It's a Saturday morning in March, and Dorothy Herman is
jetting off to Las Vegas to receive Prudential Real Estate's top honor: real
estate broker of the year.
The night before, Herman, the chief executive of Melville-based Prudential
Long Island Realty, had inked the deal of a lifetime: Her company bought an
established Manhattan firm, Douglas Elliman, for $71.75 million from Insignia.
The deal would not only transform her enterprise, but create a regional real
estate powerhouse, industry observers say, with dozens of offices strung from
Manhattan to the Hamptons.
But because Insignia is a publicly traded company, Herman - called Dottie
by almost everyone - could not say anything about the deal until it was
publicly released the following Monday, March 17.
When the 2,500 Prudential agents at the Las Vegas conference witnessed
Herman win the broker award Monday morning, they were told of the Douglas
Elliman acquisition. "There was a standing ovation," said RuthAnn Fay, Herman's
personal assistant, whom longtime employees have dubbed Dottie Jr.
Fay said agents, 300 of which had made the journey from Long Island, were
"standing on their chairs," in celebration. Prudential always sought a strong
Manhattan presence, Herman later said.
But in Manhattan, the mood at Douglas Elliman appeared more tentative.
"Someone called me and asked if I would put lawn signs on co-ops," Herman
recalled, still unsure whether this was a joke or a jab.
After taking a red-eye flight from Las Vegas, Herman met Tuesday with the
top brass of Elliman on the fourth floor at 575 Madison Ave., as well as the
250 Elliman agents on the second floor. Herman had not met any of them before;
that was one of the conditions of the sale.
"It was just me. It was nerve-racking," Herman, now 50, said. But the
high-energy executive also had been prepared by more than 20 years of work as
an agent in the trenches. "I went in there knowing that I'm a broker," she
said, "understanding what brokers need."
Of the hundreds of questions, the most common one was, "Is the firm's name
going to change?" she said. But "I knew the Douglas Elliman name is like gold;
I wouldn't want to touch it."
Monday, the two operations will change the names at their Long Island
offices to Prudential Douglas Elliman Realty. But in Manhattan, Douglas
Elliman's name will be unchanged; the firm's marketing material will state that
it is part of Prudential Douglas Elliman Realty. However, both will use the
common pitch: "From Manhattan to Montauk."
The combined firms now have more than 50 offices throughout New York City
and the Island, second only to NRT, a division of the Manhattan- based Cendant
Corp., which owns well over 100 offices in the tristate area, including
Coldwell Banker Residential in New York and New Jersey and the Manhattan-based
In all, Prudential Douglas Elliman has about 2,000 agents, who closed $6.5
billion in home sales last year. Prudential Long Island has 40 offices and
accounted for $2.4 billion in sales last year, while Douglas Elliman has 13
offices and posted approximately $4 billion in sales.
While some New Yorkers might wince at the thought of a toney Manhattan firm
being taken over by a Long Island company, Prudential Long Island had an ace
in its hand to play for Elliman's agents: The company has six offices in the
Hamptons and one on the North Fork, with the types of listings Douglas Elliman
agents would desire for their wealthy clients in Manhattan and on Nassau
County's North Shore, where the firm has three offices.
And Herman, along with her investment partner, Howard Lorber, has ambitious
plans to grow in the next few years. Lorber, president of New Valley Corp., a
publicly traded, Miami-based real estate firm and chief executive of
Westbury-based Nathan's Famous Inc., says he has $150 million in cash for
Prudential Long Island is half owned by Lorber and 40 percent owned by
Herman. The remaining 10 percent belongs to Prudential, although Herman is to
buy out Prudential's stake in the next 10 years.
Such deals are going to speed up the already consolidating real estate
industry, experts say.
Big firms nationwide are gobbling up market share at a ferocious pace, says
Steve Murray, co-editor of Real Trends, a Littleton, Colo.-based publishing
company that tracks the residential brokerage industry. In 1991, the top 500
firms accounted for 16 percent of all agent-handled transactions, according to
Real Trends. By year-end 2002, that figure was 29 percent.
Murray said that a decade ago, it was unusual to see three or fewer firms
controlling two-thirds of a metropolitan marketplace. Today that is the case
about half of the time.
Murray says competition from the big players has made it increasingly hard
for smaller firms to compete. Profit margins are being squeezed and some firms
also are having to pay more, or split a greater portion of commissions, to find
But consolidation also is helping consumers by driving down commissions. In
the past 10 years, commission rates have fallen across the nation from 6.1
percent to 5.1 percent, Murray's research shows.
At the same time, buyers and sellers are also facing a market with fewer
firms. While the metropolitan area is still largely a "boutique market,"
consolidation is a nationwide phenomenon and New York is catching up to the
rest of the country.
On the Island, there are still 1,679 individual firms, according to the
Long Island Board of Realtors. The next largest firm by number of offices is
Coldwell Banker Sammis, with 16 offices. But many independent offices have been
joining franchises such as Century 21 and RE/MAX in recent years. Century 21
now has more than 100 franchises on Long Island and in Queens.
In Manhattan, Douglas Elliman is among the top three residential brokerage
firms, competing with Corcoran and Brown Harris Stevens.
