In the past year, Manhattan’s top residential real-estate brokerages have been remade through a furious welter of corporate consolidations that began in the late 1990′s and have placed Manhattan’s two largest residential brokerages, Douglas Elliman and the Corcoran Group, at the summit of a hyper-competitive market where nationally financed holding companies have dominated and, industry experts say, left Manhattan’s independent mid-sized brokerages with an uncertain future.
“Consolidation is a continuing trend. It has happened in the rest of the country, and it’s finally happening here in Manhattan,” said Alan Rogers, the chairman of Douglas Elliman, which is backed by the $26 billion Prudential Company. “We’re ending with two very large firms. The middle-sized firms are getting squeezed out.”
But not without a fight.
Peter Marra, the president of William B. May, a storied Upper East Side company founded in 1866 that has sold properties to the Vanderbilts, Carnegies and Fricks, has come under increasing pressure in recent years to sell his 150-broker company.
“Every day, we get calls to be bought,” Mr. Marra said. “The trend is clear-there are a lot less of us [independent companies], for sure. The bigger firms and the conglomerates preach that bigger is better and that they will put the rest of us out of business. I’m betting that is not going to happen. Just because you have 1,000 brokers doesn’t mean you are providing a quality business relationship. When you expand to the levels that these firms have, quality has to suffer.”
It’s an old New York story made new again. With the Dow at a 19-month high and the economy growing at a torrid annual rate of 8.2 percent, 2003 saw a record $45 million penthouse sale at the new Time Warner Center that sent shock waves through Manhattan’s luxury residential real-estate market in July, signaling that the Sept. 11 downturn may finally have ended.
From Barnes and Noble and Crate and Barrel to Wal-Mart and Starbucks, the thrust of corporate brands into almost every nook of the national economy has migrated to Manhattan real estate, once a posh enclave of old society brokers who traded listings over lunches at the Knickerbocker Club.
But the realities of today’s market has shifted to favor the efficiencies of big business. The consolidation among Manhattan’s residential brokerages has brought corporate tactics to a residential real-estate market that, until now, conducted so much of its high-end business in cozy, personal dealings and over modish lunches, where knowing the right broker eased the way past notoriously cagey co-op boards and owning an exclusive slice of Manhattan real estate meant more about the names on the deal, not the high-technology Web sites that national firms use to market luxury properties to prospective buyers around the world.
Indeed, many of the largest deals closed in 2003 were handled by Manhattan’s largest real-estate concerns, Elliman and Corcoran. Robbie Browne, a broker with the Corcoran Group, closed on the storied $45 million Time Warner penthouse, and fellow Corcoran broker Deborah Grubman sold former Sony Records chief Tommy Mottola’s East 64th Street spread for more than $13 million.
At Douglas Elliman, Dolly Lenz recently unloaded former ImClone chief Sam Waksal’s 5,000-square-foot Soho loft for nearly $7 million. And in the months following the Sept. 11 attacks, broker Tristan Harper scored a high-ticket sale for $18.2 million at 515 Park Avenue, when his client bought the apartment that had formerly been owned by New Jersey Senator Jon Corzine, before he sold it for $18 million to record executive Alan Meltzer, the chief executive of Wind-Up Entertainment. At the time, the sale was the highest price paid for an apartment in the months following the Sept. 11 attacks.
Rolling In It
Both Corcoran, a division of N.R.T., and Prudential-backed Elliman posted record revenues in 2003. Corcoran will take in approximately $5 billion in revenue in 2003, according to the firm’s chief executive, Pamela Liebman. The firm, founded by Barbara Corcoran in 1973 with an initial investment of $1,000, now has 810 New York brokers, an increase of 122 this year, and recently acquired 10,000 square feet at its 660 Madison Avenue headquarters, along with 2,500 square feet on the Upper West Side at 2112 Broadway, to expand its physical plant.
Ms. Liebman said the consolidation in Manhattan’s residential brokerages is far from over. “It wouldn’t be out of the question in the next several years to see a lot more consolidation,” she said.
