By Alison Gregor
Only a decade back, Downtown was still an affordable haven for artists willing to carve out their niche in affordable, raw and often illegal manufacturing space that became transformed into apartment lofts.
But the times have changed, say residential real estate brokers.
“Ten years ago, you’d have people who were still edgy living Downtown – in the arts or artistic or something like that – and young trust funders,” said Bruce Ehrmann, a broker with Stribling & Associates and Downtown denizen. “Now it’s everybody. The demographic is the same as the rest of Manhattan. Tribeca probably has as many young families as any other neighborhood.”
A white-hot real estate market has transformed the way property sales are conducted throughout the city, and Downtown is no different. As the number of raw spaces has shrunk practically to zero and new development has crept to the edges of Lower Manhattan, legions of brokers have flooded into the area and many real estate brokerages have opened Downtown offices.
Ironically, that doesn’t mean brokers are any more focused on Lower Manhattan’s neighborhoods. A shortage of available apartments to sell forces even those in Downtown offices to hunt high and low for anything available for clients.
“When you have no inventory, you don’t want to limit yourself to saying, ‘I only sell here,’ because you want to be available to your buyers,” said Donna Lentol, an associate broker with Warburg Realty Partnership Ltd., who lived in Noho for many years and is intimately familiar with Downtown neighborhoods. “You’re not really regulated to one area. You can’t afford to be.”
Ehrmann agreed that “everything tends to equalize” in a real estate market where demand is so great and selling Downtown becomes part and parcel of a sizzling Manhattan market. However, while specialization may not be necessary to move properties at the moment, it would behoove brokers to know the history of Lower Manhattan, especially if the market were to turn.
“That extra knowledge, in a way, is important,” said Ehrmann, who used to be a journalist until he found himself locating lots Downtown for friends. “Uptown residences tend to have been designed as residences from scratch … while Downtown’s properties were largely conversions of manufacturing properties that were ancient.
“It really does take some knowledge of what the property’s use was, and what the nature of these 100-year-old buildings was and is, and how the residential components of it formed … to allow the buyer to make an informed decision.”
And an informed decision translates into value for the buyer in the long run. Downtown buildings are different. Besides loft-type apartments, which developed in converted manufacturing space and have become so desirable to buyers that developers often now build lofts in cities around the country, there also are more and more converted office buildings Downtown.
“You have an unusual configuration in this type of housing found in the Financial District,” said Dawn Tsien, president of the new development marketing division at Coldwell Banker Hunt Kennedy, who has two decades of experience in real estate. “Office buildings have deep floor plates and not much window to area. Not every office building is easy to convert because of that.”
The spaces Downtown are so unique – big and open with few walls – that they have changed the way real estate agents express property values.
“Downtown, because it tended to be converted industrial product, was expressed in terms of square footage,” Ehrmann said. “Uptown product is expressed in terms of room count.”
For some real estate agents, therein lies Downtown’s appeal. Ted Karagannis, a broker with Bellmarc Realty who likes to focus his work below 23rd Street, loves selling in Lower Manhattan because of the architecture.
“Downtown, every apartment you walk into has something really great about it as far as the architecture, because most of the buildings are pre-War,” he said. “And they’re just interesting layouts. It’s a lot more fun selling Downtown than it is Uptown.”
As an interior designer, Karagannis is a big believer in “staging” apartments for sale, meaning he works with sellers to merchandise the apartment for the demographic of the potential buyer. Staging always involves cleaning and removing personal affects from the apartment before showing it, but it can also mean painting, re-doing the floors, adding new furnishings and buying new accessories like towels or bed covers.
“The hard part is a lot of times, the sellers like it so much, they then have questions as to whether or not they should stay,” Karagannis said.
The cost is minimal, but the value created can be large, he said, especially if targeted toward the right demographic. In Lower Manhattan, that means a younger, more hip buyer conscious of the fashions, Karagannis said.
“A lot of times, the spaces are smaller, and they’re paying a lot more money for them than if they were looking in Murray Hill or the Upper East Side,” he said. “Downtown people want style, they want fashion, they want something that is a feel-good.
“So we make it more hip and fun and use the current colors that people are wearing on their clothing. Basically, the palette reflects what’s going on in fashion.”
Karagannis anticipates that a Downtown space he’s redesigning currently will rake in an extra $500,000 for clients for a small expense of $2,000 to $3,000.
Because the buyer Downtown has traditionally been different, agents in the area have adopted other strategies tailored to Lower Manhattan. Diane Wildowsky, a broker with the Downtown office of Sotheby’s International Realty, said she has noticed that apartment showings held later in the day work better in the Downtown market.
“When you put properties out for open houses on weekends, you can show them later Downtown than you would elsewhere in the city,” she said. “You can do a 2 to 4 p.m. Downtown and get a better response than an 11 a.m. to 1 p.m., like you would do on the East Side.”
The youth and flexibility of the Downtown buyer may also mean he or she would be more willing to buy a space that doesn’t yet exist. That’s important as more and more residential agents are moving into the property development end of the business to capitalize on a hot real estate market.
“Downtown buyers tend to be younger buyers,” said Leonard Steinberg, a broker with Douglas Elliman real estate who specializes in Downtown sales and has moved into property development. “And younger buyers are usually a bit more capable, I think, of viewing floorplans and absorbing what space could be and saying, ‘I’ll be able to live with that when I move.’
