How small real estate firms are coping with downturn

Times are tough for real estate - and especially so for single-office real estate firms.

During the last dip in the housing market, the late 1980s through the mid-1990s, many small- and medium-size real estate concerns - including some that had weathered previous storms - merged with larger firms or went under.

In 1988, at the start of that downturn, Richard Astrella acquired his Pennsylvania real estate license. In 2004, as the market peaked, he became a broker and started Star Real Estate Group, which has its office at the Bourse in Center City.

Astrella, 47, has two agents and specializes in residential real estate (single and new homes, and multifamily), as well as handling some commercial leasing and sales. He also is licensed in New Jersey and New York.

How does a small real estate firm survive, even thrive, in a market that has been down for nearly five years? That's the obvious question.

The answer may be less obvious: His strategy, Astrella said, is to keep overhead costs low, but to continue to be aggressive in spending money on marketing to developers and potential clients.

"Being a lifelong resident of Philadelphia, with over 20 years of experience, has enabled me to offer more than basic buyer and seller services," he said.

Understanding today's complicated issues of financing, appraisals, title insurance, and the problems developers are facing in this market makes him a "problem-solver who offers creative ideas to get deals done that otherwise would not" be completed, Astrella said.

In all his dealings, he makes sure to "maintain a stellar reputation."

"Warren Buffett says, 'It takes 20 years to build a reputation and five minutes to lose it,' " Astrella said. "That's how I live my life and run my business."

One advantage to being small is that you can make "quick business decisions to adjust to conditions, rather than going through a corporate hierarchy," he said. He can be more flexible in his commission structure and the length and terms of listing contracts, too, and maintain a "personal relationship with clients" rather having them deal with a "team."

Astrella doesn't have the deeper pockets larger corporate-owned or franchised real estate firms may have to help him through these topsy-turvy times. And, he said, their "having a larger contingent of agents provides wider marketing exposure of in-house listings to potential buyers."

Yet in light of less-than-ideal market conditions, Astrella said, 2010 was good for him.

This year?

"I am working with more buyers than ever since the beginning of 2011, and my sellers are agreeing to reduce prices, resulting in more showings and offers," he said. "I'm upbeat. . . ."

His optimism is, however, tempered by conditions beyond the local market.

"I see banks releasing more foreclosured properties into the market in the first and second quarters, further suppressing prices," he said.

Last month, RealtyTrac Inc., of Irvine, Calif., which tracks foreclosures nationwide, projected that 1.2 million U.S. homes would be repossessed by lenders this year.

In the Philadelphia region, repossessions have risen, but new foreclosures have probably peaked, Mark Zandi, chief economist of Moody's Analytics Inc., of West Chester, said recently.

"The bad news is that with so much in inventory, distressed-home sales will remain very high this year into next, which will have an effect on house prices in the metro area," Zandi said.

Astrella said he believed that if the economy improved and unemployment fell in the first six months of 2011, "we should see a housing recovery in the third quarter. If it doesn't, delinquencies will rise, resulting in more foreclosures."

Government efforts to assist borrowers and the extension of unemployment compensation will play a role, he added.

One challenge all brokers face now is the wealth of information the Internet offers buyers and sellers - which makes the job simultaneously easier and more difficult.

"Sellers are becoming more realistic on pricing, and buyers are flexing their muscles," Astrella said.

But it is taking more time than ever to close a transaction, he noted.

The days of " 'Where do I sign?' are over," he said. "Realtors need to work for their commissions, which is why many have changed careers."

Do owners of small real estate firms work together, or even talk with one another about the market?

"Unfortunately, we don't," Astrella said, "but I like the idea of spearheading that effort. We need to do more of that."