Brokerages see new business tank as condo market struggles

In 2015, Corcoran Sunshine, Manhattan’s top new development marketing firm, was awash in new business. That year, its brokers picked up an unprecedented $10 billion-plus in new condominium product, including some of New York’s glitziest projects. Its closest rival, Douglas Elliman, also scored big, picking up about $6 billion of exclusive listings.

But as the luxury condo market took a beating and banks said “No mas!” to financing new projects, new product, both in terms of number of units and dollar volume, plummeted. As a result, a new analysis by The Real Deal shows, firms are finding themselves with a lot, lot less to look forward to.

It’s a natural consequence of a market that has settled into a lull after two years of record-breaking deals, a period of exuberance that developers and brokers had hoped would become the new normal. The data, however, clearly show that it didn’t.

In 2016, the New York Attorney General approved just over 2,500 units for sale in Manhattan, down 44 percent from nearly 4,580 in 2015. The drop in total dollar volume was even starker: Just $9.5 billion worth of product was approved for sale in the borough, down nearly 60 percent from $23.5 billion the previous year.

“Everybody saw it coming,” Tim Crowley, managing director of new development at CORE, said of the fall. “A lot of our developers were like, ‘Yeah, we’re out — we’re not looking at land right now.’”

To get a sense of how the softening luxury condo market is chewing into brokerages’ total haul, TRD looked at all Manhattan condo offering plans approved by the AG in 2016. We matched those projects with the firms tapped to market them, and valued them based on the AG’s accepted total sellout price, although in some cases amendments have since been filed. We then compared those numbers with the hauls recorded in our analysis last year. (Note: Last year’s numbers are based on prices at the time of the analysis, not initially approved prices, so they may be slightly higher than initial figures.)

We found that most major firms took a big hit in terms of incoming new business.  Corcoran Sunshine, for example, picked up just $3.2 billion in approved exclusives in 2016, a year-over-drop of nearly 68 percent. Elliman had a nearly-identical drop in new business, picking up just $2 billion in exclusives. Compass, which picked up over $1.5 billion in exclusives in 2015, landed only one approved Manhattan project in 2016, Magnum Real Estate Group’s 196 Orchard Street. CORE’s haul fell to just one small Harlem project, and Town Residential, recently taken off Madison Equities, Building and Land Technology and Thor Equities’ 212 Fifth Avenue, did not pick up a single Manhattan project in 2016.

Developers said reasons for holding off include sky-high land prices in Manhattan over the last couple years, banks’ aversion to lending on new projects and fears of a luxury glut.

[vision_pullquote style=”3″ align=”right”] “They know that they need to perform, because for developers that are active in the marketplace, they want to continue to do business with us.” [/vision_pullquote]“It’s only natural that you’re going to push them harder,” said David Amirian, whose developments at 442 and 436 East 13th Street (Nest Seekers International) and 117 West 21st Street (Elliman) were accepted in 2016 and are projecting a combined total sellout of $119.5 million. “In this market they’ve got to work 10 times harder.”

Kelly Kennedy Mack, president of Corcoran Sunshine, said there is still plenty of inventory to sell. The firm’s current projects include Vornado Realty Trust’s [TRDataCustom] 220 Central Park South, and Related Companies’ 15 Hudson Yards and 70 Vestry Street. “When others can’t move forward or secure financing, these developers can,” she said, referring to the firm’s clients.

“We forecast a robust pipeline for 2017, and are already seeing positive sales figures,” Mack said. “In the first month and a half, condo sales are up 9 percent compared to the same time last year. The luxury market is doing even better, with deals above $5 million up 30 percent.”

She characterized developer delays as a “sensible self-correction” that will eventually lead to an undersupply reminiscent of 2011.

With opportunities in Manhattan shrinking, landing exclusives off the island is becoming essential. More than half of all condos approved for sale last year are planned for outside of Manhattan, mostly in Brooklyn and Queens. It’s a trend that was last seen in 2011.

Kelly Kennedy Mack (Credit: Michael McWeeney)

“Our approach has been to focus on the neighborhoods where more development is happening,” said Stephen Kliegerman, president of development marketing at Terra Holdings, the parent company of Brown Harris Stevens and Halstead Property. Kliegerman dismissed the suggestion that a pullback in Manhattan will have a negative impact on business, and said the firms are aggressively courting exclusives in Brooklyn and that its acquisition of local firm Aguayo Realty in 2013 was paying off. He cited exclusives on 51 Jay Street in Dumbo, as well as Hope Street Capital and AEW Capital Management’s the Hendrik in Boerum Hill. Terra now targets developers’ debt and equity partners to put them in prime position for exclusives.

“The amount of expertise and staffing that it takes to get these jobs to market and properly consult the developers has actually gone up,” he said. “You now need more talent to land those jobs.”

