A: Interesting to see this e-blast in my inbox this morning. Check out this NO FEE 1,800 sft 3BR/3BTH rental with an asking price of $8,990/month conducting a silent auction with bids starting at $4,900! I guess its a good way to create a buzz!
Check out below:
Listing can be found here, you guys are on your own! Truly interesting times.
Way back last summer my friend Mike Stoler wrote an article in his column in the New York Sun about how some investors were viewing the New York residential rental market. The piece was entitled Investors Compare Manhattan Buildings With T-Bills. Being a skeptic like me, I was certain at the time....as I am today, that Mike raised an eyebrow when Israeli real estate mogul Ofer Yardeni said "We truly believe that owning apartment buildings in Manhattan is as secure as owning treasuries with upside in value creation." Now Yardeni is as smart as they come. He buys under-managed buildings that are of high quality and in desirable locations, and his fund doesn't employ high degrees of leverage. He has been an avowed bull and buyer through this downturn and I am sure he will make out fine. It's just that comparison he made..."as good as T-Bills"...it's the kind of thing people say at market tops. Maybe it was that Yardeni realized that the full faith and credit of Uncle Sam wasn't going to be quite as highly valued in the future or that T-Bills were going to become a loser of an investment. Today they offer negative real (adjusted for inflation) returns. But all kidding aside, many of the investors in Manhattan and New York City rental buildings are neither as smart as Yardeni nor as conservative in how they finance deals, and a confluence of events are making life tougher for leveraged rental landlords around the city who have any of the 1.2 million rent controlled or rent stabilized apartments in their buildings. Rent regulated buildings have been a magnet for investors the last couple of years; you see clever real estate investors in New York realized a long-time ago that the market is distorted by the lack of buildable airspace and the existence of rent control regulations. With regard to the latter, they figured out that there was embedded value in all rent controlled buildings that was not expressed in the current net operating income generation of the buildings. Over time, attrition combined with several aspects of rent control regulation would allow rents on rent controlled or stabilized units to rise from synthetically depressed levels to market levels. Owners of rent regulated buildings were in a position to capture this upside, with very little risk due to the high occupancy of New York residential buildings. You see, as one would suspect, the holders of rent controlled or rent stabilized apartments try to hang on to them as long as possible and not get thrown out for missed rent payments or any other reason. So in a rent controlled/stabilized apartment, you essentially have a tenant base that tries very hard not to get thrown out for non-payment, coupled with very high occupancy, but natural attrition (death and major life changes) that would translate to a certain number of people leaving every year and certain regulatory thresholds that de-regulate your apartment base over time. It's all good.
The only problem is that these types of investments include a perverse incentive to try to expedite this natural attrition rate, thereby raising your return on investment, This incentive is heightened if the landlord pays a high price for the properties purchased and uses lots of leverage. I'm not saying any tenants have been pre-maturely sent to the next life by avaricious landlords trying to get them out, but landlords have incentives to make current tenants of rent controlled or stabilized units less than comfortable, shall we say, thus pulling forward their move out dates. Of course, these perverse incentives, coupled with avarice and leverage seem to have resulted in some anti-tenant behaviors, which one would of course expect. To wit, complaints against landlords accusing harassment of tenants rose almost 31% in 2008, according to a quote in the Daily News by by Leslie Torres the State Deputy Commissioner of Rent Administration.
A backlash has been brewing as a result of these trends.
The New York Times pointed out in an early May article that "Private investment firms have been amassing what seem like unusual stakes in New York real estate: they have bought hundreds of apartment buildings with thousands of rent regulated units across the city that produce decidedly meager returns. As regulatory filings and promotional materials show, the companies expect to generate higher returns quickly by increasing rents after existing tenants vacate their units. Their success depends upon far higher vacancy rates than are typical in rent-regulated apartments in New York."
The Village Voice did an article in late May titled "Wall Street Takes Dead Aim at Affordable Housing in New York City" To paraphrase the article, "Some 30,000 rent-regulated apartments are lost yearly due to rising rents. Now, Wall Street investors have devised a strategy poised to take an even bigger bite. Under this approach, private investment firms, backed by large banks, purchase buildings in working-class neighborhoods and then aggressively challenge the identity of as many tenants as possible. The apparent aim here is to replace as many people as possible with higher-paying residents, while taking advantage of the lax enforcement of rental-housing laws. So far, it appears to be working. The Association for Neighborhood and Housing Development reports that the turnover in many buildings purchased by these private-equity firms has been as high as 25%. We are not talking about small time players here - see the New York Times article on Tishman Speyer Properties' record breaking $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village and the heavy handed tenant treatment supposedly being meted out.
