NYC firms push deeper into ‘burbs in hunt for marketshare

UPDATED Nov. 22 3:20 p.m. As the ring around New York City attracts more and more buyers — many of them priced out of Manhattan and Brooklyn — Gotham’s residential brokerages have grown increasingly aggressive (and strategic) about moving into the burbs.

The firms all have their own strategies for which tri-state areas to target and how to get a foothold. Some have doubled down on the Hamptons, where high-priced luxury deals are the golden ticket; others have planted flags in higher-volume locations like Hoboken in New Jersey.

While the trend is nothing new — these firms have been expanding into New Jersey, Long Island, the Hamptons and Fairfield and Westchester counties for years — almost all the brokerage executives who talked to The Real Deal said they are looking to push into parts of the tri-state where they don’t currently have a presence.

Sources said that’s largely because residential brokerages are under increasing pressure to churn out deals and gobble up more market share in this difficult environment, which has been marked by dwindling profits and a flurry of competition from the likes of Zillow, Redfin, Realtor.com and other consumer-facing listings platforms.

Nonetheless, with tough financials to factor in, many firms are consolidating offices and shrinking their footprints in favor of investing in tech and virtual support for agents. As a result, choosing where to open up shop has become even more high-stakes.

“Occupancy costs have become one of those expense items companies know they must reduce,” said Steve Murray, founder of the Colorado-based Real Trends, a research and consulting firm that works with residential brokerages throughout the country. “You’re seeing [brokerages opt for] more shared workspaces and fewer locations and more efficient use of their real estate.” 

Five years ago, he said, Manhattan brokerages were spending between 22 percent and 28 percent of corporate revenues on occupancy costs. Today that’s dropped to the 18 to 22 percent range.

But some are being more aggressive than others.

In the tri-state area, Compass is leading the charge.

“The major influencer is Compass, so major brokerages have had to increase investments in marketing, technology and advertising while increasing commission dollars to retain agents,” Murray noted.

In early October, the company opened its sixth office in Westchester — an outpost in Rye Brook. The office will have 20 agents, including three top producers who moved over from Julia B. Fee Sotheby’s International Realty.

The venture-backed firm has grown exponentially in the county since launching there just last year. It now has 180 agents fanned out in Rye Brook, Armonk, Chappaqua, Dobbs Ferry, Larchmont and Scarsdale. Those agents, Compass executives said, notched $528 million in sales in the first nine months of 2019.

Rory Golod, president of Compass’ New York region, told TRD the firm is now looking to open on Long Island’s North Shore and in New Jersey as well as to expand in Connecticut, where it currently has outposts in Westport and Greenwich.(It also has six offices in the Hamptons.)

“We want to be only an hour or two away from the city to best encompass that tri-state area,” he said, adding that the firm does not have a precise timeline for its moves. “Really important markets with pockets of valuable properties in well-known areas are where we want to be.”

Douglas Elliman, meanwhile, is going farther north. Scott Durkin, president and COO of the firm — which has five offices in Westchester, one in Connecticut (in Greenwich), one in Hoboken and nine in the Hamptons — is planning a move into the Hudson Valley within a year under the banner Douglas Elliman Hudson Valley.

“It has non-Hamptons traffic, and you get good value there,” he said. “That’s why we plan on establishing a presence.”

The referral pipeline

In the early aughts, residential brokerages went on a tear, opening storefronts on Main Street in affluent tri-state areas, even if rival firms were dotting the same street. But today the calculus is more complicated.

Berkshire Hathaway HomeServices doesn’t want to “have an office in every single town,” said Candace Adams, president and CEO of the BHHS’ New England, New York and Westchester Properties.

Adams said her division — which has 54 offices across Connecticut, Westchester and Rhode Island and New York City — hit pause in Fairfield, where it recently acquired the boutique brokerage Seven Realty. But, she said, it’s pursuing a “slow-growth strategy” in Westchester, where it’s considering opening in Port Chester and then White Plains.

“It’s growing with both investors and millennials wanting an in-town feel, close to transportation while culturally diverse,” she said, referring to Port Chester.

BHHS also has a  separate New Jersey and Long Island operations with 21 and five offices, respectively.

And it should be noted that developers have taken to all of these markets more than ever, building rental and condo buildings throughout the tri-state in towns that in the past were dominated by single-family homes.   