Herman, who carries around a photocopy of former GE chief executive Jack
Welch's golden rules in her wallet, acknowledges that the days of ma- and-pa
real estate firms are coming to end. But Herman also says big firms can offer
more to consumers through better information and services.
For instance, Douglas Elliman has just released new sales kits that include
a magazine with 100 full-color pages showcasing its upscale listings. The
Real estate agents also need training and access to ever-changing
technology to make sales, Herman said. Firms need to shell out large sums on
information technology and elaborate Web sites, which feature houses and
provide virtual tours, photos and floor plans on a listing.
The larger firms also own stakes in mortgage and title companies. Herman's
firm owns a significant part of Preferred Empire Mortgage, a Melville- based
mortgage brokerage firm run and co-owned by Marcia Kaufman; Prudential also has
a stake in Liberty Land Title, an abstract company.
While niche firms that tap specialized markets will continue to thrive,
many small to midsized firms just don't have the money to compete, Herman said.
They will be acquired or go out of business.
Like Prudential, Cendant is "always looking" for new firms that have a
"compatible culture," said Bob Becker, president of NRT, Cendant's real estate
division. Cendant was among the bidders for Douglas Elliman earlier this year
and about three years ago tried to buy Prudential Long Island.
"I could have retired a wealthy woman," Herman said, but my dream has
always been "to connect Manhattan to Long Island through a real estate firm."
Still, Herman is acutely aware that such acquisitions can fall apart.
If "all the [Elliman] brokers walk out the door, my $72 million would be
for nothing." So far, the firm has not lost any large producers, she and top
Douglas Elliman executives said.
When Herman arrived at her Madison Avenue office two weeks ago, she poked
her head in the various offices, smiled and asked each person "How are you
Kay Brover, executive vice president of broker development and one of those
who received such a greeting, said that while it's only been three months
since the acquisition, "we act like we know each other so well."
Herman sits on office cabinets, chatting with the agents. Hours later,
while driving around, she says, "I don't believe in hierarchies."
Herman also seems to have the strong support of Roslyn-raised Geoffrey
Wharton, chief executive of Elliman. Hired just nine months ago, the urbane
Wharton, 61, is best known in the industry for his management skills and work
in commercial real estate. So he, too, has something to prove. Wharton, wants
to show he can cut it in the residential marketplace.
"I want to shake things up," he said.
Wharton added that Elliman will benefit from Herman's management style.
"She has passion," he said, "and is also sincere, direct and candid."
Herman was not born into the world of real estate. The Syosset resident,
who earned a bachelor's degree at Adelphi University as she thought about
becoming a teacher, changed career paths after college. She studied financial
planning and real estate appraisal at night. By day she worked at a small real
estate firm, and later Merrill Lynch Realty.
Prudential Real Estate Affiliates bought 450 Merrill real estate offices
nationwide in 1989 - including her office.
Herman later headed Prudential's Long Island operations until she and a
well-known broker named Carll Burr III and some of his partners, joined up to
buy Prudential Long Island Realty's 32 offices.
Prudential lent them the money, and Herman started with a 30 percent share.
Over time, Herman bought Burr's partners out.
Three years ago, Burr wanted to sell the company after a handsome offer was
made to buy Prudential Long Island, sources say. He refused to comment on the
Herman and her current partner, Lorber, ended up buying him out, and
started strategizing to enter the Manhattan market. "I thought about starting
from scratch," Herman said.
But earlier this year, Los Angeles-based CB Richard Ellis, which had
purchased Insignia Douglas Elliman, announced that it wanted to focus on the
company's commercial real estate business and put Douglas Elliman up for sale.
It was Lorber who knew Andrew Farkas, the chief executive of Insignia Financial
Group Inc., and the bidding began.
Since the acquisition, the management at the firm has all stayed on, so
Wharton and Herman have been able to tap the institutional knowledge of
long-time Douglas Elliman executives, such as chairman Alan Rogers.
A two-person acquisition team also has been sent in from Prudential Real
Estate's Irvine, Calif.-based head office to help Herman and Lorber build the
With a map of Long Island and New York City strewn across a table, with
blue stars representing the locales of all the offices, Larry Goebel, a senior
vice president of mergers and acquisitions, says, "I expect the size of the
firm to double within five years. And I'm being conservative."
Goebel said the company is "in discussions to acquire 15 firms on Long
Island," adding that Prudential Douglas Elliman is in negotiations to buy a
leading residential operation in Manhattan. The company is also looking at
possible acquisitions in the Hamptons, as well as contemplating an expansion
into Brooklyn - and even eastern Florida.
Herman said the company wants to capitalize on people's changing
lifestyles, whether it's 20- and 30-somethings living in Manhattan, families
owning a home on Long Island, a second home in the Hamptons or a retirement
place in Florida.
Herman spends Tuesday to Friday mornings in Manhattan, going to various
Douglas Elliman offices across the city and visiting about 10 properties a week
to get to know the city market.
On a recent day, she met three agents, two suited men in TriBeCa and one
snappily dressed woman in Chelsea, all showing pricey listings.
