Extent of Brokers’ Disclosures At Heart of a Star-Studded Spat
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The extent to which real estate brokers must disclose all pertinent facts about the development potential of a property, including lucrative air rights, lies at the heart of a widening, star-studded real estate spat on the East Side.
Last winter, a developer for the firm Flank, Jon Kully, purchased a five-story townhouse at 441 E. 57th St. for $5.5 million from Shelby Coleman, the 48-year-old widow of Broadway composer Cy Coleman.
Over the objections of neighbors, Mr. Kully is now seeking to demolish the townhouse and build a thin, 15-story condominium. Brokers from the Corcoran Group represented both the buyer and the seller in the transaction, and Corcoran will also be marketing Mr. Kully’s luxury condos, priced between $2.5 million and $6 million. The Corcoran Group refused to comment for this article.
Among the neighbors who say that, had they known of the existence of air rights, they would have outbid Mr. Kully to block the planned development, are Sir Harold Evans and Tina Brown, the editing husband and wife team. The development, they say, threatens to lower their property value and wall off their garden from the sunlight.
“I don’t fault the developer for seeing a chance, but I do feel sorry for Mrs. Coleman, who did not have the benefit of an equal market since there as no mention of air rights, either initially or later,” said Sir Harold. “It’s intriguing that Corcoran, having failed to recognize and then promulgate the hidden asset value, are now in business with the developer.”
According to a source familiar with the deal, the property went on the market last May for $7.25 million, marketed as a townhouse. The listing brokers discovered the existence of 20,000 square feet of air rights in late July and posted the change on their Web site. Later, after a lack of interest in the building, the brokers dropped the price to $5.5 million. Mr. Kully, a young developer, first saw the property in October and closed on it in December.
Air rights can significantly boost a property’s value,according to appraisers.
A real estate broker, Dan Farris of Brown Harris Stevens, said he showed the townhouse to several prospective buyers, including Mr. Evans and Ms. Brown, and was never told about the air rights, even after the seller’s brokers reportedly discovered them.
A lawyer representing Mrs. Coleman, James Purdy, said the seller took the best offer she received. Mr. Purdy said he and Mrs. Coleman have not discussed litigation over the purchase. He declined to say whether he knew about the air rights before the transaction.
“It was marketed for quite some time,” Mr. Purdy said. “We sold it to the highest bidder.”
Opinions vary on real estate brokers’ responsibility to disclose the existence of air rights. A real estate lawyer, Aaron Shmulewitz, said that it is the broker’s responsibility to get the most money possible for the seller.
“If there are facts out there that would drive up the price, the broker has a fiduciary duty to do everything to drive the price upward,” Mr. Shmulewitz said. “In a hot market, where there is a lot of demand, the brokers don’t work too hard.”
A vice president for the Real Estate Board of New York, John Doyle, said that a broker should seek the highest price only if the seller asks for the highest price.
“Price is only one of several variables,” Mr. Doyle said. “The broker’s principal responsibility is to their client.”
A spokesman for the New York Department of State, which oversees the licensing of brokers, Eamon Moynihan, said nondisclosure of air rights by a broker could bring up issues of “fiduciary responsible and trust,” but he said it was not “immediately clear” in this case if any rules were broken.
The developer, Mr. Kully, said “buyer’s diligence” should unearth potential value in a property, such as air rights. Mr. Kully said he relies on lawyers and architects to pass on accurate and reliable information, not real estate brokers.
Mr. Kully’s lawyer, Mr. Berman, said his client should not be punished for making a good business deal, and that neighbors should have known about the air rights.”It doesn’t take a sophisticated person to know that you can build up within the zoning restrictions,” Mr. Berman said.
Still, Mr. Berman said he doubts the neighbors would have paid extra for the property, even had they known. “I think they’re venting,” he said.