A recent article in Crain's New York highlights several pro-tenant bills that are being considered by the New York State Assembly Housing Committee as a result.
Bill A.74I6A seeks to repeal the vacancy decontrol aspects of rent control, whereby, once an apartment rent exceeds $2,000 per month, the unit becomes deregulated once the tenant vacates. Bill A.10055A would reinstate prior restrictions regarding changes to preferential rents. Perhaps most onerous of these bills for those looking to step up rent regulated rents to free market levels is Bill A10647, which would increase the threshold rent level at which apartments would become free market, upon being vacated by a tenant, from $2,000 to $2,700 per month. It would also raise the annual income that would disqualify a renter from eligibility to occupy a rent regulated apartment to $240,000 per year for two consecutive years, versus the prior $175,000. The new levels would also be indexed to inflation.
Finally, Bill A.799 would significantly impact smaller rent regulated buildings' conversion to free market status. This bill would limit the ability of landlords to take more than one unit of a building for personal use. It would also bar the landlord from taking such a unit from a tenant who has been in residence for twenty or more years. For those who want to understand more about these bills and read the justifications for them cited by lawmakers, click here and enter the bill number.
The proposed rent increases for this year for rent regulated apartments, as promulgated by the New York City Rent Guidelines Board, look to be on the higher side of recent history, as well they should. The final of three rent control guideline board meetings will take place on June 16, with the vote to be held June 19. This chart from the NY Post shows, what the rent increases have been over the last several years and the proposed rent increases for 1 and 2-year leases to be renewed between October 2008 and September 2009.
With oil hitting new highs daily and natural gas going along for the ride, you can imagine that landlord fuel costs are rising quickly. Imagine for a moment that you bought a building on a highly levered basis, projected increased rents through high rent regulated tenant turnover and moderate expense increases....I promise you many building buyers did. The combo of soaring fuel costs, a crackdown on tenant harassment and tighter bank lending could put a serious squeeze on some building owners in the years to come.
So, you say, what does this have to do with me, the residential real estate buyer? To which I am forced to reply: not all that much. If you are currently a renter of a rent regulated apartment, don't be surprised if you get bullied by your current landlord as a result of their quest for turnover. Additionally, don't be surprised if your landlord ends up in financial trouble and your building eventually changes hands as a result of some investors quest for free market rents being foiled by new regulations. If you have a great rent controlled apartment, hold onto it like it's your long-lost twin, it really is better than T-Bills, despite your rent probably getting jacked up a little this coming year. Additionally, the quality of life issue comes into play, unhappy residents, being harassed by landlords or buildings being foreclosed on by banks because owners can't refi their loans, just aren't good trends for New York City. I know that's not all that much, but for readers who are interested in the New York commercial real estate environment and news on how investment opportunities are changing, I hope this piece was educational.
From the Blogosphere:
Tenants say investment firm is harassing to cash in
Without Major Action Housing Crunch Will Only Get Worse
The Fight For 47 east 3rd Street
A: Fresh off the presses for you guys! Here are Citi-Habitats monthly statistics of rental trends in New York City. Tough market still for renters as vacancy rates are still below 1%, and came in overall at 0.81%. Chelsea leads the rental market with the least available rental inventory while Battery Park / Financial District leads the rental market with the highest vacancy rate. As you will see, rental prices for studio's and 1-BR's rose 2% and 1% respectively, with no change for 2-BR's and a slight decline of 1% for the higher end 3BR rentals.
With rents rising for studios and one bedrooms, and vacancy rates still very low, prospective purchasers are finding limited choices in rental world keeping them more interested in buying. The rent vs buy decision is a tough one and should be made based on your own specific situation; combining personal and financial circumstances. Either you need to save your way to home ownership in New York City or you have too short a timeline to own making you choose renting instead of buying. I'll get into this discussion later this week.
Here are vacancy rates broken down by neighborhood:
Here are July's rental stats:
A: By popular demand, here is a snapshot of the New York City rental market data as of March 2007 compared to the previous month. As you will see, rental vacancy dropped significantly since February in every neighborhood with the exception of SoHo/Tribeca & UES. Heading into the summer months, expect this trend to continue as we approach the most active move-in date of September 1st, for rentals. Those considering renting out their units might want to take advantage of the tighter rental market. Those unsure whether they should rent or buy will have to monitor these trends closely to see how it might affect their decision; especially if your lease expires in the near future!
