It takes more than Sub-Zero fridges and granite countertops to sell real estate in today's cautious environment
When the selling gets tough, the tough get creative. Faced with a softening market and higher interest rates, today many real estate developers and agents must work harder to sell properties that would have been snapped up last year by frenzied buyers looking to lock in steadily rising prices. Now, with price appreciation slowing, properties that would have once been easy to sell take more time and require slicker marketing (see BusinessWeek.com, 2/19/07, "Out of the Basement for Housing").
That's why Michael Shvo, president of his eponymous real estate marketing company, SHVO Marketing, in New York, claims he is not selling real estate but lifestyle. "The right amenities exist, but they have to exist within the brand and the building," he says. "The customer is all about the lifestyle. When you buy a mediocre product, that's just a vanilla box with nothing in it."
Shvo is one of a new breed of real estate professionals trying to redefine the way homes are marketed in today's more cautious environment. Brokerages are strengthening their marketing arms, emphasizing heavy research and product development. Developers are seeking out marketing gurus who can help them create "identities" for their buildings, create magazine-like brochures, and bait top Realtors with extravagant parties and gifts. Sales offices have video presentations, art exhibitions, and sales reps who wouldn't look out of place on a fashion runway.
The top producer at New York real estate firm Douglas Elliman in 2003, Shvo struck out on his own the following year. He believes that what people really crave is to buy into an identity—the bourgeois bohemian, the Armani-wearing sophisticate, or the worldly art collector. "You need to give people a reason to buy today," he says. "Until now, it didn't really matter what you built because the market was so strong. Three years ago, if I took a dog and tied it to a pole, it could sell a condo."
Gone are the days of scrappy newspaper ads and lifeless floor plans. Brochures are more like magazines, with fashion spreads and interviews. Manhattan's Sunshine Group has also developed a magazine for one of its properties called O2, which will cover issues related to the building and green living in general. Internet video home tours have also become popular, and online advertising is making up a growing percentage of Realtors' budgets. Media research firm Borrell Associates has said online real estate advertising will swell from a $2 billion category, or a 17.7% share of total advertising in 2006, to $3 billion, or a 32.1% share by 2010, surpassing the longtime leader, newspapers.
One way to draw attention to a property is to brand it with a celebrity name. Donald Trump has been doing this for years, but now other bold-faced names not traditionally associated with real estate are tacking their names onto buildings. One of the prime examples—and a Shvo client—is the Jade, which takes its name from project designer Jade Jagger, daughter of Rolling Stones singer Mick. The Jade targets the young, hip, and prosperous in New York's funky Chelsea neighborhood. In the building's glossy and colorful brochure, Jagger calls the Jade a "fusion" of her love for "the rural beauty of Ibiza, the glamour of London, and the nonstop energy of New York." The brokers assigned to the Jade were cast and groomed to be as sexy and dynamic as Jade herself—right down to their outfits. "I'm a perfectionist; the brand has to be flawless and continuous," Shvo says.
From Art Curators to Brokers
Other famous names that are lending their names to new real estate and hotel projects are designer Giorgio Armani and the Bulgari family.
And in today's world of Apple (AAPL) iPod listeners and YouTube addicts, customers have more design sense and a stronger desire for a multi-sensory, technology-heavy sales experience. "Consumers want to look, touch, see, and feel what they would be purchasing," says Jasmine Mir, senior vice-president of marketing at the Corcoran Sunshine Marketing Group. Like Shvo, the Sunshine Group develops individual building "products" from the bottom up, focusing on the targeted demographic and its lifestyle trends. The group's Riverhouse project, a 31-story luxury condominium in Battery Park City built with renewable materials, bills itself as "the East Coast's greenest condominium."
Around the corner from the Jade in New York is Shvo's newest project, a gutted and rebuilt landmark beaux arts building at 650 Sixth Ave. It features all-white, minimalist interiors inspired by the art galleries in nearby West Chelsea. The sales office, which opens this month, will also be an art gallery, and many of the brokers for the project are curators with longtime gallery experience. An audiovisual presentation on the history of the neighborhood will grace one wall.