“Uptown buyers, generally speaking, want to see it to believe it.”
That may make Downtown particularly ripe for new development or conversions of old industrial and financial spaces, which are often sold in “pre-sales” where buyers can’t yet view the nonexistent space. But residential brokers moving into real estate development are moving into a side of the business that may be far more complex and riskier than garden variety residential sales.
Traditionally, a residential real estate broker will work with clients who are selling their property or looking to buy property. In Manhattan, that has evolved into a structure where clients looking to sell sign on with one broker exclusively. This broker then shows the property to other brokers, bringing potential buyers to view it.
If a sale is made, the seller pays a commission – in the current market, typically 6 percent – which is then split between the broker who made the sale and the broker who brought the buyer. Those brokers often give a certain percentage of their commission to the brokerage.
The deal is “co-broked,” in the jargon of the real estate industry, something done throughout the country (except, curiously, in Brooklyn, until recently). The philosophy is that the higher the commission paid by the seller, the more brokers are apt to show the property to potential buyers, which will push up the price.
Co-broking is also a structure that inspires various pricing strategies, especially in a hot real estate market. A current one is for brokers working with sellers to underprice the property to attract more attention and thereby create a bidding war for the property.
“This has only been happening in the last year,” said Alex Munoz, an agent with Citi Habitats who specializes in Soho, where he also lives. “Buyers used to put in offers at less than the asking price. Now, you don’t put in an offer unless it’s at least at the asking price.
“So the seller and broker will get together and under-price on purpose to attract attention and get an all-out bidding war and you’ll get more than you’d be able to get normally.”
Another pricing strategy, since brokers work on commission and obviously earn more the more sales they make, is to set up a deal as “best and final offer.” This means asking all potential buyers to make one offer instead of spending the time to negotiate.
“It’s designed to produce a high price quickly,” Munoz said.
Residential real estate agents have a fiduciary duty to get the highest and best offer for their clients, and if they under-price, it’s because they feel the strategy will achieve this in the current market. But not all brokers like the tactic.
“I don’t think it’s effective,” said Michael Bolla of Michael Bolla Luxury Lofts & Homes, a company that has focused on Lower Manhattan for over a decade. “I don’t like bidding wars. I don’t think it’s such a good thing for the seller. I think there’s a natural process to choosing a place to live, and it’s a good idea to respect that…as opposed to having people make gunshot decisions that they often regret.
“And then it’s hard to get the contract signed, or at times, hard to get it closed.”
Still, there can be reasons under-pricing may make sense.
“I wouldn’t necessarily attempt to under-price a property,” said Sarah Orlinsky, a broker with Coldwell Banker Hunt Kennedy who has many Downtown property listings. “But sometimes you don’t really know where it should be priced. You know what it should be worth, but maybe the market is requiring it to go up because people need that particular type of property at that time.”
Other brokers say they’ve actually overpriced a property at the sellers’ request and let the property listing get stale in the hopes that the market will catch up. Paddington Zwigard, a Downtown resident who became a broker and successfully urged Brown Harris Stevens to open its Tribeca office, has prospered with this strategy.
“Some people are really fixated on a number, and I do encourage them to put it as low as possible, because it will attract more attention,” Zwigard said. “But if that’s their thing, that they have to get this number, then we sit on it ‘til we get the number. And the market, if you’re patient enough, will catch up to your price.”
Zwigard worked with clients who wanted to list their property at 335 Greenwich St. in Tribeca at $3.25 million though many other brokers they’d approached said it was worth $2.5 million at the most. By letting the listing sit for more than four months, Zwigard was able to get $3.1 million for the clients.
That client referred her to another couple at 366 Broadway who originally wanted $2.795 million for their un-renovated apartment, which eventually dropped to $2.495 million. The apartment has been on the market for a year, but recently, it’s gotten a lot of interest and even an offer, Zwigard said.
“This apartment could be turned into a four-bedroom, and there are no three- or four-bedrooms at $2.495 million anymore with low monthly fees,” she said. “There’s very little inventory, and the prices keep increasing, and time is working with us.”
The complexity of these pricing strategies may be enough for some residential brokers, but others choose to absorb a bit more risk and enter the development end of the business, where lots are found for development, and buildings are sought for conversion to residences. This may work particularly well Downtown, where buyers are younger and more apt to buy something sight-unseen.
Most larger brokerages have a department that handles new development. Brokers may work with developers to find properties ripe for development or conversion in the same way they might work with buyers looking for a home.
The incentive for brokers is the commission they may receive if they make a deal, but even more important, they will have the opportunity to market the units after the development is completed.
In that case, the commission for the sales is often much lower – though each deal is negotiated differently – because the broker will be marketing units in bulk. But big bucks can be reaped in the case of success – for instance, 260 Park Avenue South, where Shaun Osher of Douglas Elliman sold 70 percent of the apartments within five weeks.
But the trade-off is the uncertainty of a hot market two years down the road, which is the typical timespan needed to build a new development or convert an old building. Ehrmann, who has been successfully doing real estate development for years, said brokers have to be cautious.
“You could be spending a year or two on the project before you see a penny in commissions, unlike virtually any other kind of real estate brokerage,” he said.
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