Manhattan merger mystery: A conversation with Frederick Peters

Matthew Blake: Hello. My name is Matthew Blake, real estate reporter for HousingWire. And this is “Houses in Motion,” a weekly podcast that discusses the most important and interesting issues in real estate. It is part of the “HousingWire Daily” podcast stream. For this episode, I interviewed Frederick Warburg Peters, who is the CEO of Warburg Realty, an erstwhile family business on the verge of merging with real estate conglomerate, Realogy. Peters serves on the Real Estate Board of New York. It is sort of the New York City take on the National Association of REALTORS, a more than 100-year-old trade association whose policies virtually have the power of law in New York City real estate. Peters carries a, shall we say, stately and commanding presence in the often cutthroat world of New York real estate. He has a college degree in literature from Yale. He spent 13 years as a board member at the Glimmerglass Opera.

Peters started in real estate in 1980, and he began in management at Warburg Realty in 1991. In a recent column for Forbes, Peters describes the 1980s real estate landscape in New York. Brokerages were family business, property listings were written on file cards Peters writes, and agents worked hard to acquire those listings, making cold calls and walking the avenues chatting up and tipping doormen. Things have changed in the last 41 years. One of them is ample publicly available data about residential property in real estate listings. Another is the pool of corporate consolidation and more brokerages becoming national presences instead of regional shops. Frederick Warburg Peters is now part of this change. After years of running Warburg Realty as a family business, Peters led Coldwell Banker, a Realogy subsidiary acquired the venerable Manhattan brand. The acquisition and a rebranded Coldwell Banker Warburg will be in effect starting January 2022. We spoke with Peters about this major change for him and what other changes are happening in real estate.

Hello, and welcome to “Houses in Motion.” I am here with Frederick Warburg Peters. Frederick, welcome to the show.

Frederick Peters: Thank you. Glad to be here.

Matthew Blake: So why don’t you tell us about yourself and what is your present role in real estate?

Frederick Peters: I am the president of what will, until December 31st, be Warburg Realty. And then on January 1st will become Coldwell Banker Warburg Realty. I have run Warberg Realty for 30 years and we just sold the company to Coldwell Banker in October, the beginning of October. So we’re about two months in. And I’m a lifelong New Yorker. I started out in real estate as an agent. I was an agent for many years, and then I kind of stumbled into running my company I started at and then ran it. And now I guess I’m stumbling out of that.

Matthew Blake: So why did you decide to stumble out? Why did you decide to let Coldwell Banker buy your brokerage?

Frederick Peters: That’s a very interesting question. And here’s what I would say. Our industry has changed enormously over the last two decades, but probably that pace of change has accelerated during the last five to six years. And I would say that for most of my career as a business owner, it was pretty much purely a skill-based business. And in recent years, it has become much more of a capital-based business. And really a small firm like mine, as successful as we’ve always been, simply did not have the capital to keep up with all of the advances which have been provided to agents over the last five years. And I was increasingly aware of the fact that it was putting us in a less than ideal position in terms of recruiting newer agents. And even though we’ve always had very good retention rates, I could also see that was being threatened by both glitter and money that some of my competitors had begun to offer. And so the bottom line was I wanted my agents to have what other people seemed to be able to offer. I didn’t want them to feel like they were pressing their noses up against the window in which all of the cool stuff was taking place.

Matthew Blake: Why do you think five or six years ago it moved from skill-based to capital-based if your assessment is correct?

Frederick Peters: I think there’s a one-word answer to that, Compass.

Matthew Blake: Just for New York or…

Frederick Peters: Well, no, I think it’s been true nationwide that you had this company that was touting itself as a tech company, raising funds like a tech company, buying talent like either a tech company or really more, in many ways, like Goldman Sachs. And I think that really more than anything else has been the catalyst for a lot of the change which has swept the industry nationwide. There’s just now so much money being deployed in the industry in a way that historically wasn’t true. And I think actually, Matthew, there are ancillary issues as well. And one of them is the acknowledgment in the tech sector that PropTech provided a huge and largely unexploited opportunity. And so there has been an enormous increase in the number of startups focused on trying to move the real estate industry more into the 21st century. And just one point about that, which I think is interesting, a number of those companies actually, to some degree including Compass in the beginning, when it was Urban Compass, really started out being focused on the idea of disintermediating the agent.

