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Brokers Flee Sales Firms For Rental Companies
The trend of sales brokers picking up rentals to buffer themselves from the down economy has advanced to the next level.
More and more brokers are now fully abandoning sales firms for companies that focus on the rental market. It's a sea change that would have been unimaginable even a few months ago, in a business where rental firms traditionally occupy a much lower position in the status hierarchy than sales firms.
"It's very rare that rentals are in vogue," said Gordon Golub, a senior managing director at the rentals behemoth Citi Habitats. Still, he said Citi Habitats is seeing an influx of new agents from brokerages — including some of the city's most prominent — that specialize in sales.
"We're getting agents from large sales companies, who are seeing this as an opportunity to build their business in rentals," he said. "They feel the quickest way to do it is by joining our firm, as opposed to staying at their own firm. It's unprecedented."
While The Real Deal reported last month that an increasing number of sales brokers were taking on rentals to compensate for lost income, agents actually leaving sales firms for rental companies is very unusual, said Robert Doernberg, a senior vice president at Warburg Realty.
"You don't leave a firm like Warburg or Stribling to go to a rental house," said Doernberg. He said such a move would generally be considered "going backwards."
That is, until the credit crisis hit Manhattan real estate this fall. Based on weekly figures he's seen, Jonathan Miller, the president of Miller Samuel, estimates that the number of contracts for sales signed in the fourth quarter fell between 35 and 75 percent from the same periods in 2007. Contract prices have also shown an average decline of 20 percent since August 2008.
That dearth of sales has left brokers without much business.
For the past year, for example, Virginia Pizzi worked for the sales and marketing firm Shvo, selling condos at the new luxury development Gramercy Starck on 23rd Street. But after she was laid off recently, she started as a sales associate at Bond New York, in large part because the brokerage focuses on rentals as well as sales.
"I could have gone to Douglas Elliman," said Pizzi. "But it's primarily a sales company. I don't want to limit myself to one thing."
In the past two months, some 75 percent of Citi Habitats' new agents have come from other firms, Golub said. That's up from 30 to 40 percent normally. While some of the new hires are refugees from real estate brokerages that have closed, others are sales agents looking to grow their rental business.
"A lot of the agents who are joining us have sold previously," Golub said. These agents, he said, come from a range of different companies, including some of the city's largest, though he declined to name the firms.
Marc Lewis, president of Century 21 NY Metro, whose business is about 60 percent rentals and 40 percent sales, said the company has hired some 25 people in the last month, nearly three times more than average. Of those, 43 percent came from sales companies, the company's recruiting data shows, while 12.5 percent came from rental firms and 43 percent were newly licensed.
Many of those who come from sales firms are dissatisfied with their current employers' ability to facilitate rental transactions, he said.
One broker who is starting at Century 21 is leaving "one of the top five" sales firms in the city. The company "has nothing to offer her except referrals for rental clients," Lewis said. "They gave her clients, but no listings. She has to fish for her own listings."
Noting that their agents are doing more rental transactions, real estate companies all over town are working to step up their rental operations.
"Right now, just about every brokerage, if they haven't made significant changes in their organization to create revenue through rentals, they certainly have been talking about it," Golub said.
Prudential Douglas Elliman, for example, recently announced that for the first time since the early 1990s, it is opening a new office specifically for rentals, and will recruit 50 to 75 new rental agents to work there. Warburg Realty, meanwhile, has revamped its rental training program this fall to place more emphasis on finding listings and working with renters, said Doernberg. In the past, the company focused mostly on helping owners rent their apartments.
But for some firms that specialize in sales, those efforts may be too little, too late.
Real estate companies have "started to pick up on the trend that residential leasing will put more money in your pocket," said a new recruit at Bond New York who previously did investment sales for a large national commercial brokerage company. Still, "when you think of Elliman and Corcoran, you're not thinking about leasing."
The broker, who asked to remain anonymous, said he moved to Bond New York because it does a large number of rentals, which have comprised the majority of his transactions since he came on board. "I wanted to find a brokerage company where I could be multifaceted and keep rentals on my belt [to generate] cash flow," he said.
While it's one thing for an agent to pick up a few rentals to earn a bit more money, it's nearly impossible for real estate firms to shift a large portion of their business to rentals from sales in a short period. It takes time to develop a large database of listings and relationships with rental landlords, said Gary Malin, president of Citi Habitats.
"It's not easy unless you're set up with the infrastructure to handle the rental business," Malin said. "It's a hurdle for a lot of these firms."
That's especially true in the current climate, with so much rental business hinging on negotiations with landlords, said Bruno Ricciotti, CEO of Bond New York, which earned about half its 2007 revenue from rentals.
"It's about relationships, being in the rhythm with the landlords," he said. "That's why we're getting agents from other companies."
Switching from sales to rentals isn't an effective strategy for all agents, especially since the downturn is having an impact on rentals as well, said Paul Purcell, co-founder of Charles Rutenberg Realty and the real estate consultancy Braddock + Purcell.
"Rents are dropping and people aren't leaving their apartments as quickly now," Purcell said. Moreover, "the revenue associated with rentals is a lot less than sales."
Although Golub said transactions at Citi Habitats in December outpaced 2007 by 10 percent, the company recently closed two offices to cut costs.
"You will see a lot of mid-sized to smaller firms not being able to survive in a market like this," Purcell said. "It's very hard to make a buck in this business."