The Real DealMay 01, 2012In late 2009, the owners of 15 apartments at the Atelier in midtown filed suit against members of the condo board, including its president, Daniel Neiditch. They claimed that Neiditch, head of the brokerage River 2 River Realty, was using his influence to gain a monopoly on real estate deals there.
Neiditch had been directing all leasing and sales inquiries in the 42nd Street building to his company, they claimed in court documents, treating it as “his own fiefdom.” Owners who listed their apartments with an outside broker, the suit claimed, would never make a sale.
“Leasing and sales activity … has been dominated by River 2 River and Neiditch, who effectively controls, as a result of Neiditch’s position as president of the board, the vast majority of units in the condominium,” the complaint alleged.
Neiditch, who currently has 32 of the 38 active sales listings at the Atelier, according to StreetEasy, declined to comment on the accusations
The case was eventually dropped, on the basis that individual owners in a condominium can’t assert claims for damages against the common interests or finances of the building.But the suit highlights the ethical issues that confront real estate brokers serving on the boards of their co-ops and condos.
There is no law prohibiting real estate professionals from serving on their building’s boards, and some of the city’s most prominent agents are currently members of co-op and condo boards. In fact, many in the industry say real estate brokers bring invaluable expertise to the management of their buildings.
Still, the question of possible conflicts of interest has become increasingly visible recently, due in part to a late March e-mail blast from Neil Garfinkel, residential counsel to the Real Estate Board of New York.
In his e-mail, which was sent to every residential member of REBNY, Garfinkel strongly criticized the practice of brokers serving on boards.
“I do not believe that a co-op board member (whether the president or not) should serve on a co-op board and act as a real estate broker in real estate transactions in the co-op building,” he wrote.Despite good intentions, Garfinkel continued, it’s not always possible for brokers to properly balance competing obligations to their clients and to the board.
In one recent instance, he said, a REBNY broker was serving on her co-op board, which was considering a major capital improvement program. As a broker, she felt she had an obligation to disclose the existence of the project to a prospective purchaser, since it would impact the value of the property. But the board president had forbidden her to disclose the capital improvement project to anyone.
The situation put her in “an untenable position,” Garfinkel wrote. “She has a duty of confidentiality to her co-op board that directly conflicts with her duty of disclosure to the prospective purchaser.” Still, a broker could serve a lifetime on a board without encountering a conflict like this one, Garfinkel told The Real Deal, and would likely not be able to foresee such a conflict until it’s too late.But in recent years, some buildings — often after encountering situations like these — have instituted policies prohibiting brokers form serving on their boards.
In 2009, an Upper East Side building removed a real estate broker from the co-op board and amended its bylaws to prohibit other brokers from serving, said Aaron Shmulewitz, a partner at the law firm of Belkin Burden Wenig & Goldman, who currently represents the board.The move stemmed from what the board felt were the brokers’ efforts to “take advantage of his position and benefit monetarily,” Shmulewitz said.
A few isolated incidents like these have sullied the perception of brokers who serve on co-op and condo boards, said Core broker Tony Sargent, a former board member at 31 Jane Street. Whether it’s warranted or not, he said, “shareholders can have a negative connotation with brokers being on boards,” suspecting that agents will “use the building as a personal piggy bank.”
As a result of perceptions like these, some brokers, like Elaine Mayers of Citi Habitats, have purposefully opted out of serving on their boards to avoid potential conflicts of interest.
“I think I could be totally impartial,” said Mayers, who resigned from her co-op board at 205 Third Avenue when she started working in real estate seven years ago. “But I don’t want any appearance of impropriety. Even if I recuse myself on certain issues, someone might think the board viewed my deals more favorably because I was a member.”