OVERALL VACANCY RATE MARCH 2007 --> 1.09% (-19% month-to-month)
OVERALL VACANCY RATE FEBRUARY 2007 --> 1.34%
Here are the charts showing rental data (Vacancy Rates / Average Rents By Neighborhood) collected by Citi-Habitats
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Conclusions: Landlords should be happy reading these reports. Vacancy rates for the most part dropped in most areas of Manhattan while average rental prices trickled higher by apartment size. Both datasets show strength in the New York City rental market and there is no reason I can think of to make this trend reverse course as we get closer to September 1st, the most popular move in date in Manhattan. Expect vacancy rates to remain where they are or trickle lower and rents to trickle higher until supply trends reverse course. Those renewing leases during the summer should expect slight to moderate rate hikes to reflect market changes; especially if the previous lease term was 2+ years.
For those considering buying, this data combined with a general summer slowdown in the sales market might make for an easier buy decision in the near future; if its economically feasible to buy and timeline to own/hold exceeds 3-4 years at the minimum.
With vacancy rates so low, real estate agents find themselves showing more condo and co-op apartments, despite their notoriety for being much more difficult apartments to rent than rental buildings.
Renting an apartment in a co-op or condo has its pros and cons. You can usually find much better value for your money in a co-op or condo building because most people aren't willing to put up with the hassle and additional lead time needed to put together a board package and wait for it to be approved by a condo or co-op board. If you fall in love with a condo or co-op apartment, be prepared in advance that you WILL have to jump through extra hoops. That is why you are getting the apartment at a below market price.
In addition to the paperwork required for a normal rental building (often consists of an application, credit check, one month bank statements, letter of employment, landlord reference letter, and one year tax returns), board packages usually require reference letters for each prospective tenant, agreement about the "house rules," and forms, such as a Carbon Monoxide Agreement, will need to be notarized. Agents then have to type up the package, add dividers, xerox a number of copies and deliver to the building's management company. Some boards take 2 days to review a package but some boards may take 15 - 30 days to approve applicants.
Co-ops and condos charge "board fees" in addition to the rent, such as a "processing fee," "application fee," "move-in fee," "move-out fee," and more. Some of the fees are refundable, some are non-refundable. These fees can add up to $1,500 and even more, depending on the building. Some owners will absorb these costs into the rent for the apartment. Many owners will split the costs with the prospective tenants. Some owners will refuse to cover any of them. Carefully review the condo package requirements to make sure there aren't any extra fees that the owner "forgot" to mention.
It is important when negotiating the rental of a condo or co-op building that applicants review the lease and any attachments to the lease (called a "rider") put together by the owner. There is a clause in the standard condo lease that says that if the common charges or real estate taxes in the building increase, that these charges can be passed along to the tenant. Make sure the owner is willing to strike this clause from the lease. Last year, many co-ops and condos saw a 5 - 8% increase in costs due to increased fuel costs. If the owners common charges and real estate taxes are $1,000 a month, your rent could suddenly increase by $80 a month.
Many condo and co-op leases also do not have a renewal clause. Make sure that your lease comes with an option to renew if you plan on living there for more than one year. Some co-op buildings only allow sublets for 1, 2, or 3 years out of every 5. If you don't want to move out in a year, make sure the lease or rider grants you an option to stay longer.
Most importantly, make sure you have a good feeling about the owner of the apartment. Remember that the owner is probably an individual, not an investment group or management group, etc. They are likely not members of the Better Business Bureau. You could get lucky and have a great landlord who will respond to problems immediately, such as appliances that stop working due to normal wear and tear. Or, you might have an owner that never returns phone calls when there is a problem. Or, beter yet, you might have an owner who insists on inspecting the apartment at any time with little notice.
The moral of the story is: proceed with caution. You could get lucky. Or it could be a complete disaster. Go with your gut.
I walked into my friend's room and before taking a good look around, I asked, "Patrick, why do you have photos of Jason's parents in your room?" Then it hit me. Bunk beds! My 24 year old friends had taken a two bedroom, put up a pressurized wall in the living room, and two guys were sharing a room. The only way they could afford living in a prime neighborhood in Manhattan in a doorman building was for 4 guys to share a 2 bedroom.
The Caroline on 23rd St and 6th avenue is one of the few buildings left that will allow "shares." Recent grads flock to the building because they can't afford Manhattan rents without packing extra people into an apartment. Neighbors complain that the building has turned into a "fraternity house" because of the extra noise. Having extra people in each apartment puts more stress on the elevators, means people wait longer for a machine in the laundry room, and congests the common areas.