From left: 51 Jay Street in Dumbo, The Hendrik at 509 Pacific Street in Boerum Hill and Stephen Kliegerman

Susan De Franca, who leads Elliman’s new development marketing efforts, said that in 2015, many of the firm’s approved exclusives were large-scale projects – like Witkoff, New Valley and Fisher Brothers’ 111 Murray Street — while last year the firm scored several boutique developments. That’s a trend that isn’t unique to Elliman: In 2015, seven Manhattan plans projecting total sellouts north of $1 billion were accepted by the AG. Last year, there was just one: 15 Hudson Yards, pegged at $1.7 billion. In total, Elliman has committed exclusives on $7 billion worth of Manhattan product, with another $3 billion “pending,” De Franca said, but many of the developers are going to wait to bring that product to market.

“It’s in times like this, when there’s uncertainty and more product, the astute and really smart developers want to go to the most experienced marketing firms, who have long-term experience in rising and declining markets,” she said.

“I think they [firms] are tough on themselves,”said Charles Bendit, the co-CEO of Taconic Investment Partners, which is trying to sell 242 Broome Street through Elliman. “They know that they need to perform, because for developers that are active in the marketplace, they want to continue to do business with us.”

[vision_pullquote style=”3″ align=””] “Everyone feels a little more pressured. But that’s what separates the men from the boys.” [/vision_pullquote]Even winning a project doesn’t guarantee it’ll be yours to make commissions off. Firms regularly lose projects to their competitors, with the bigwigs regularly trading blows. In April, Corcoran replaced Elliman at Magnum’s 100 Barclay, the $915 million condo conversion of the Verizon Building. In September, Elliman replaced Corcoran at Ian Bruce Eichner’s 45 East 22nd Street. In January, Madison Equities, Building and Land Technology and Thor Equities removed Town from 212 Fifth Avenue, a $523 million condo conversion in Midtown South. It tapped Sotheby’s International Realty to take over this month. Earlier this month, Compass lost the Luminaire, a 138-unit with a projected sellout of $182.9 million, to Corcoran.

Sometimes, projects a firm had been counting on never materialize.

In April, for example, the Chetrit Group and David Bistricer sold the Sony Building to Saudi investor Olayan Group for $1.4 billion. The partners had been planning to convert the upper floors of the tower at 550 Madison Avenue into a $1.9 billion condo project, but Olayan will maintain it as an office property. Chetrit and Bistricer look to have tidied up on the deal, but one clear casualty was Elliman, which had the exclusive on the condo project.

The Sony Building at 550 Madison Avenue

“Is the market a little bit tougher than it was before? Yes,” Howard Lorber, chair of Elliman, said at the time. “But this [project] would have sold.”

And Compass, which was tapped to sell CL Investment’s $300.2 million luxury condo conversion at 287 Park Avenue South, lost out when the developers shelved the plans in November.

CORE’s Crowley said that while the year may look “pretty lame” for his firm, it actually picked up eight yet-to-be approved exclusives in 2016, including Macklowe Properties’ One Wall Street, which is hunting for a $1 billion construction loan.

Town’s CEO Andrew Heiberger said the firm sold $189 million worth of condos at 212 Fifth Avenue, which sources said included a $28 million pad.

Some firms are looking for other ways to keep cash flowing. Compass’ Billy Goldstein said the company has $2.5 billion of Manhattan development in the pipeline, but is also positioning itself to be ready to take over projects, rather than solely chasing exclusives. Providing new development consulting and taking on rental projects are also in the cards.

Even with things drying up, Compass passes on exclusives if developers have unrealistic price expectations or lowball on commissions, Goldstein said.

[vision_pullquote style=”3″ align=”right”] “We don’t ever want to be in a position where we give a developer false hope.” [/vision_pullquote]“There are several firms — not every firm — but several of the firms that are willing to take exclusives at very low commission rates,” he said. “We’re pitching on jobs that we haven’t been awarded, but at the same time we’ve intentionally decided not to move forward on certain deals because the terms were not favorable for us.”

Steven Rutter, the director of new development at Stribling Marketing Associates, said pricing can be a particularly delicate subject.

“We don’t ever want to be in a position where we give a developer false hope,” he said. “It’s not worth getting the job and then not being able to sell it.” Stribling scored just under $212 million in approved Manhattan exclusives last year. In 2015, its total count was closer to $1 billion, but Rutter expects more of their exclusives to be approved this year.

Steven Rutter

Developers agreed that buyers are far more receptive to modestly priced product.

“As far as the $1 [million] to $5 million [range], we think there’s a huge shortage,” said Magnum’s Ben Shaoul. “We think the supply in 2016, or what’s available in 2016, all the inventory should be gone by year end.”

Adrienne Albert, CEO of the Marketing Directors, which has the exclusive on CB Developers’ The Lindley Condominium ($142.8 million sellout), said the real challenges lie ahead. “There’ll be a test coming up as the market slows, as to who’s really managing their efforts,” she said.

“Everyone feels a little more pressured,” De Franca said. “But that’s what separates the men from the boys.”

(To see the last five years of Manhattan residential listings volume, click here. To see a chart with the last 10 years of Manhattan condominium filing volume, click here.)

Correction: An earlier version of this story identified Newcastle Realty Services as the developer of 101 West 78th Street. It is GTIS Partners. An earlier version of the chart listed Stribling as No. 5. It is ranked fourth.