Increasingly, the startups that are at least relevant to the residential brokerage industry, PropTech is obviously a lot bigger than that are focused on making the agent more efficient, making the agent able to deploy their skills more effectively. I think there’s been a real realization on the part of the tech sector that disintermediation isn’t the way to go.

Matthew Blake: And when you were saying earlier about like pressing your face up against the glass or describing your agents as pressing their face up against the glass, I mean, what kind of tools does Coldwell Banker does more like capital-infused real estate brokerage provide agents than maybe you guys do?

Frederick Peters: Okay. Let me start by saying an incredibly significant one is the ability to offer to front staging money. That has already been extremely meaningful to my agents. And we’re, of course, getting started with it.

Matthew Blake: And what does staging money mean?

Frederick Peters: It means that they will front us depending on the project anywhere up to $100,000 to clean up a property and make it look sale-ready. A big change in our industry in the last 20 years and this had been happening much more in other parts of the country is the realization that people don’t wanna walk into something that’s a mess. And a lot of apartments that we’re selling are in one way or another a mess. And so, if you can get rid of the decrepit old furniture, paint it, higher furniture to come in to make it look more contemporary, we find that buyers just have a much easier time understanding the product. So the money to do that, the big challenge with that was always that the seller was reluctant to front the money to do it. So if we can front the money and the company then gets reimbursed out of the closing proceeds, just makes it much easier for everyone. And that is one big example of something which capital enables us to do, which we just couldn’t do before.

Matthew Blake: That’s really interesting. Is that what the brokerages refer to as a concierge service sometimes, or is that a little different?

Frederick Peters: It is part of concierge service. You know, but I would say, in addition, Coldwell Banker and the Coldwell Banker Global Luxury brand, which is the brand we are associated with, it has offices and marketing outreach in 40 countries other than the United States. That’s become increasingly significant for its sellers in New York. You know, we are more and more all the time a global city. I have the feeling and I do not have statistics to back me up on this. So please don’t ask me for them. But I have the feeling that we’re actually more competitive with London than we have been in recent years around money from North Africa and the Gulf states and the Middle East. And we are still a popular destination, though not as popular as Miami for Central and South Americans. And there’s just a kind of reach, even national reach, you know, we’re a local company, Warburg Realty was a local company.

I didn’t have a brand-affiliated person that I could refer to when they could refer to me in Los Angeles. I had contacts there. It’s not like it was impossible for us to make referrals, but it didn’t flow with the smoothness that it already does now. And again, when you are dealing with clients, they are increasingly interested in knowing how far your reach extend. And so that’s another way in which the CB Global Luxury brand just makes us more of a player.

Matthew Blake: So one final question about this merger, I mean, how do you feel about it, I guess? I mean, you’ve given the reasons why you did it, is this something you’re excited about or is this something where you’re, oh, damn, we have to do this, but I’d really try to stay independent?

Frederick Peters: I expected to find it really hard to relinquish some control. You know, I don’t think you can run a company for 30 years without becoming something of a control freak. Or maybe you don’t run a company at all unless you are already something of a control freak. That’s also possible. But I gotta tell you, Matthew, I’m happy as a clam, I just feel great about the whole thing. I have yet to discover a downside.

Matthew Blake: What do your agents think about it?

Frederick Peters: They’re happy, too. They’re excited. You know, you always have a few naysayers and you always break a few eggs in the making of any omelet and this has been no exception, but at this point, my agents are excited, they’re on board, and they see the value to them. Look, the bottom line for them is they’re all great, they can work anywhere, and they see how this is offering them value in a number of areas that weren’t available to them before.

Matthew Blake: Let’s transition into talking about New York Real Estate. I think you’re a lifelong New Yorker. Is that correct? You are…

Frederick Peters: Fifth generation.

