The Real Deal New York

Rental market shows some signs of weakness

December 14, 2007 02:55PM
By C. J. Hughes

Attention, holiday shoppers: There’s a pocket of softness in the rental market.

For rental brokers, this means an offering of incentives unseen since
2005. Lately, landlords have begun enticing brokers with everything
from iPods to “up to $30,000″ worth of plane tickets, said Daniel Baum,
chief operating officer at The Real Estate Group New York, a
Manhattan-based brokerage.

Eager for tenants, landlords are also using a tactic associated with
down markets — they’re now coughing up a month’s rent. The owner-paid
incentives can defray the fees a tenant will pay to secure a rental by
more than half. Baum said instances have “gone up exponentially in the
last six weeks.”

Offering free rent is generally preferable to lowering the rent itself,
which affects the capitalization rate, undermining a property’s overall
value, Baum added.

Craig Filipacchi, an associate broker with Brown Harris Stevens who
specializes in rentals, hasn’t seen landlords cover broker’s fees since
Rockrose Development did it 18 months ago, he said, though it doesn’t
surprise him that it’s happening again.

“The rental market is pretty slow,” Filipacchi said.

In part, that’s because hot condo sales earlier in the year siphoned
off potential renters.

“They (buyers) had to come from somewhere, and most likely, it was the
rental market,” said Jonathan Miller, director of research for Radar
Logic, a real estate analysis firm.

Others of those condo buyers turned out to be investors who put their
units up for rent, increasing apartment supply. Downtown, 15 Broad
Street and 200 Chambers Street are two buildings cited by Filipacchi as
being home to a number of units being rented out by their
investor-owners.

“They’re also putting downward pressure on rents,” he said.

New rental buildings have opened too — in Downtown alone, new rental
properties include 88 Leonard Street, developed by Leviev Boymelgreen,
which has 352 units, and 89 Murray Street, from Edward J. Minskoff
Equities, which offers 170 units, studios to three-bedrooms.

In addition, 37 Wall Street has added 373 units, with studios to
three-bedrooms priced from $2,000 to $6,000 a month, brokers said, and
45 White Street has added 40 units, Filipacchi said.

As a result of these supply-and-demand factors, prices have settled,
though to what degree depends on whose data you use. (For more on how
these numbers are calculated, see In a rental town, vacancy numbers stir debate).

In October, the average asking rent on a non-doorman studio in
Manhattan south of 100th Street was $2,151, according to the Real
Estate Group New York, down from $2,167 in September. Non-doorman
one-bedrooms cost $2,991 in October, down from $3,036 the previous
month, said the firm.

Citi Habitats, a larger Manhattan brokerage, shows that the average
Manhattan rental in September cost $3,260, down from $3,295 in August,
itself lower than July’s $3,392.

“Landlords pushed the prices too high, too quickly and didn’t account
for the fact that they were reaching so far,” says Baum.

Interest in constructing rentals has not been limited to Manhattan’s
tip, though it still seems to be concentrated among developers who have
always preferred longer-term and relatively smaller-return investments.

Rose Associates, for example, recently cut the ribbon on Chelsea
Landmark, a 38-story tower at 55 West 25th Street, near Sixth Avenue,
which contains 407 studios to two-bedrooms, priced from $2,800 to
$8,000. Ninety percent are leased, says Adam Rose, the company’s
president.

Indeed, rentals comprise half of Rose’s portfolio — about 10,000 units
— as the firm prefers “the dullest, slowest way to make money” over,
say, condos, which are a “one-shot opportunity,” Rose says.

Larger employment forces, like whether Wall Street continues to hire in
droves, make future rental demand hard to predict.

But supply will certainly tick up over the next 18 to 30 months, says
Clifford Finn, a Citi Habitats managing director, and that could
further dampen prices.

For instance, Silver Towers, from Silverstein Properties, will offer
1,254 units at River Place II at West 42nd Street and 11th Avenue, in
late 2008, he said. Across the street, a planned Moinian Group project
will add about 1,100 units.

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