Durkin, meanwhile, said Elliman tracks where its agents are referring the most business when assessing where to open offices. “If we are seeing too many referrals out, then we think about opening there,” he said, adding that Elliman also examines annual sales volume in every market it’s considering launching in.

Others echoed the follow-the-money strategy.

Eddie Shapiro, founder and CEO of Nest Seekers International, said he follows “clients and the flow of capital” in the tri-state area and beyond.

“It’s essential for us to be in the key gateway financial markets of the world and their corresponding either vacation destinations or tax shelters,” Shapiro said. That, he said, allows the firm — which has seven Manhattan offices, six in the Hamptons, one on Long Island, one in Westchester and three in New Jersey — to service clients “without having to refer or outsource,” which leads to “more control [over deals] and higher earnings.”

But sometimes opportunities just pop up. In New Jersey, he said, the firm did not have expansion plans, but his team led the brokerage to open three offices there: in Hoboken, Jersey City, and Summit/Short Hills. Sometimes, he said, it’s “more about the right team and the right place.”   

The cost of opening a new office ranges from $100,000 to $1 million, depending on the market and the circumstances, Shapiro said.

In addition to the Hamptons, Brooklyn and Queens, he said, New Jersey’s Gold Coast “continues to have incredible potential and some very exciting projects in the works.”

Others also see opportunity in the Garden State.

Halstead — which has in eight offices in Connecticut — is considering going deeper into Northern New Jersey, said company CEO Diane Ramirez. (It already has offices in Hoboken and Montclair.) She said Halstead is likely to follow the same playbook it used in Connecticut, which was focused on commuting towns.

“We always keep our eyes open to where people are commuting from into Manhattan and look to see what might fit for us those commuter towns,” she said. “That is why we have so many offices in Fairfield County.” 

Halstead’s office in New Canaan, Connecticut

In addition, the firm — which also has two Hamptons outposts — is looking to “fill in towns” in Connecticut if it makes sense and there’s not a strong “market leader” already dominating. “We don’t want to come in as a smaller firm,” Ramirez said.

On the tri-state front, the Corcoran Group has exclusively focused on the Hamptons — where it has nine offices. But the firm is part of the Realogy conglomerate, which has the suburbs covered with brands like Coldwell Banker, Century 21 and others.

Acquisition or organic growth?

To buy or to open — that is often the big question for brokerage executives when pushing into the tri-state and beyond. And many of the big firms have opted for the former.

For example, back in 2009 Halstead gave itself an overnight presence in Connecticut when it bought the 160-agent, five-office firm Country Living Associates.

The parent company of Berkshire Hathaway HomeServices, HomeServices of America, bought Houlihan Lawrence — Westchester’s biggest firm — in a blockbuster deal in 2017. Elliman also moved into Westchester through an acquisition back in 2011, when it snapped up the 135-agent firm Prudential Holmes & Kennedy, which had six offices in Westchester and Putnam counties. The firm took a similar tack on Long Island. 

Durkin said deciding whether to buy a firm is a multipronged process and noted that he’s only interested in offices with at least 35 agents.

“We see what percentage [of the market] they present, and then you look to double the existing business,” he said. “Of course, you’re [also] looking at the competition and determining if there is room to make money there.”

Halstead’s Ramirez said she looks for a cultural match when deciding whether to buy a company. “I end up dating for a long time with people who seem interesting,” she said. “The numbers I can always improve on if the firm has good agents [and] the right location.”

She also looks at how loyal agents are to the owners, managers and firm leaders. That’s because it is crucial to keep agents during “the dangerous period when you first acquire a brokerage.”

Durkin said Elliman has also poured resources into renovating key offices as a way to attract top agents. But those renovations need to make financial sense, especially in this day and age when brick and mortar is a harder sell and cost-cutting has become essential to the bottom line. In select locations, the firm, he said, is still making a play toward passersby.

“Our Bridgehampton location is hooked onto a Starbucks, so there you see people sipping their lattes while looking at pictures of properties,” he said.

But more than sipping Starbucks, brokerages are going after dollars and cents to boost bottom lines. As Ramirez said: “We love the tri-state’s core markets … because that’s where the buyers are.”

This article has been amended to reflect that Houlihan Lawrence was acquired in 2017 by HomeServices of America, not its affiliate Berkshire Hathaway HomeServices.