Matthew Blake: Fifth-generation New Yorker. You are utterly pillaring Los Angeles before we came on. New York does things differently when it comes to the real estate economy. There’s not the National Association of REALTORS, the multiple listing service structure that dictates real estate in the rest of the country. There’s StreetEasy, which Zillow owns, and they do a lot of, I guess, most of the listings in New York. And then there’s the Real Estate Board of New York, which is kind of analogous to the National Association of REALTORS for New York City. And obviously, real estate is more expensive in New York than it is almost everywhere else in the country. So of all those factors that I mentioned, what might be the most important and what should listeners know about how New York Real Estate might be distinctive?

Frederick Peters: Here’s what I would say, I would say actually, the most distinctive thing about some New York Real Estate no longer as dominant as it once was is the co-op system. I think that actually matters more than the other things you mentioned, which by and large don’t have that much impact on the consumer.

Matthew Blake: And describe the co-op system to a [inaudible 00:17:06] Wisconsin listener out there.

Frederick Peters: Sure. Basically, if you are buying a property in a co-op building, you’re buying shares in a corporation rather than making an outright purchase. And so buying a co-op is a lot like to use an analogy, which I think people understand everywhere, being admitted to a country club. You need to provide letters of reference. You need to provide financial disclosure. You basically need to undress fully, just the way you do for your annual physical with the doctor. And that is something which makes our market unique and complicated because we actually sell every co-op twice. We sell it first to the buyer and then we sell the buyer to the board. And of those two sales, the second is always the more difficult, and it requires many years and a very sophisticated skill set to know how to do that effectively. Now, in recent years, we’ve had an absolute boom of condominium construction. So there are actually more and more apartment options for people who don’t want to go the co-op route. But if you want to live in one of the grand old buildings on Park Avenue or Fifth Avenue or Central Park West, you’re buying a co-op.

Matthew Blake: Yeah. How instrumental is it in order to be a successful real estate brokerage in New York City to be able to tap into this co-op market, to be able to have brokers experience in both shepherding the homebuyer through the purchase and also getting approval from one of these boards?

Frederick Peters: It depends very much on what you wanna sell. If you are as we are, what I would describe as a legacy company, meaning we’ve been around for a long time and we do a lot of work on the upper east and upper west sides, then it’s critically important. There are fewer co-ops south of 42nd Street and fewer co-ops south of 14th Street. So it really depends very much on who your constituency is and what they want. You know, nowadays, the downtown zip codes in Manhattan have become so expensive that you can make a great living and never sell a co-op. But for a company like mine which has a real history of selling in these buildings, it’s an area of expertise we have had to develop and to maintain.

Matthew Blake: And one more thing about New York because we’ve been covering all Zillow all the time the last couple months, how does the fact that it’s StreetEasy sort of the listing system there as opposed to maybe in a “typical market,” like I’m in Chicago and there’s a greater MLS there that sort of serves Chicago and the overall region around Chicago. New York doesn’t really have that. Like, does that make much of a difference for agents and consumers or not really?

Frederick Peters: Well, here’s what I would say. I would say what we have not had until recently is a client-facing portal. We have for the industry, the RLS, the revenue listing service, which does for us exactly what an MLS does in other parts of the country. So as agents, we really depend mostly on the RLS for our information. So we have not had, as I said, is a consumer-facing side to that, and we are actually launching one of those in the next couple of months in partnership with Homesnap. And that is something we are hoping to make a competitor to Zillow. You know, Homesnap is owned by CoStar by Andy Florance. And I think Andy has made pretty clear his desire to compete with StreetEasy in New York. And we’re all for that.

Matthew Blake: It sounds like you think this is a good thing. Like, why do you hope that StreetEasy has this competitor?

Frederick Peters: I think competition’s good for everyone and I think that StreetEasy has tended to chronically bite the hand that feeds it. I think StreetEasy has charged inappropriately for its services while at the same time expressing really as clearly as they possibly could without saying it outright their contempt for brokers and the brokerage industry. So nothing would give me greater pleasure than to see a little reverse biting of that hand.

