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THE SILVER SPOON GENERATION

July 2nd, 2015

A_Georg_Jensen_Silver_Sugar_Spoon_design_21-00Posted by Leonard Steinberg, President of COMPASS, on July 2nd, 2015

The Greatest Generation is in the midst of transferring massive amounts of wealth to their baby boomer kids (and grandkids), the largest generational transfer of wealth in history……to date. This is happening simultaneously to the beginnings of an even larger wealth transfer from Baby Boomers to their kids which will continue for the next few decades as this generation will probably live longer. I am terming these fortunate heirs the SILVER SPOON GENERATION.

I regularly witness parents buying for their kids, sometimes on a lavish scale, but often on a more modest scale whereby parents help with home-buying’s biggest hurdle: the downpayment. This group have become a super-potent demographic of buyers especially in the high net worth individual markets, those with assets of $1 million and above. The Greatest Generation are that generation in the U.S.A that experienced the Great Depression and then fought in World War II, the generation that preceded the Baby Boomers. While many talk of the Millennials inability to be first time home buyers, the kids of wealthier Baby Boomers will be FLUSH with cash to buy a home. These Silver Spooners are cross generational, aged between 20 and 40, and will be amongst the most important luxury home buyers for the next three decades: combine them with their Millennial and Generation X and Y peers who will earn their wealth independently, and you have a potent new buying audience that will have to be catered to differently when it comes to real estate.

  • About $12 trillion will be passed from the ‘Greatest Generation”, those born in 1920s-30s, to the Baby Boomers.
  • The Baby Boomers will be almost triple in magnitude,  transferring around $30 trillion in assets to their heirs over the next three to four decades in just the U.S.A. alone!
  • There are roughly 12 million global high net worth individuals (HNWI):  Their aggregate investable wealth is around $50 trillion.
  • The USA is approaching four million HNWI’s with investable wealth around $13 trillion. Asia-Pacific comes second with investable assets of around $12 trillion.

We know this next generation of consumers is much more tech-savvy. We know some will possibly want to disguise the source of their wealth. We know they don’t like fees and want instant gratification. We will have to spend significant time and effort learning all their buying habits to cater appropriately to this super-potent group of ‘next’ luxury consumers. The Silver Spooners will be a potent force globally as massive wealth has been created outside of the traditional countries in the past two decades. We will have to speak a language that appeals to both the younger and older generations simultaneously, especially when we can be certain the generation providing the wealth will have a say in large purchases. Watch out for the Silver Spooners: they are here already!

 

RENT HIKE FREEZE, YET TAXES AND COSTS RISE

June 30th, 2015

Posted by Leonard Steinberg on June 30th, 2015

The City Rent Guidelines Board ordered a freeze on rent hikes for rent stabilized apartments for the first time in history. It froze rents for 1-year leases and capped increases on 2-year leases at 2%.  Real estate taxes are however rising around 13% and water-rates are rising around 3%. Surely a freeze on those costs to building owners would be equally fair?

It is true that there are many people who need and deserve assistance when it comes to  high rents: unfortunately, how these rent breaks are allotted and administered is absurd. Who gets to choose who is eligible for this? Are those receiving this break being audited to confirm they actually continue to qualify for this private-sector-funded break? Why is this cost imposed on the private sector when surely welfare is the responsibility of all tax-payers? Who is abusing this system and are they being prosecuted?

I know of people living in rent-controlled and rent-stabilized apartments who could EASILY afford a market-rate apartment: they are depriving someone truly worthy of this subsidy and should be forced out of their apartments and pay back all the rent breaks they stole.

This entire system is in dire need of a clean-up!

REAL TRENDS WALL STREET JOURNAL TOP 1000 AGENTS

June 27th, 2015

realtrends1Posted by Leonard Steinberg, president of COMPASS on June 28th, 2015

A huge CONGRATULATIONS to all my fellow colleagues who were listed on the Real Trends TOP 1000 Agents in the Wall Street Journal yesterday: everyone on these lists should be extremely proud of their achievements considering they are in the Top 0.00125% of all agents in the country.

