Warburg Blog

Like other consultants, real estate agents both commercial and residential perform one function in the service of another.  What we apparently do is make deals. But our real business is marketing our profound and fundamental belief in this beautiful city.  

I like to say to my agents that we are the critical front line for the New York City Chamber of Commerce. And in recent years we and our colleagues in the commercial world challenged the status quo with every deal. The commercial market, so long in the doldrums, has continued to improve as more companies decide to recommit to headquarters in New York. Small businesses seek space to expand, often in boroughs other than Manhattan. Entertainment, technology and communications – New York reshuffles the deck and reinvents itself over and over again and we are on the front lines finding the spaces to make it work. On the residential side, we have traveled from a market with NO big ticket sales to a market of feverish big ticket selling – and not just to foreigners. But it isn’t just at the high end. There is competitive bidding all over Brooklyn. And now, as rentals remain so tight and so high, absorption is finally accelerating in the one bedroom markets on the East Side of Manhattan.

For real estate agents, more than those involved in almost any other business, there is no moving to New Jersey or Connecticut. We ARE the city we represent. Each morning we recommit ourselves to the excitement and uniqueness of living and working here, because more even than selling or leasing bricks and mortar, we are selling the concept of New York. I remember after 9/11 talking week after week about our commitment – how we had to believe that in the wake of that shattering event New York would be perhaps different but no less great. Amidst all that fear we needed to be agents of belief. And that has been true again during and after the recession. In persuading people not to move their companies or their families out of the city, we focus on the life the client is accessing even more than the space they may want to buy. Art, music, theater, playgrounds, schools, offices – all are easily accessible and nearby. And no matter what outsiders may believe, New York extends its welcome to everyone. We are a warm vibrant mix of sub communities within which everyone has a place.  During the past week I walked through Central Park, went to theater at the Brooklyn Academy of Music, heard music at Avery Fisher Hall and the Armory on 67th Street, went to see the Rembrandt portraits at the Met, visited with friends, ate in some terrific restaurants, shopped, worked, relaxed. I didn’t once need to get in my car.  It was all right there.

Every day, we live it. We love it. So every day, residential or commercial, high price point Fifth Avenue penthouse or well priced Greenpoint warehouse, we aren’t just making deals. We are selling New York.

I had a big birthday last week, and big birthdays make you think. In addition to the larger questions, I have also been contemplating my love affair with living space, and how that fascination with the ways space is organized and deployed has informed my real estate career. Furthermore, I think the way we structure our living spaces can offer substantial insight into what we value and believe to be important.

I grew up in one of those big, full floor, Upper East Side apartments designed by J.E.R.Carpenter. The staff rooms were inhabited by the staff. The kids were, mostly, supposed to stay out of the kitchen. Breakfast, lunch (on the rare occasions we were home for lunch), and dinner were eaten in the dining room. My parents entertained frequently, so the living room, with its extremely formal furniture, was often in use. When there were no guests, or only a couple of them, they sat in the library. We kids mostly stayed in our rooms, which we shared with a sibling. No one in the family had his or her own bathroom, and there was no powder room; it was a regular occurrence that some middle aged guy would walk through my room while I was doing my homework to use the bathroom. There was no family room-had they even been thought of in the 50s? I think life had changed little, at least for our family, since the time the building was built in 1916.

Then came the 60s! The era when children were to be seen but not heard ended; my brothers and I talked, talked, talked from morning till night. And where did we subject my increasingly frazzled mother to the diatribes? The kitchen-newly liberated from its function as a place for the staff (most of whom had retired)! We sat in the kitchen, drinking endless cups of tea while deconstructing the old world order. That was the time when the EIK entered the Manhattan acronymic lexicon as a place for the FAMILY to eat. The grand old apartments were reconceived by a new generation of parents who actually wanted to interact with their kids. And suddenly these kids had needs: each of them needed a bathroom. They needed walk in closets (for what? I had a blazer, a winter jacket, a summer jacket, and a suit. I did not need to walk into anything to find THEM.)