Matthew Blake: So let’s get to a couple of like really big-picture issues before we sign off. The first one kind of getting back to what we were talking about, consolidation. Do brokerages today need to be part of a company with a national presence? Do they need to do what Warburg Peters did? And if they don’t, how can they hold on as a regional or local business?

Frederick Peters: It’s harder and harder to hold on without having that extra leverage. You know, I think there will always be a place in our industry for sole practitioners and for smaller agencies, but I think, especially as we welcome a next generation of agents into the business, those agents are going to be looking for tools that it’s increasingly difficult for the smaller agencies to offer. You know, if you go to NAR conferences, there’s a lot of conversation about the aging of the broker population.

Matthew Blake: Yeah. I think the average age is like 56 or something.

Frederick Peters: Yeah. Yeah. We’re an older industry. And as we focus on bringing in younger people, those younger people have grown up in a digital world and they’re simply not going to either, A, expect or, B, tolerate being less up to the minute in their workplace than they are in the other areas of their life. So I think issues like that simply put pressure on smaller agencies because it’s hard to keep up, technology moves really fast. And unless you can invest in it fairly substantially on an annual or biannual basis, you fall behind.

Matthew Blake: Yeah. Yeah. The final question I had sort of prepared is kind of what is the biggest change, you’ve been in real estate for over 30 years.

Frederick Peters: Over 40 years, my friend.

Matthew Blake: Forty years. You’ve been at Warburg for 30 years. Is that correct?

Frederick Peters: Yeah.

Matthew Blake: Okay. So you’ve been in real estate for a generation. And the last question I had was what is the biggest change you’ve seen? And is this the biggest change what you’re describing here, this both influx of capital and need for a continual updating of what the brokerage can provide? Is this something that we’re seeing more? Is there something else that’s sort of more…?

Frederick Peters: I would say that those hand in hand really are the big changes because honestly, Matthew, the basic thing we do isn’t that different today from what it was in 1980. We meet people. We take them to look at properties. We help them figure out which one works for them. And then we work with them to make sure that they get it if we’re the buyer’s agent. And we’re basically doing the flip on the other side if we are the seller’s agent. Right. But so in many ways, there are a lot of ways in which the industry has changed for the better. We have much greater transparency today about representation. Transparency is also now coming into our playbook about compensation. And I think all of that’s a good thing, but the way we search for things, the way we use our time in the office, the way we do research…this reminds me actually of a third thing, which I think is a huge change in the last 40 years is that when I came into the business, people were buying a home, now they’re buying an investment. And that’s a radically different perspective.

Everybody thinks of their home as an investment now. When I came into the marketplace 40 years ago, that just wasn’t the case. And clearly, some of that has to do with the fact that things cost a lot more money. But it’s also just a basic shift, I think, in that Americans have become more financially savvy and more aware of themselves as creatures living within an economic framework. And that has had a big impact on the way our constituents think about the transaction, and therefore, it has had a big impact on the way we have to present it. We have to do much more careful and thorough financial analysis today than we did when I was first in the business because people really wanna understand relative value. They really wanna understand what the amenities and benefits are, which increase the value and what the amenities and benefits are, which may be enjoyable but don’t actually change how likely your property is to appreciate.

Matthew Blake: When did that start happening? When did you start noticing it?

Frederick Peters: That’s a great question. I would say actually it probably started happening after the recession of the late ’80s, and then it accelerated after the tech bust of 2000. After the tech bust of 2000, that was the first time we ever saw the stock market and the real estate market disengage from each other and travel in different directions at the same time. Because as people became more disillusioned with all of these tech stocks they had bought that were turning out to be worthless, the bricks and mortar appeal of real estate skyrocketed. And so at that time, I think that really solidified for people the notion that their home could also be an investment. Also, as you saw these continual run-ups in price, you saw people using their homes, often unwisely, frankly, as cash machines through refinance and through HELOCs, through home equity loans. And I think that too solidified in people’s minds that this was an economic advantage, homeownership conveyed economic advantages, which compelled to regard where they lived as not only a home but also a product.

Matthew Blake: This has been a good conversation. Frederick Warburg Peters, thank you so much for appearing.

Frederick Peters: My pleasure.