Granted in New York and some other large cities pricing of housing alone gives agents an unfair advantage of equally competent agents in smaller cities. And yes, some teams comprise 3 agents while other have dozens. And yes, some ‘individual agents’ aren’t that alone either…..yet all-in-all, being on these lists alone is simply extraordinary!

  • To the Agents of COMPASS who made this list, Kyle Blackmon, Lindsay Barton Barrett, Josh Wesoky and James Morgan: you make us all proud!
  • To John Burger at Brown Harris Stevens, a huge congratulations for being the #2 individual broker nationwide followed closely by the equally brilliant Serena Boardman of Sotheby’s.
  • To The Jill’s in Miami for being #3 team nationwide with over a half a BILLION dollars in sales: Congratulations. These two ladies are consistently in the Top 5 agents nationwide every year!
  • To Ryan Serhant, who now holds the title of the #1 team in all of New York State and the #6 team nationwide, a remarkable achievement at such a young age.
  • To my old colleagues at Douglas Elliman, the Raphael De Niro Team, Fredrik Eklund John Gomes Team, The Holly Parker Team…..not too shabby either! Congratulations!

Yes, selling hundreds of millions of dollars worth of real estate is truly an extraordinary achievement on any standards, but lets not forget those incredible agents who sell much less, yet do so with the most outstanding level of professionalism. They may not sell the most but their achievements in elevating the quality of our profession are equally impressive.

This year my team, The Leonard Steinberg Team, removed ourselves from this list because of my role as President of Compass. To my team: a huge congratulations for your achievements…..we may not appear on this list, but almost 20 years later we are doing just fine!

Here is a link to the full lists: THE THOUSAND

Broker’s fiduciary duty means putting clients first.

June 24th, 2015

Posted by Leonard Steinberg, President of Compass, on June 24th, 2015

This week COMPASS enacted a new policy that I think is truly historical: for the first time it gives real estate agents the respect I think they are entitled to. When a client hires an agent, most times they don’t realize that if that agent leaves the firm, the exclusive is often retained by the FIRM, regardless of the agent with whom you may have had a long relationship. To most this is nuts. When someone hires me as an agent, yes it is true they are hiring me AND the services my company delivers. But they are mostly hiring ME because if what I have done over the years, what I deliver, what I do marketing-wise, what I do when I negotiate, MY taste, etc. Compass co-founder Robert Reffkin wrote an informative and eye-opening op-ed for INMAN NEWS on this subject that I wanted to share:

Broker’s fiduciary duty means putting clients first.

If you have $2 million invested in stocks at a wealth management firm and your personal adviser leaves the company, your nest egg is still in safe hands — because you can follow your adviser.

So it makes sense that if you have a $2 million home you want to sell and your representative leaves his or her brokerage, your transaction should still be secure because you can follow your agent.

But in the real estate industry, that’s not legally the case.

In our business, the standard exclusive agreement is a contract between the brokerage and the individual client, with no mention of the agent. Therefore, if an agent dissociates, the client has no right to terminate the relationship with the brokerage.

For decades, however, the vast majority of brokerages have looked the other way, allowing clients to make the tough decision about whether to continue working with the existing brokerage or with the agent at his or her new firm.

But with agents demanding more quantifiable value from their brokerages, this industry norm is under attack as firms react to agent attrition by holding clients legally captive. I’ve talked to clients who have relayed the aggressive phone calls and letters threatening lawsuits if they choose to follow their agents to his or her new brokerage.

Not only does this outdated contract clause devalue agents — treating them like interchangeable door-openers, not the irreplaceable advisers they are — it calls into question our entire industry and the fundamental way we treat our clients.

The broker’s fiduciary duty must come first

If a home seller believes he or she would be best served by the agent with the most thorough understanding of his or her specific needs and property, then it is the brokerage’s fiduciary duty to act in the best financial interests of that client.

By not allowing clients to transfer their business, brokerages are violating their fiduciary responsibility.