Questioning the Razzle-Dazzle
The market portfolio—meaning unsold property—of SHVO Marketing is worth about $7 billion. By 2008, Shvo expects that number to hit $15 billion. There's a waiting list for 650 Sixth Ave., which opens in early 2008. The Jade, where the apartments range from $500,000 to $4 million, opened last July and was 60% sold by September. It's 80% sold now, even as New York's real estate market returns to less turbulent levels of sales activity and price appreciation.
What works? Shvo believes his buildings are so inimitable that they are protected from the market fluctuations and competition that affect developments competing solely on price, location, or amenities. Living in a Shvo building can be likened to joining an exclusive club. "People want to say, 'I live in the Jade building,' 'I live in the Armani building,'" Shvo says. "What else can they say? 'I live in the Sub-Zero building'?"
But others Realtors aren't sure that savvy buyers want so much razzle-dazzle. Steve Kliegerman, executive director of development marketing at New York real estate brokerage Halstead Property, still thinks buyers are interested in the basics first. "Today's buyer is very well-informed," he says. "Their time is valuable. They want info and they want it quickly—they don't want to sit through a 15-minute video before they even see a floor plan."
Wooing Realtors with Lavish Gifts
Finding a stronger identity for your building—and your company—was a trend that developed as real estate prices skyrocketed and the business grew more profitable, sucking more players into the game in the early part of the decade and raising the benchmark for luxury living. In 2002, New York brokerage Corcoran acquired the longtime luxury real estate marketing company the Sunshine Group to bulk up its marketing operations. SHVO Marketing was formed in 2004. "You're definitely seeing more of a focus on marketing because there's more competition," says Kliegerman. Halstead recently underwent corporate rebranding to give it a more modern appeal.
Even in places where home prices appreciated at slower rates than on the coasts, like Chicago, luxury developers are spending big time to attract top Realtors with lavish parties and gifts. "Developers' marketing budget has certainly increased," says Nancy Nagy, senior vice-president and branch executive for luxury brokerage Koenig & Strey GMAC's Gold Coast office, which is marketing new projects from Trump International and Mandarin Oriental in downtown Chicago. At one recent party for 2520 Lincoln Park, a new luxury tower by Chicago architect Lucien LaGrange, every Realtor got an orchid to take home. "It was really lovely," Nagy recalls.
Marketing has become even more critical as the housing market cools in much of the nation. Though certain parts of Manhattan remain somewhat immune to national market forces thanks to the high concentration of wealth and low incidence of speculation, the city saw the average sales price for condos rise only slightly to $1.386 million in the first quarter of 2007, from $1.384 million in the first quarter of 2006, according to Halstead Property. New York apartments were on the market for an average of 98 days in the first quarter of 2007, 11% longer than a year ago.
Asking the Right Questions
Is more sophisticated marketing the cure-all to an ailing real estate market? Will the next generation of buyers want the lifestyle—or the fancy amenities? What if Jade Jagger's Ibiza-London-New York fusion goes out of style, and you're stuck with an apartment and no sexy broker to help you sell it? What then?
That's the question that broker Allan Domb thinks people need to ask before falling for heavily branded buildings. Domb controls 75% of Philadelphia's luxury condo market and currently has 475 condos for sale. He says he has been the nation's top producing residential broker several times in his 27-year career. "I think they're completely delusional," he says of real estate marketing companies like SHVO. "Five years from now, how am I going to sell an apartment like that?"
For certain, Philadelphia is a different market than New York, with lower prices and fewer buyers from out of state and overseas (Domb says most of his clients are native Philadelphians). Here, Domb's strategy has always been to focus on quality and service, and let the market take care of the rest—but he insists that his approach is more sustainable than Shvo's, in any market. "It still comes down to location, location, location," he says. "They sell with your eyes closed. If you need beautiful women models to sell real estate, then something's wrong." Domb estimates his total marketing budget is about $1 million, and claims that last year he had one of his projects 100% reserved without placing a single ad or printing a brochure.
Shvo, meanwhile, is hoping his customers will be smart enough, when the time comes, to hire a broker that sells lifestyles as well he does, beautiful or not. "If Chanel sells a bag, they can't control how somebody wears it after that, that's true," he admits, once again alluding to his muse, luxury retail. "Fortunately for me, I only get paid for what I deliver."
Click here to see a slide show of slick new marketing techniques being adopted by the real estate industry.
Click here to join a debate about housing.