New York City has always been a town of renters. But in the last
few years, it was easy to forget that fact, with condo towers selling
out in a matter of days and the average price of a Manhattan apartment
peaking at a record $1.7 million in the first quarter of 2008,
according to Prudential Douglas Elliman. For a time, everyone wanted to
own New York real estate, and every broker wanted to sell it.
Now that the ensuing wave of job losses has made buying property
impossible for many New Yorkers, rentals are suddenly back in vogue.
“I wouldn’t want to be selling condos now,” said Richard LeFrak,
the chairman, president and CEO of the LeFrak Organization, one of the
biggest rental landlords in the New York City area. LeFrak will soon
begin marketing a new 33-story rental tower in Jersey City called
Aquablu. Occupancy is set for May or June.
LeFrak said many New Yorkers are now choosing to rent rather than
buy because they’re reluctant to tie up large sums of money in an
uncertain real estate market. “If you want to go buy yourself a condo
[in this market], you need $100,000 cash in the bank,” he said. “If you
can rent an apartment that’s that same quality, that’s a good option.”
Still, the downturn is having an impact on rentals in the form of
softening rents and lower occupancy, said LeFrak, who for the first
time in 15 years will not have a new project in the ground in the New
York area once Aquablu is completed.
The recession and its accompanying job losses have upset the usual
relationship between sales prices and rental costs, causing both to
plummet, experts say.
“The big game-changer this year is unemployment,” said Gary Malin,
the president of Citi Habitats, one of the city’s largest rental firms.
But surprisingly, brokers are reporting a new uptick in rental
transactions, as New Yorkers move around more. Brokers say much of that
movement is being prompted by generous incentives at new buildings, a
scarcity of brokers’ fees and a desire to downsize and lock in lower
rents.
The surge is keeping some brokers, especially those at the lower
end of the rental market, unexpectedly busy, and some firms say they’re
doing more rental transactions than last year.
But the flurry of new transactions doesn’t mean brokers are making
more money. In fact, commissions are shrinking because rents are
falling and both tenants and cash-strapped landlords are increasingly
unlikely to pay full brokers’ fees.
Brokers are also finding that they must refine a new set of skills
to make it in the current market, as much of their time is now spent
negotiating with landlords and renters. Meanwhile, firms must now
complete a much larger number of rental transactions to make up for
fewer sales, lower rents and smaller commissions. It’s a trick not
every brokerage firm can pull off, especially those that once focused
primarily on sales. In response, some brokers are leaving sales firms
for those that specialize in rentals.
Finally, brokers say they’re seeing the weakening in the Manhattan
rental market spread to desirable neighborhoods in brownstone Brooklyn
and in Queens. Brokers say the increased inventory in those prime areas
is giving renters more options and more negotiating leverage.
Read on for The Real Deal’s report on New York City’s rental market:
Cutting back on rental commissions
Gothamites make up difference for rental brokers
Why is the rental market so weak?