A business built on a loophole is not our future

We work in this business seven days a week and have a second-nature understanding of its contractual minutia and vernacular, but most of our clients do not. Even though the paperwork details the largest financial transactions of their lives, most home sellers sign it without understanding all of its intricacies and without a lawyer’s review.

In fact, when we asked a third party to administer an independent survey on the topic, 78 percent of respondents said that they believed that if their agent moved to a different brokerage, they could follow them.

Legally speaking, they can’t. And brokerage leaders and seasoned agents know that.

I believe that the brokerage model exists to protect the consumer, adding clarity at every intersection. Relying on opaque contractual language is squarely at odds with this ethos.

An emotional bond has practical considerations

In that same survey, 89 percent of respondents said that they selected the agent directly, not via a brokerage, indicating that they believed the agent, not the brokerage, was the primary service provider. No surprise there — sellers seek out agents by name, which is why personal referrals are every agent’s currency.

Additionally, the process of replacing an agent midtransaction is impractical, if not impossible, and can have dire economic consequences. I’ve heard from clients who’ve been pushed by a brokerage to transition a trusted relationship within a few days, even hours.

Forcing clients through this selection process causes missed home showings, unattended listings, incongruous advertising strategies and additional weeks on the market.

Our internal statistics show this chaotic agent-client reshuffling can have a double-digit percentage impact on exposure levels, driving down the final property price. That means the client shoulders an undue burden for a disagreement between the agent and the brokerage.

A new contract puts client service at its core

However, starting this week, Compass is taking an industry-first step by introducing a key-person provision into our exclusive agreements, making our commitment to our clients strikingly clear.

If a Compass agent elects to leave the company, his or her clients are given the option to follow the agent or stay with our brokerage.

There’s a certain poetry about a legal document that rectifies the delicate agent-client relationship in bold black and white. Requiring just one sentence, we believe that this simple clause helps restore the trusted relationship that is expected of everyone involved — client, agent and brokerage.

We hope that our industry joins us in further empowering the agent-client relationship.

THE RETURN OF BAD REAL ESTATE HABITS?

June 20th, 2015

Posted by Leonard Steinberg, president of COMPASS,  on June 20th, 2015

Two aspects of the last recession…..low down payments and speculators…..are back.

Mortgages offered by lenders that have down payments of 10% or less are becoming more common:  In the first quarter of 2015, 51% of home buyers with a non-jumbo mortgage (more than 136,000) made a down payment of 10% or less on a home, compared with 48% in the same quarter a year ago and 46% at the recent low in the third quarter of 2013. Lower down payments are the key to luring Millennial buyers into the marketplace.

In this regard New York City is rather insulated whereby most financed properties require a 20% downpayment. Most new developments require 20-25% down upon signing, a sure-fire way to discourage big risk-taking by those who cannot afford to do so….and a healthy protection mechanism to prevent buyers in contract to walk away from their contracts in the event pricing were to drop.

While the traditional speculator has all but disappeared from the New York real estate market because of tighter buying and lending standards, I get a bit concerned at the volume of wealthy speculators/investors: is it a problem that so many high priced apartments are being sold to people whose sole ambition is to re-sell at a profit or rent these properties as an investment?  With a shortage of quality rental properties, this actually may not be a bad thing at all, unless of course the market gets over-supplied with too much of the same or similar types and price-points of apartments. It is possible that high end condominiums will have to adjust to a higher percentage of renters in their buildings.

The good thing about wealthy speculators is that most of them can afford to weather storms.

ANNABELLE SELLDORF: ARCHITECTURE AT ITS BEST

June 7th, 2015

Annabelle_SelldorfPosted on June 7th, 2015

I love this article about Anna belle Selldorf:  http://www.bloomberg.com/news/features/2015-06-05/annabelle-selldorf-the-darling-of-the-design-world

She is truly a rare architect in a sea of architecture screaming for attention. Living in one of her designs has made me a fan for life.