"I don't like to sit in an office," Herman said, as she was being driven
around in a four-wheel-drive Ford Excursion, with Fay managing her schedule.
"My car is my office. I live in it," she said. "I take phone calls and call
people back." And there is no time for lunch.
Her cell phone rings. "Tell him I'll call him back, I promise." She adds,
"I'm helping a client sell properties in Tuscany."
Herman gets out of the Excursion to view the lofts. Wearing strapless high
heels, she trips. "They tell me to wear black and flat shoes in Manhattan," she
said. "I can do the black, but my heels are so comfortable."
Herman visits a three-bedroom, 4,000-square-foot loft on Murray Street
listed for $2.65 million that has two private-gated elevators. She also sees a
4,400-square-foot loft, with the original bricks and columns, on Broome Street,
that has been renovated according to the principles of feng shui.
"Well, you know the city better than I do," she tells some brokers.
But it likely won't take her long to catch up. She has gone into markets
before without local knowledge, and in the face of sharp hostility.
When Herman broke into the Hamptons in December 1997, opening an office in
East Hampton Village, local brokers said, "You'll be gone in a year," recalled
Lili Elsis, one of Herman's first East End hires. Sharing listings with
Prudential was deemed beneath these established firms, which do not participate
in the region's multiple listing service.
Paul Brennan, who hails from a well-known Bridgehampton family, said Herman
was considered "Up Island," someone who was born west of the Shinnecock Canal.
"She was viewed as not having the style or the pizzazz to be out here."
One year into Herman's Hamptons campaign, Brennan, who had at one time
worked for Sotheby's, joined the Up-Islander. "I was impressed by her passion,"
he said. "She's a battler, with tenacity who keeps going. She eats, breathes
and sleeps real estate."
Herman said, "I've been to all the courses seeking balance in my life" but
"I can't just switch off at 6 p.m. and go home. I just can't do it." She often
throws her work and personal life in one basket, she added, taking business
clients out with her family, or holding charity events that her firm sponsors
and which are attended by many Prudential agents.
She said her husband, Jay Herman, an attorney at Certilman Balin Adler &
Hyman LLP in East Meadow, has always supported her career. And her daughter,
Christine, 28, is now a Manhattan schoolteacher. "They are used to me running
around - being all over the place," she said.
Within a year of landing in the Hamptons, Herman expanded to Sag Harbor,
Southampton, Westhampton and Hampton Bays. Bridgehampton came next. And last
year, Enzo Morabito, now manager of Prudential Long Island's Southold office,
persuaded Herman to set an office up in the North Fork.
Today, the connection between Manhattan and the Hamptons is coming
together, with East End agents traveling to Manhattan once a week to meet the
Elliman reps, Herman said.
For example, Elliman's Dolly Lenz, who earns $4 million to $5 million in
commissions per year, is working with Jay Flagg, manager of the Southampton
office, on a $29-million deal in Southampton Village. "We send e-mails to each
other several times a day," Lenz said.
Recognizing these possibilities, Raymond Smith said he left Sotheby's
Hampton's office almost two months ago to join Prudential.
It's synergies like these that spurred Cendant to buy the Corcoran Group in
Manhattan two years ago, NRT president Becker said. Cendant and Prudential are
now eyeing Daniel Gale, the largest independent real estate firm on Long
Island with 400 agents and 15 offices, says Daniel Gale president Patricia
Petersen. And Daniel Gale, which pulled in $1.5 billion in sales last year,
itself has acquired firms recently.
Lee Frank, now manager of Daniel Gale Sterling in Roslyn, sold her
independent firm to Daniel Gale because "they had greater technology - and more
contacts," she said. Also, "Everyone knows the whale [Daniel Gale's logo]."
Other firms, such as National Homefinders and Coach, say they have been
approached by some big players. "The door doesn't stop knocking," said Kevin
McClarnon, president at National Homefinders, which had $700 million in sales
last year. "Consolidation has been occurring for the past 10 years and will
continue. If anything, it will get faster since many firms are run by people in
their 50s and 60s."
Meanwhile, Douglas Elliman is looking to build its rental business,
focusing more on the sub-$5,000-a-month market, said Yuval Greenblatt, who
heads the firm's rental operation. Lorber added that he aims to the double the
size of Douglas Elliman's property management division, which now consists of
The firm also wants to boost its relocation business, helping corporate
executives and foreign nationals enter the Manhattan market. While the
relocation business is not a big earner itself, Herman is betting that these
clients may eventually want to buy a house in the Hamptons, elsewhere on Long
Island, Manhattan or Florida.
And what if the housing market, after many hot years, should begin to
Herman notes that when real estate turned sour in the early to mid-1990s,
she survived. "I had to close offices," she said. "It wasn't pleasant, but I've
done it before."
Still, this deal has unquestionably changed her life. "I now have an
apartment in the city, the papers are calling me - and some are comparing me to
Barbara Corcoran," she said, referring to the renowned founder of the Corcoran
Herman, too, has a much more higher profile these days. She acknowledges
that she may be on the cusp of fame among New York business circles, but adds,
"I didn't even think of that when the deal was made."