Tuesday, March 15, 2005

"Of Course, There's No Bubble"

Business Week
The story of Barbara Corcoran is the stuff of entrepreneurial lore. Three decades ago, she quit her waitress job, borrowed $1,000 from her boyfriend, and started a real estate shop that eventually blossomed into one of New York City's largest residential brokerages generating more than $4 billion in gross sales annually. In 2001, Corcoran sold it to national giant NRT. It was worth an estimated $4 billion when Corcoran sold it to national giant NRT in 2001. But she retained the post of chairman and remains the public face -- literally, on billboards -- for a housing empire that now stretches from the canyons of Manhattan to the shores of Palm Beach, Fla.

So what does the Big Apple's most famous real estate mogul not named Donald think of the market? BusinessWeek Online SmallBiz Editor Rod Kurtz recently spoke with Corcoran about what the future of the real estate market holds for brokers and buyers alike. Edited excerpts of their conversation follow:

Q: First things first -- bubble or no bubble?
A:
Of course there's no bubble. I think we're just getting started. But I don't expect anyone to believe me. There are so many more buyers than there are homes to sell. Bidding and overbidding are the norm of the day. So it's going to take a lot to slow this market. Even if it does -- which I don't see the signs of -- it will still slow down slowly. That's not what a bubble does.

I think the bubble theory is nothing more than an intellectual expression of people's typical worry that good times can't last forever. When your marriage is going well, you worry there's a problem on the horizon. I think it's more psychological than fact.

Q: So what's causing the shrinking supply and begging demand?
A:
Seven out of 10 deals are going for asking price or above. I think it's a much scarier world that we live in. When kids are scared, where do they run? They run home. People are staying home more. I think it's really reassuring for people to know they own the walls around them.

People have also become more distrustful. People don't trust the government, they don't trust Corporate America, they don't trust the stock market. They trust their house. It's psychological. People like to feel they can control a little piece of their destiny.

Q: So what are some of the trends you're seeing?
A:
People are buying their second or third homes, retirement homes, very early. They're saying, "Why not retire in 10 years and get my hands on something now?" I don't really believe a majority of those people move into them eventually, but they justify the purchase by saying, "I'll buy now, before this goes too far."

In the last nine months or a year, I've seen a big uptick in that. There is also a change in that most people who previously didn't think they could buy a home for pure investment are now acting on it.

Q: What are some of the next "it" locations? Are high prices sending people to unlikely places?
A:
One of them is downtown Detroit. I think when most people think Detroit, they think crime. The city really is reinventing itself. It has really rallied. I think that whole riverfront area is a big up-and-coming area. But it's for the brave of heart.

The movie 8 Mile, I believe, did for downtown Detroit what Ghost did for downtown Manhattan. I remember a stuffy couple I took down to Tribeca before Ghost came out. Then after the movie [premiered], they thought it was cool.

Coeur d'Alene, Idaho -- that has got to be heaven on earth. The average house price is $170,000. You should see what $170,000 will get you. That is a pristine, gorgeous area, right across from Canada. When you compare it to what you get in neighboring states, it's a joke. It's like a mini Phoenix. Everybody's charging in there.

Then there's Del Ray, Virginia, which is right next door to Alexandria. It's like going back to the 1950s, Leave it to Beaver. It's being gentrified. It's like what Brooklyn was to New York 15 years ago. Houses are not inexpensive there, probably about $400,000, but that's compared to $800,000 next door. It's like a mini Greenwich Village -- you've got a lot of professors, interesting people. That's a typical situation where fringe backs into fashionable.

Q: Any advice for sellers?
A:
Sellers don't need any advice. The one thing: If you want to be overpaid, underprice by 10% and see what happens. It creates a feeding frenzy. Have your home priced by three brokers, go with the lowest, and knock 10% off that. Only 1 in 10 people maybe has that chutzpah, but it works again and again and again.

Q: What about tips for buyers?
A:
For buyers, No. 1, I guess, is that cash is king. You have to think like a competitor. Over and over again, people say, "I'll give you the higher price, but I need five days."

Q: What does the future hold for independents?
A:
I think the future belongs to small brokers, and I'm one of the [few] people to say that. The big guy clearly has the corner on the money, and that's the downside to being little. But the little guy has the corner on creativity. Our business is a transaction business -- wham, bam, thank you ma'am. We need to be responsive to a changing market. And more often than not, the little guy can move. The big guy is still thinking about it.

I just think we have a pattern here -- that little people will always find a home in real estate, because it's cheap to get in. When they grow to middle size, half fall off because it's hard to maintain, and the other half grow, get tired of it, and sell to the big guys.

If a big brand comes in that everyone knows, it's intimidating and a formidable competitor [for small players]. But the fact of the matter is, as long as a local broker can make a big brand in a local market, national and everything else doesn't matter.

Q: Do you believe your path -- from tiny startup to eventual sale -- is emblematic?
A:
After you've built a big money machine, you can of course hang onto it and keep laying the golden eggs. But what do you do then? The real estate business is very much a business where the mom has to be in the kitchen cooking every day. It's a person-to-person relationship business. So if you reach a point where you don't totally want to be involved, you have to make a decision.

Q: Many successful entrepreneurs struggle with that decision and its aftermath. How have you adjusted?
A:
Other than my boyfriend and business partner marrying my secretary, it has been my hardest transition. And I think it's hard for any high-energy personality to hang up the holster. I knew it was going to be hard, because I knew many older brokers who sold their businesses. It's very different when you have to walk those steps yourself.

But I have learned more about myself over the past couple of years than ever before. It just underlined for me that the joy is getting there, not the goal itself.

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