During the 50s, apartment house architecture was pretty much at a nadir. White brick was ubiquitous, as was “efficiency.” Apartments were tight: low ceilings, smallish rooms and bathrooms, minimal foyer and hallway space. The 60s weren’t much better, and then in the 70s the city was broke, nearly went into bankruptcy, and there was a big overstock of housing no one wanted to buy or rent, since the common perception was that the city was dying. However, it didn’t die, and in the 80s apartment house construction came back, And, little by little, the changed priorities which I had dimly begun to perceive sitting around the kitchen table as a teenager became architecturally codified. Foyers came back in the new condos of the 80s and 90s, as a symbol of grace and a recognition of the importance of a sense of entry. Every bedroom got a bathroom, and master bathrooms became larger and more opulent, a reflection of the new consumer’s taste for high end materials and a sense of pampering. Bedrooms remained small however-a place to sleep. The locus of family life (which I would have to say was probably the dining room when I was growing up) became the kitchen. Being a good cook became important, even if you HAD a cook. And even if you DIDN’T cook, you still had to have a fancy kitchen with expensive name brand appliances.  A family room, perhaps made out of those now obsolete maids’ rooms off the kitchen or the increasingly obsolete dining room, was the new place to hang out and watch TV.

The high end new condos of today try to emulate the prewar ideal in an updated manner. Most of them still have small secondary bedrooms, but each one has a bath. There is ALWAYS a powder room. Master baths are huge marble clad affairs, often putting to relative shame the bedrooms which they serve. Kitchens are large and as tricked out as possible with name brands: Gaggenau cooktop, Miele dishwasher, SubZero fridge. There may be a servant’s room, rarely two, never more. These homes are clearly designed for a far more democratic life than that which I lived as a child. Today, everyone hangs out together. The stratification of my life as a child was reflected in the architecture we inhabited: the service area of the apartment reserved for servants, the bedroom wing where most of the lives of the children took place, and the grand public spaces designed for the adults. Luxury today tends to be reflected less in room size (although there are some big big living rooms in some of the new condos) or the way functions are divided. Open, loft like spaces, in which everyone is happily interacting with everyone else, are very popular. High end finishes, multiple bathrooms, spacious kitchens and family rooms-these are the markers for today’s affluent but far more casual user.

In the last ten years, the meaning of running a company has changed, as has every job within Warburg Realty. At every level, the Internet, the faster pace of life, and the changeover in generations has radically altered how we manage our business and how we interface with those around us. Our agent/client interaction is different. Our marketing is radically different. Our brand extension strategies are different. And how we manage agents is different. I want to look at a few of these changes and assess what they add up to.

* Our agent/client interaction is different. I have written extensively about this before. Pretty much every real estate shopper now lets his or her fingers do the walking (or clicking.)  Our job is to provide market knowledge and expertise to enhance and focus the search, create a successful negotiation, and consummate a deal. More often than not, the buyers find most of what they want to see themselves, online. And while our business was always SORT OF a 24/7 business, now it is TRULY a 24/7 business. Clients e-mail us at all hours, and we had better reply fast. Ever since the introduction of fax machines, everything is urgent.

* Marketing has been transformed not only by the change from print to online, but equally by the shift from Boomer to Gen X and Gen Y.  Flashier content, greater ease of use, and speed of response time define success in today’s on line marketing environment. Building a core brand value proposition while constantly updating content is the key to capturing the fickle on-line public. While brand loyalty is still significant to boomers, younger consumers are more interested in a cool, constantly evolving presentation.

* Our branding strategies have changed to try to accommodate the need to be both established and up to the minute at the same time. We are working all the time to convey both the solidity of an established brand and the zip of a forward-thinking brand. Our strategy involves print for the former, while we use social media and our platform on the HGTV show “Selling New York’ for the latter. Our print ads are meant to create a feeling of history and reliability, while our website, social media and TV attempt to create intimacy (though not TOO much.) It is always a balancing act!