SUBURBIFICATION AND THE CITY

May 16th, 2015

cover2-1010x505Posted by Leonard Steinberg, President of COMPASS, on May 16th, 2015

Every morning, 365 days of the year, I post a daily contemplation to my fellow colleagues at COMPASS and today I wanted to share one:

SUBURBIFICATION AND THE CITY
I hate to admit this, but when I lived in Dallas many years ago, one of my more enjoyable off-duty outings was heading out to the suburban mall, especially North Park Mall. Not only could I escape the brutal heat and humidity of Summer, but there was also something oddly magical about all the magnificent stores such as Neiman Marcus and Barney’s with many more in between, not to mention a food court with tacos and the likes, stacked conveniently under one roof with fountains and Henry Moore sculptures on display, that I found strangely appealing and extremely convenient. Granted you had to drive through insane traffic to get there, but once you were there you arrived in a psuedo ‘walkable city bubble’ comprised of retail ‘avenues’ just the way you would experience life in a small town. Many of these suburban malls are failing now as their Disney-esque version of City life is being re-imagined back in the City.
Large malls are credited with destroying the Main Streets of many cities and towns…..and they certainly have encouraged a more generic multiplied brand mentality to shopping. These days you can spot the same major brands at any high end mall anywhere in the world. Hermes, Coach, Ferragamo, Gucci, Prada, etc. They are all there, everywhere. At the lower end the same is true: Zale’s, The Gap, Banana Republic, H+M, etc. Sameness is a product of modern mall life. And this ‘MALL OF AMERICA’ (and the GLOBE) has arrived in the City.
In Milan, Italy the magnificent Milan Galleria across from the Duomo, has been brought back to life as a City-suburban-style mall fueled by the investment of Prada and Versace. The splendor of city architecture has been blended with the suburban-mall-style conveniences of multiple stores under one roof in a controlled environment. Suburban Malls that were originally designed to emulate City life, are now returning to the City in a suburban-city hybrid.
The mall at the Time Warner Center was risky business when it was developed, yet it has been extremely successful. The concept of vertical shopping in the big City had failed in the past. The entire center is a statement of how many modern consumers wish to live in a large city: this complex that comprises a hotel, condominiums, a theater, a mall, a food store, restaurants, etc, allows city-dwellers to experience the conveniences and attributes of suburban life AND city life all under one roof. Want to go for a swim or massage? There is a magnificent gym and pool. A walk? There is a park at your doorstep. And most of the experience exist under one roof in a secure, climate controlled environment with tons of natural light where the consumer is immune to snow, ice, rain, heat, humidity, UV rays, etc……with ‘people like us’.
While I simply adore the charms of a city street lined with unique boutiques, restaurants and stores, there is lots to be said about a controlled environment without the inconveniences of the elements. There is also something to be said for an environment that makes life easier by curating and editing all that we need in one place. The SUPER PIER just west of the Meatpacking District will house restaurants, a beach club, galleries, boutiques, a movie theater, Google offices, etc all under one roof. If TIME IS THE LAST LUXURY, this is addressing this need superbly. Getting the CITY MALL right will be a unique challenge: who after all wants some of those dreadful suburban mall experiences we know all to well?
Recently I met with the top broker of a super-fancy suburban area outside of New York: she is simply amazed at the expanding trend towards living in the city. Raising kids in the City. Retiring to the City. What was once unheard of outside of suburban life is being created in a unique and highly desirable version in the City. Large expensive buildings (and their surroundings) are building in all the conveniences once only associated with suburban life, combined with all the allures of the City. Neiman Marcus has been an anchor to suburban malls around the USA: Now it will be an anchor to an entirely new part of Manhattan, HUDSON YARDS, surrounded by 100 additional boutiques and restaurants in a City Mall. Neiman Marcus which has been traditionally associated with anchoring suburban mall life could now become more associated with city life, anchoring revived or new urban neighborhoods.
This CITY MALL TREND is very important to us in the real estate business. It has created important new demographics. City Malls mirror the needs and wants of the modern day consumer. They are just one part of the suburbification of the City.