Matching Corcoran’s moves to shore up market share, Douglas Elliman, the largest firm in Manhattan, now has 1,000 New York brokers-an increase of 200 in the past year-and the firm plans to record more than $6 billion in sales this year. In early December, Douglas Elliman signed for more than 60,000 square feet at 575 Madison Avenue, which doubled the firm’s office space in the building that has been its headquarters for 30 years. Since Dottie Herman and her partner, real-estate financier Howard Lorber, bought Douglas Elliman last March for close to $72 million, it has grown from 800 New York brokers to 1,000. Related suburban and summer markets are helping: The company has more than 2,000 brokers when you include the Prudential Long Island branches now in the company’s control.
And in today’s national-and global-economy, a rash of buyers are entering the Manhattan market from across the country and around the world who are wholly unfamiliar with the network of old-line brokerages, firms such as Alice F. Mason and Edward L. Cave, and are instead moving towards the large, highly visible brands of Corcoran and Elliman.
“We have buyers coming from all over the country to buy in Manhattan, and we have access to brokers all over the country,” said Bob Becker, the president and chief executive of N.R.T, Corcoran’s parent company, a national giant with 53,800 agents and 956 offices. “The success of Corcoran is evidence of the fact that a large corporation can help these buyers. We look to acquire companies, hire more people and make them more effective.” N.R.T’s staff has grown by 300 percent under Mr. Becker’s aggressive management and acquisition strategy.
Today, the New York market has been upended by the presence of the Parsippany, N.J.–based N.R.T, a subsidiary of the publicly traded Cendant Corporation that had $149 billion in closed sales in 2002. N.R.T. has used its operation of the Corcoran Group to boost market share in Manhattan’s lucrative residential real-estate market, where the average price of a two-bedroom apartment topped $1 million for the first time in history, according to an independent report issued by Miller Samuel Inc. in October. “I think if the trend towards consolidation continues, it becomes more difficult for the smaller brokerages to compete,” said Jonathan Miller, the president of Miller Samuel.
To the principals of Manhattan’s top brokerages, their large size and leverage in the market are better tools to serve demanding Manhattan buyers. According to Ms. Liebman, Corcoran’s Web site-launched in 1995-has been a major advantage for the firm in marketing apartments and increasing sales. The site now receives more than one million visitors a month.
“We do more business through the Web site than through print advertising. A smaller boutique firm just can’t offer as many listings,” Ms. Liebman said.
In this competitive climate, Corcoran and Elliman have been shadowing each other’s actions. In 2002, Douglas Elliman became part of Long Island–based Prudential, and the combined firm now totals more than 2,000 agents across 50 offices in Manhattan and Long Island. To keep pace, in October the N.R.T.-backed Corcoran acquired 50-year-old Hamptons powerhouse Cook Pony Farm Real Estate, including the firm’s 10 offices and 160 agents on both forks of eastern Long Island, as well as Palm Beach, Fla.–based Paulette Koch Real Estate, a firm with 30 agents in the lucrative South Florida luxury-home market.
The spate of consolidation has put continued pressure on mid-sized Manhattan brokerages, who don’t have the marketing leverage and economies of scale that nationally funded Corcoran and Elliman wield in Manhattan’s fast-changing marketplace. Many industry experts say that well-respected mid-sized firms with luxury-market pedigrees-companies such as Warburg Realty, Stribling and William B. May-face the biggest challenge in this new centralized market.
“In an age when it’s hard to make a buck in this business, aggregation is the only way to survive,” said Paul Purcell, the former president of Douglas Elliman who is now the chief executive of Braddock and Purcell, a real-estate consulting firm. “If you can dominate a region, you can be competitive. You need a large presence in this new climate to lock up market share. I think small boutique firms will remain, but mid-sized firms are the ones who will go.”
But to the mid-sized brokers from firms like Warburg, William B. May and Fox Realty, the corporate titans in Manhattan’s real-estate market seem undignified, as the city increasingly loses customer services they say only small firms can offer.
“New York is having the same experience in consolidation that has clearly been going on all over the country for some time,” said Fred Peters, the president of Warburg Realty, a mid-sized company with 85 brokers. “But being a smaller firm gives me another point of differentiation between myself and these enormous multi-company firms. Access to people is easier at a company like Warburg. And while many people have approached me and said, ‘Don’t you see the handwriting on the wall?’, the handwriting on the wall reads differently to me.”