* Sales managers everywhere, in every industry, confront a brave new world. In addition to the old ways of obtaining and managing customers, there are a host of new ones, which come with new problems. How much on Facebook is too much?  Social media is personal, but it can be a little too personal.( Co-op buyers need to make sure their social media, AND those of their kids, are scrubbed before they complete their application. ) How do you teach people not to forward chain e-mails, lest a disparaging comment be hidden seven messages down the e-mail chain? How can an agent tell if a client with whom she has dealt entirely on line is for real? What comes up when you do a Google search on yourself? On the company? On a client?

In every area, at every level of our company, every associate faces the question of how to be PROactive rather than REactive.  In selling, in marketing, in managing, and in leading, each new internet or media advance creates more rather than fewer opportunities, more rather than fewer possible outcomes, more rather than fewer possible solutions. Needs and options swarm around us in greater numbers than ever before. So we all need to be better, more efficient decision makers. And to do that, we need to know what is important. Only by analyzing and understanding our priorities in the marketplace and mapping a path to achieve them can we succeed amidst the shifting demands of those we serve and the never ending buzz of the information superhighway.

My friend Jeff Appel, as smart a mortgage banker as you are likely to meet, has been talking a lot lately about Dodd Frank and how it is remaking the mortgage business. This legislation, intended to save us from future financial meltdowns, is likely in the meantime to cause a meltdown of its own. In addition to imposing  onerous regulation which render mortgage brokerage increasingly challenging, it also creates such severe consequences for failure to adhere to its literally thousands of points that even the most sanguine of mortgage originators are now trimming their sails (and sales!)

Why is it that, as the pendulum swings between extremes of behavior, the legislative cure is often worse than the disease? First the free-for-all: the Glass Steagall Act is repealed, taking down the Chinese wall between commercial banks and investment banks, the SEC takes a LONG nap, and in the meantime the Gordon Gekko ethic seemingly sweeps every corner of the finance, lending, rating, and real estate development industries. Then everything goes kaflooey because greed perhaps wasn’t so good after all. So now, instead of actually attempting to enforce the laws which are already on the books, Congress creates a whole set of new ones, no doubt vastly more complex than most of them even grasp, to save us from ourselves.

Don’t get me wrong: it seems pretty clear that we needed some saving. Our unfettered getting and spending DID lay waste our powers (with apologies to Wordsworth.) But now we have erected substantial barriers to the very recovery we are longing for. How is the national housing market to bounce back when getting a loan is so very difficult, and the secondary mortgage market so constrained in the loans it can buy? How are small businesses, the oft vaunted engine of our past recoveries, to expand and hire if their two main sources of cash – small business loans and home equity loans – are unavailable to them?  An article in this week’s New York Times described the plight of one small entrepreneur after another whose ideas and companies are starving due to the unavailability of cash. Dodd Frank, well intentioned though it may be, is choking the feed tube for recovery.

I wait in vain for honest political discourse on this topic and a host of others. Why did the legislators who approved TARP pretend that money was going to be lent out when they knew banks were going to use it to stabilize their own balance sheets? Banking and commerce may have been unpopular in the wake of the financial meltdown, but they are necessary if the country is to function. But instead legislators got on the populist treadmill and were shocked, shocked, to discover that these funds hadn’t gone to ease the pain of the 99% (with apologies to “Casablanca.”)  So we get hugely complex and probably unenforceable legislation to hyper-regulate what we allowed to go almost completely unregulated during the years when It looked like the “new economy” would make everyone a real estate millionaire.

The crisis in the global economy is deep and complex and there is no quick fix, legislative or otherwise. Unfunded government and pension liabilities alone could sink many of the economies of Western countries, not to mention some of our states. Entrepreneurship, and a rebound in housing, still have the potential to ameliorate if not cure these ills. So for God’s sake let’s get out of their way!

The following “Manhattan Market Watch” column will appear in the March 2012 issue of Mann Report. I’ve donned my reporter’s cap and academic voice to tackle the complex subject of rising real property taxes.

The Real Estate Board of New York is bringing critical attention to an issue of great complexity. Their recently released seven minute video, appearing on www.rebny.com and titled “Property Tax Fairness—No Margin for Delay” focuses on New York City’s rising real property taxes. The subject is as convoluted as it is complicated, and as political as it is inequitable. It’s tough to even speculate how solutions will be tendered to a problem of such complex proportions. 