 

OUR MAYOR’S MANSION

May 8th, 2015

mayortax29n-6-webPosted by Leonard Steinberg of COMPASS on May 8th, 2015

PLEASE: someone PLEASE tell me where you can buy a MANSION for $1,75million….or $ 3million….or even $5 million in Manhattan? Our brilliant local government has officially re-defined the meaning of the word MANSION: Yes, a mansion in New York City can be bought for $1.75 million according to those who run our City. Really? In an effort to raise revenues to pay for affordable housing (a good thing!), Mayor De Blasio is proposing a new MANSION tax on all those ‘mansions’ that would be 1% paid by the buyer for properties valued at more than $1.75 million and 1.5% for the portion of properties valued at more than $5 million. If we all agree that this tax is going to be effective lets please re-name it. The word MANSION associated with this price-point is insulting.

If this new mansion tax goes into effect will it dampen sales activity to the point where the net gain is zero, or worse?

Oh, and if the idea of this new tax is to raise revenues, it may be a good idea for Mayor de Blasio to start raising revenues for the City in his own back yard: he pays a QUARTER of the real estate taxes compared to similarly valued MANSIONS elsewhere in New York for his Park Slope townhouse MANSION. Yes the picture posted above is Mayor de Blasio’s MANSION……and its worth about $ 1,75million. His real estate tax bill is about $ 3,000 per year….

Read more about this in the Wall Street Journal’s article this morning.

 

RUDER FINN STARTING AN OFFICE SPACE BUYING TREND?

April 28th, 2015

Posted by Leonard Steinberg, President of Compass, on April 28th, 2015

Are companies re-evaluating office space rentals to become office space owners?

An affiliate of Ruder Finn the global public relations firm based in New York, has bought a five-story Sutton Place building previously occupied by antique and movie prop shop Newel for $30.7 million, that will become Ruder Finn’s new headquarters. The 34,000-square-foot property purchase at 425-429 East 53rd Street, between First Avenue and Sutton Place South, equates to a cost of roughly $900/sf. Assuming they will have to spend an additional $200/sf to finish out the space, their total cost will be around $38 million.

Assuming a company like this would have to rent space for around $ 75/sf, their annual rent for 34,000sf would have been around $2.5 million annually. Knowing that commercial space has a ‘loss factor’ of around 15%, their 34,000 sf may be the equivalent of 38,000sf or more, so their rent for that amount of usable square footage may be closer to $ 2,85million per year. Assuming rents escalate by 2% per year, in 10 years their rent could be north of $3,5 million per year. If Ruder Finn takes a 100% 30-year mortgage on this building at 6%, their annual mortgage payments will be around $2.76 million. Then there are the costs of real estate taxes and maintenance on top of that.

The building would be paid off completely in 30 years, yet over 30 years they would have paid around $100 million in rent…..and not own a building that surely will be worth lots more.

Why wouldn’t every company not want to own their office space?

FORREST INVADED WEST CHELSEA!

April 26th, 2015

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Posted by Leonard Steinberg, president of COMPASS on April 26th, 2015

Yesterday a literal forrest invaded West Chelsea: numerous massive, fully grown trees were being installed at 500 West 21st Street, the almost completed building by Sherwood Equities……Sherwood Forrest perhaps?

The massive scale of the trees, some over 40ft in height, had on-lookers mesmerized. I could think of nothing more wonderful than instant forests sprouting up all around the city! The engineering and infrastructure necessary to install this was very impressive indeed. The best landscapers in town (Reese Roberts and Partners, who also designed our magnificent penthouse terrace at 7 Harrison Street in Tribeca, also with large mature trees) designed this installation of a bank of mature trees as a buffer between the building and the Highline Park which it abuts, providing privacy to those apartments that will be confronted by heavy foot traffic on this prized elevated park.

As someone who works with developers daily, I always stress that it is the actual plantings that matter most when landscaping. Nothing is more wonderful than a controlled view, and a view of a park always commands a premium. West Chelsea welcomes its new forest!