In searching for an apartment for two recent grads moving to Manhattan with a budget of $2,800, I couldn't find a full time doorman building below 86th Street with availability that allows shares and pressurized walls. Why? Because every other college grad is looking for the exact same thing. Anything that comes on the market gets rented right away.
Although many buildings, like "Rivergate" on 34th St. and 1st Ave., allow shares on a "case by case" basis, they really only allow shares in Junior-4s (one bedroom apartments with a separate dining area or home office). Junior-4s below 96th street in Manhattan are $3,200 and up (at Rivergate, they are closer to $3,600), which knocks my clients out of the running. In some cases, landlords will no longer allow two non-related people to share a two bedroom.
So what can those with a restricted budget do? Some decide to put only one person on the lease and sneak the other roomate and a wall into the building. This move is risky. Doormen are not clueless. They can tell when "The Wall" or "Living Spaces" show up in their lobby. Many pressurized wall companies won't agree to put up a wall without the express written permission from the building.
What are the ramifications of an illegal share? If one roomate is not on the lease, they may not be able to receive mail at the building and could potentially be evicted. If something goes wrong in the apartment, the roomate not on the lease can't call the management company to get it fixed, because they would alert the management that they had an illegal share. Essentially, the roomate not on the lease has to sneak into and out of their building every day, knowing they aren't supposed to be there.
90 West Street allows shares, but no walls. In their model apartments, they used large furniture and bookcases to show how you can "convert" a one bedroom into a two bedroom without building an actual wall. Although the furniture option is great, it does little to soundproof the second bedroom.
I finally found my clients a one bedroom that allows conversions at Carnegie Park, a gorgeous doorman building on 94th Street, with a pool and health club, for $2895. I hope they take it, because with rental vacancies as low as they are, if they wait much longer, there might be nothing left to share!
Other resources:
Room Dividers NY
Japanese Screens
WallZilla
The Financial District has become increasingly popular for recent graduates moving to NYC to work on Wall street. They know they will be putting in insane hours as first year analysts at companies such as Deutche Bank, so they want to live as close to work as possible. Most of the new luxury rentals in the Financial District are also paying the broker's fee, which allows recent grads to use their relocation bonuses towards the already high costs of moving to Manhattan.
Matt, a 2006 college graduate, came into town last Tuesday to find a studio under $2,000 in the financial district for a July 1st move-in. 100 Maiden Lane had 6 studios available on Friday, but on Tuesday, they were all gone. Cheapest studio? $2,225. Monday afternoon, 45 Wall St had 3 studios available but Tuesday morning they called me to cancel our appointment. Between 10am and 12 noon, all 3 studios were rented.
A John Street building and a Gold street building had studios for $1750 - $2000, but lacked any amenities, and weren't paying the broker fee. Despite the appealing rent, the buildings just weren't as nice as the luxury "fee-paying" buildings. When you amortized the fee into the rent, you could live in a much nicer and newer building for the same price.
63 Wall, "The Crest," had one $2,025 studio for July 1 that Matt liked. We headed to 90 West and found a possibility there. An hour later, we went back to take the studio at 63 Wall Street, but it had just been rented. We went to 90 West Street to take Matt's second favorite apartment, but it had JUST been rented also! Matt put in an application in the nick of time for his third choice, an apartment for $2,005 at The Crest. With nothing left for July 1st, Matt had to take an apartment for August 1st, and will be sleeping on a friend's couch for his first 5 weeks as an analyst in NYC.
As a broker, I know that the vacancy rates in the Financial District have gone back to what they were before 9/11. But even I wasn't prepared that the 12 options available to Matt on Monday afternoon would be gone Tuesday afternoon. Studios were literally disappearing before our eyes.
The financial district is considered one of the last few places in Manhattan where you can get a "good deal." But if apartments in this area keep flying off of the shelf the way they are right now, you won't see buildings paying the broker's fee for much longer.
The new condo buildings and condo conversions going up in the neighborhood, (20 Pine, The Cipriani Residences, Five Nine John Lofts, the Downtown Club, and Cocoa Exchange, just to name a few) will bring thousands of new residents to the area, as well as new stores, bars, and restaurants. Anyone who wants to take advantage of one of the last few "good deals" on the island of Manhattan - luxury rental buildings that pay the broker's fee - better get in soon, before all of the "deals" are gone!
For additional information about the financial district's rebirth, check out:
The Real Deal
Miller Samuel
UrbanDigs LLC is now its own brokerage and member of the Real Estate Board of NY. Beta testing of a powerful new real-time analytics platform for Manhattan real estate has begun. The company expects launch by mid-summer. Please stay tuned and we apologize for the delay.
