On the evening of April 18, Andrew Heiberger was staring at Town Residential’s first-quarter results. The numbers glaring back at him were “way off” and his managers’ end-of-year projections were dismal.
No amount of cost-cutting or office closures could keep the firm afloat, he decided. That night, he called his wife and ex-wife to break the news. And by the following afternoon, Town managers and agents were packing up their desks, ending months of speculation about the brokerage’s future amid rumors of unpaid commission and late rent.
“It was definitely the last option,” Heiberger said during a one-on-one talk with The Real Deal’s publisher Amir Korangy on Monday, referring to the closure of Town’s sales and leasing businesses. “And really the only option.”
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But Heiberger — who used TRD’s 11th annual New York showcase to tell his side of the story — didn’t offer a mea culpa.
He said he worked 18 hours a day, seven days a week since launching the firm in 2010, and kept Town afloat until factors beyond his control forced his hand.
“I don’t think the traditional brokerage model is sustainable,” he said, citing ferocious competition for agents, high fixed costs and rising commission splits. “We’ve been disrupted.”
In the months leading up to Town’s closure, Heiberger said he tried to stem the losses. He closed offices in Brooklyn and Queens, and reduced salaries. At one point, Heiberger said he considered scrapping its information technology department. (Under that scenario, Town would have used StreetEasy to focus on buy-side business.)
During its eight years, Town did nearly $13.5 billion in real estate deals, Heiberger has previously said, and at its height had nearly 600 agents.
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In 2013, Heiberger said he received a $119 million offer from a major real estate company to acquire 60 percent of Town. When asked why he didn’t take that deal, Heiberger said, “You’re going to have to ask someone else that.”
Andrew Heiberger (Credit: Jhila Farzaneh for The Real Deal)
Without naming names on Monday, Heiberger placed the blame on Town’s backer, Joseph Sitt of Thor Equities. The two sparred publicly in 2013 and 2014 over a failure to meet certain financial targets.
In 2016, Heiberger reportedly bought Sitt out, leaving him as Town’s sole owner.
“I’m the kind of person that finishes what he starts,” Heiberger said. “I hung in there for six years to finally gain the full control of my company back, I put my head back down the next day to try to get it back to where it was.”
By 2017, Town eliminated a $10 million annual loss and that year lost $670,000.
But by that point, the market had changed. Last year, StreetEasy began charging agents to post rental listings, and New York brokers were duking it out over a syndicated listings feed. At the same time, Compass has raised $775 million at a $2.2 billion valuation, giving it the ability to recruit top agents.
Though Town scaled incredibly fast after its launch, Heiberger disagreed with the word “poaching” to describe its aggressive hiring early on.
“I don’t like the word ‘poaching,’” he said. “I do think that recruiting is fair. And I do think real estate brokers deserve to have opportunities presented to them.” He said when he started Town, the “behemoths were having their way with brokers.”
But critics have said Town did change the recruiting game. And, they said, Heiberger spent lavishly on parties and perks for agents.
“I’ve never spent more than $125,000 on our holiday event,” he countered. “The total cost of the holiday event is a lot less than having four front-row seats the Knicks game,” he added, taking a shot at Douglas Elliman.
During a later panel on Monday, CORE’s Shaun Osher said he disagreed with the notion that the traditional brokerage model is unsustainable. “It is very sustainable if it’s run a certain way and effectively,” he said. “And you can applaud for that if you want.”
But Town wasn’t immune to growing pressure to pay agents higher commission splits. The firm’s commission payout averaged around 74 percent before it shuttered its sales and leasing divisions on April 19.
“There were about 10 percent of the people in our firm doing the lion’s share of the business,” Heiberger said. “And they were at very high splits.”
Amir Korangy (Credit: Jhila Farzaneh for The Real Deal)
Even if given the opportunity, Heiberger said he wouldn’t do things differently. “I accomplished what I set out to do,” he said. “I did get a bona fide offer for a ton of money.”
Heiberger said he doesn’t have a plan for what’s next. Brokerages of the future, he believes, will offer a la carte services to agents. And despite the challenges, new development isn’t dead.
“I do want to reiterate: I do not think the Town Residential brand deserves to have a toe tag,” he said. Heiberger is personally involved in two new development projects that he will continue working on.
“As long as I don’t have a toe tag,” he said, “those projects can get completed by me.”