Property taxes contribute the largest share of tax revenue to New York City. Half of the city’s annual tax receipts comes from real estate—more than the combined total collected from personal income tax (24%), sales tax (17%) and corporate tax (8%). In ten years, NYC property taxes have increased a staggering 100%. Last year, they generated $17.6 billion. The revenue is essential to the city’s coffers, but at the same time, rising taxes are an obstacle to New York’s economy as they impede growth and capital investment.

I researched the subject online and consulted with recognized tax specialists to gain a cursory understanding of a very sophisticated and sometimes mystifying tax structure.  The current tax model and separation of property into 4 classes dates back to the early 80’s when the state legislature enacted S7000A or Chapter 1057 of the Laws of 1981. At that time, properties were divided into four categories:

·        Class 1: 1, 2 and 3 family homes

·        Class 2:  Multiple dwellings of 4 units or more including rentals, co-ops and condos

·        Class 3:  Utilities

·        Class 4:  Commercial buildings, stores, hotels, garages, theaters

Three factors determine the amount of tax imposed on a property: the tax rate for the property class, the assessment ratio and the property’s market valuation. Each year, tax rates are set for each property class by the Mayor and City Council who together have the authority to make changes to the rate as needed to balance the city’s budget. Rate tables can be found online at www.nyc.gov. The Department of Finance determines the assessment ratios, and every January mails property owners a Notice of Property Value. With the exception of Class 1 properties whose market values are based on actual sales, property values for Classes 2, 3 and 4 are calculated according to income formulas. State law requires that the Department of Finance value co-ops and condos as if they were rental apartment buildings—even though co-ops and condos do not generate income. Each year, the Finance Department publishes a comprehensive online list of comparable rental properties according to size, age and number of residential units; however most tax attorneys will tell you that the selected comparables are not at all similar to the buildings being valued.

In 2011 increased assessed values resulted in property tax hikes of 7.5% for co-ops, 9.6% for condos, 2.8% for single family homes, and 8.1%-9% for rental apartments.  The law caps assessments exceeding 6% in one year or 20% over 5 years for Class 1—with the exclusion of assessments due to physical improvements. There are no limitations on assessment increases for Class 2, 3 or 4 properties, but increases must be phased-in over a 5 year period for classes 2 and 4. As a result, even though actual market value may have declined, Billable Assessed Value may increase and it may take several years for assessments to catch up with market value increases or decreases.

In the city’s “Annual Report: The New York City Property Tax FY2011” prepared by the Office of Tax Policy, August 2011, lies the perplexing statement:  “Because of the property Tax’s unique role in balancing the budget, it is the only tax over which the City has the discretion to determine the rate without prior legislation from the State” (p.25). 

Attention must be paid to some jarring realities: 

·        Increasing property taxes is the default position for New York City’s budget shortfalls.

·        New construction properties pay more tax than existing properties.

·        Homeowners pay much less tax than owners of rental property of similar value.

·        Non profit and government exemptions are huge— last year alone exceeding $10 million from tax breaks on properties owned by foreign embassies, government related entities like the MTA, religious buildings, hospitals and health care facilities, private schools and universities, foundations and charitable organizations.

·        Tax abatement incentives like 421A and J51 have been eliminated for new projects. 

Glenn Borin, co-manager of the real estate tax practice at Stroock & Stroock & Lavan, observes, “The basic measures of the fairness of a property tax system are that it treats like buildings alike and that the property owner can understand how the assessment will be determined. The City has made efforts to improve accuracy and transparency but it has a long way to go, and the complexity of the state law makes for a very difficult route.”

Rising, uncapped property taxes threaten the fabric of our city. They increase costs for homeowners, renters and corporations. If more and more businesses relocate to Connecticut and New Jersey with only satellite offices in New York, and if more and more developers choose to build their office buildings and rental developments in cities other than New York, both commercial and residential markets will feel the pain. With so many different interest groups to acknowledge, and an equal number of politicians straddling the fences, changes to the current tax structure seem a very long way off.