Ira Zlotowitz is leaving Eastern Union to start a business he hopes will turn the world of commercial mortgage brokerage upside down.
The founder and CEO of the commercial brokerage firm is raising $ 12 million in venture capital for his new venture, Gparency, which he says will allow owners and developers to work directly with banks without the need for a broker .
Instead of charging clients a fee when a transaction is closed, Zlotowitz will collect an initial fixed fee and hourly fee for certain services. The idea is to bill clients the same way as a law firm.
Gparency already has investment commitments from 80 real estate investors, brokers, lawyers and lenders, according to Zlotowitz. He plans to bring in staff from Eastern Union, including the banking team, technical team, data team and his own team, and launch an app for customers to track their transactions.
Zlotowitz believes brokerage fees will continue to drop and some companies are looking to automate the process. So he decided that the best way to attract investment would be to start an independent business outside the Eastern Union. Zlotowitz has insisted that Gparency is separate and will not use it to sell Eastern Union services to clients.
“You can’t make a Netflix while you’re at Blockbuster,” Zlotowitz said. (The powerful Blockbuster once filed for bankruptcy in 2010 and has just one store; Netflix is worth $ 283 billion.)
Zlotowitz was a partner of Meridian Capital before founding Eastern Union in 2001. Based somewhat incongruously in the Flatlands neighborhood of Brooklyn, Eastern Union is one of the largest players in commercial brokerage in New York with 60 brokers and an average of $ 5 billion in transactions per year. . The company also has offices in New Jersey, Maryland and Florida.
Last year, Eastern Union cut its fees on the Fannie Mae, Freddie Mac and CMBS refinance deals from 1% to 0.25% in an effort to compete nationally. After the reduction, nine brokers from the Eastern Union office in Howell, New Jersey, left and formed a new firm to compete with their old firm.
Eastern Union filed a lawsuit, claiming the brokers had violated their employment contracts, and the parties settled in May 2020.
It is not known whether Zlotowitz will remain on the Eastern Union board. Abraham Bergman, longtime Managing Director of Eastern Union, will become CEO and take on day-to-day responsibilities. Zlotowitz plans to step down in the coming weeks.
Gparency will offer customers two packages. For $ 2,500, Zlotowitz will recommend five banks for the customer’s transaction, estimate the interest rate they’ll get, email the banks an introduction, and follow up on quotes. All of this, plus negotiating the deal until the customer signs a condition sheet, will cost $ 5,000. For an additional $ 500 an hour, Zlotowitz said he would take the case to its conclusion.
“The market is going there anyway,” Zlotowitz said. “God willing, I could reach 20, 30, 40% of the market. I could do 10 times more business.
The traditional brokerage model, however, offers some incentives that Gparency does not. Brokers working on commission have a great financial motivation to go out and seek out as many offers as possible.
Bergman, for his part, does not see the business brokerage model becoming irrelevant. “There are customers who are going to need the type of product from Eastern Union,” he said.
Zlotowitz is one of the few players trying to disrupt the mortgage brokerage industry. New York-based Lev, who recently raised $ 30 million in Series A financing, uses data and automation to help building owners compare and secure financing. Investors included venture capital firm Greenspring Associates and First American Title.