“I can stay involved in every deal we do,” said Barbara Fox, the president and owner of Fox Realty. “Not only does a buyer or seller have their own broker at our firm, but it’s a virtual impossibility with these mega-big firms to receive that kind of supervision.” Ms. Fox said that her company routinely gets offers to be acquired, but that she’s hesitant to sell and has instead formed referral agreements with brokerages in the Hamptons and other popular second-home markets to help boost her exposure among luxury buyers. She said her firm has doubled revenue since 2002, adding six additional brokers and recently expanding to 2,500 square feet of office space at 1015 Madison Avenue.
When the Price Is Right
Commitment to service aside, small and mid-sized brokerages are still in the business to make money. And as the market moves toward large brokerages that are becoming richer and more concentrated through consolidating market share, the buyout offers will become harder to resist.
“This company is my baby,” Ms. Fox said. “But I’m sure if the right situation would present itself, I would think about selling. You would be crazy not to.”
Hunt Kennedy, a former independent mid-sized firm founded in 1988, realized that the only way to survive in this current climate of consolidation was to find a corporate backer. In 1996, the firm had only $52 million in annual sales and 26 brokers-but after merging with Coldwell Banker that year, the combined company, Coldwell Banker Hunt Kennedy, expanded rapidly and now has 260 brokers and $1 billion in annual sales. In August, the firm acquired Charles Greenthal, an independent Manhattan firm.
“They were in a crunch and needed a growth plan. They were a classic midsize firm, and it was a good fit,” said JoAnne Kennedy, the president of Coldwell Banker Hunt Kennedy. Her firm’s aggressive expansion strategy and alignment with a national parent company helped the company shore up its position in the market.
But while the corporate parents of Corcoran and Elliman seek out their next acquisitions, the two firms now face the prospect of a market in which, as the two largest players, they have to compete with each other for exclusive listings-and talent. In November, Douglas Elliman hired former Corcoran vice president Jacky Teplitzky, a Top 25 broker at the firm who led a staff with more than $50 million in sales last year. The move signaled the increasing competition between Manhattan’s residential real-estate behemoths that has peaked in the past six months, as the two firms battle for market share and primacy of the country’s most competitive real-estate markets. Industry experts say that top brokers have been offered signing bonuses to switch companies, taking their extensive client roster with them. In an industry that still prides itself on its refinement, luxury real-estate brokerages generally deny that signing bonuses are a part of their recruitment strategy. But representatives of smaller brokerages claimed that such deals are common.
“My brokers are always being recruited. It’s no secret that these firms are out there recruiting,” Mr. Marra of William B. May said. “There will constantly be a fight and struggle for the top people. It’s like baseball-this is a free agency now. There is a bidding war for people they perceive as high-profile brokers. It’s unfortunate, but that’s the way this business works.”
Tresa Hall, an executive vice president at Corcoran who oversees recruiting, denied the claims by the smaller firms. “We absolutely, unequivocally, do not pay signing bonuses.”
Karen Duncan, Elliman’s executive vice president and director of sales, said her firm doesn’t offer signing bonuses to entice brokers to join. “Douglas Elliman is not paying signing bonuses for brokers joining our firm. We don’t have to. It’s an easy way for other firms where people are leaving to justify why they are leaving, to say they are getting signing bonuses from Douglas Elliman or other firms, for that matter.”
Ms. Liebman doesn’t view growth in the largest firms as leading to direct competition. “We never look at what anyone else is doing. There will always be competitors in the marketplace,” she said. “There are people out there who like to think of this big rivalry between Corcoran and Douglas Elliman, but it’s only because we’re the two largest firms.”
Dottie Herman, the CEO of Douglas Elliman, said she saw the consolidation trend in the mid-1990′s and has pursued a business strategy without regard to her rivals, including Corcoran. “I concentrate on running my company and doing the best job I can,” Ms. Herman said. “Everyone has tried to make it a rivalry between Corcoran and me. There will always be a Corcoran, and there will always be a me. I’m just focused on making this company better than ever.”
But industry experts see the national consolidation trend forever remaking the Manhattan real-estate landscape in 2004.
“Will the competition continue?” Warburg’s Mr. Peters said. “Short of swallowing each other, there is nothing these two firms can do.” Instead, he takes a long and unsentimental view.
“We’re still a competition-oriented society,” Mr. Peters said. “And that is probably good.”