliman purchase, opening its first office with 25 mortgage brokers in Midtown this summer. Prudential also created a title company earlier this year, Liberty Land Title Agency, to serve clients, and an insurance business may be in the works. Herman said the goal is to provide a one-stop shop that will supply all the services a client needs when they make a home purchase. (See story on one-stop brokerage firms on page 6).
There is also the issue of Herman and Lorber’s affiliation with Prudential. Prudential Long Island is half owned by Lorber and 40 percent owned by Herman. The remaining 10 percent belongs to Prudential, and Herman is able to buy out Prudential s stake in the next 10 years. Lorber and Herman both said they are happy with the support they have gotten from the corporation. “They’re great,” said Lorber. “There are no plans to change anything now. When it doesn’t make sense, we will take them out.”