Click image for larger versionIt’s no secret that many top-notch New York City sales brokers took on pricey rentals last year because high-end apartments were slow to sell.
But with the economy struggling, did the high-end rental market fare any better than the sales market? Were celebrities still willing to pay top dollar for temporary Manhattan pads? And did struggling corporations change their tactics in renting out apartments for top executives?
This month, The Real Deal chipped away at the notorious lack of transparency in the rental market (unlike sales, rentals are not publicly recorded) and looked at both the priciest rental listings, which were provided by the real estate Web site StreetEasy, and closed deals, which were supplied by brokerages and agents.
According to StreetEasy, the 10 most expensive rental listings on the market in Manhattan late last month ranged from $60,000 to $140,000. Some 38 listings priced over $50,000 per month hit the market at some point in 2009, up from 31 in 2008, suggesting that more high-end sellers are listing their homes for both sale and rent because of the tough economy.
The agents who listed these über-expensive rentals reported that wealthy renters, like other consumers, became more price-sensitive as layoffs climbed and the stock market went on a wild ride. Much like the high-end sales market, prices for high-end rentals dropped precipitously in 2009. Brokers estimated that rents across the top of the market have fallen between 15 and 50 percent from the peak, depending on the neighborhood and apartment type.
They say they’ve seen a slight improvement in activity and pricing in recent months, but it will likely be a long time before prices climb back to where they were during the boom.
“These rentals are deeply discounted,” said Victoria Shtainer, a senior vice president at Prudential Douglas Elliman. “They would have gone for a lot more money even a year ago.”
Indeed, at the end of 2009, the most expensive rental listing on the market was the Cole Porter Apartment at the Waldorf Towers, which was listed at $140,000. A year earlier, in December 2008, the most expensive rental on the market, PH3132 at Trump Park Avenue, was priced 42 percent higher, at $200,000.
Even then, the 6,200-square-foot duplex Trump penthouse, with multiple private terraces, was described by the blog Curbed.com as “insanely overpriced.”
Shtainer, who was marketing the listing at the time, said she tried unsuccessfully to convince the Trump Organization to lower the asking price in the wake of the Lehman collapse.
“After the market went down, I didn’t have many requests for rentals,” she said of the apartment, which at the time was also for sale for $51 million. “People weren’t going to spend this kind of money.”
The penthouse failed to move. In July the listing was handed over to Adam Modlin of the Modlin Group and its prices were slashed to $100,000 per month for rent — making it the third most expensive listing on the market at the end of last year — and $31 million for sale. Modlin, who called the apartment “probably the most spectacular listing in New York City,” told The Real Deal he currently has an offer for rent at the asking price. As of press time, the deal hadn’t yet gone through.
The Trump price chop made the Waldorf Towers’ Cole Porter Apartment the city’s most expensive current rental listing. The Waldorf Towers, where John and Jacqueline Kennedy spent their wedding night, is a boutique hotel-within-a-hotel, occupying the 28th through 42nd floors of the Waldorf Astoria. The Cole Porter Apartment is one of the Waldorf Towers’ residences, a collection of one- to six-bedroom units with adjustable floor plans that can be leased from one month to five years, explained listing broker Margaret Bay of Brown Harris Stevens.
While the apartments offer hotel services, “they’re designed to be residences,” Bay said. “They’re very large, grand apartments.”
The Cole Porter Apartment is the 6,000-square-foot suite of rooms where the composer lived for 30 years. It’s listed as a six-bedroom at an asking rent of $140,000, but the size of the suite can be adjusted by subtracting bedrooms, Bay said.
This year, the most Bay rented it for was $95,000 (as a four-bedroom). As far as she knows, that was the most expensive rental deal of 2009. Still, it’s down from recent years, when she rented it for its full price of $140,000.
Another one of the Waldorf’s residences — #36A — was rented as a two-bedroom several months ago for $50,000, Bay said. The deal was also one of the priciest of the year, but Brown Harris Stevens declined to say where it ranked in relation to its other top rentals.
The celebrity-friendly Waldorf Towers is always in demand and tends to be somewhat resistant to market fluctuations, Bay said. Nonetheless, the residences have made some price concessions since the Lehman crisis.
“There has been a downward change to meet the needs of what’s going on in the market, but not dramatically,” Bay said, adding that she’s noticed fewer long-term stays in the residences, with more tenants choosing three- to six-month leases over yearlong leases.
Five-figure discounts
Few high-end apartments last year secured their asking rents.
Prudential Douglas Elliman’s largest rental deal last year was a fully furnished townhouse at 178 East 75th Street, which Elliman executive vice president Michael Kotler rented for $42,500 a month. It had originally been listed for $50,000; it was then reduced to $45,000.
The renters were a European family with three children who moved to New York for a one-year work assignment, Kotler said.
Though he did not disclose the identity of the house’s owner, property records show that it’s owned by Israeli-born sculptor and jewelry designer Ilana Goor and her husband, Leonard Lowengrub. The two run the Ilana Goor Museum in Israel.
In Stribling’s most expensive deal of the year, brokers Alexa Lambert, Tim Desmond and Linda Melnick rented a four-story apartment at 807 Park Avenue for $40,000 per month. The last time the unit was rented, in 2008, it went for $55,000, Desmond said, adding that he and Lambert rented another apartment for $38,000 at the three-unit building also.
Another of the year’s most expensive rentals was at the Belnord at 225 West 86th Street, an Extell building. There, a 5,000-square-foot duplex penthouse with a terrace was rented for $38,000 a month this fall, according to Hedi Well, the leasing and property manager for the building.
Citi Habitats would not disclose its priciest rental of 2009, citing a confidentiality agreement, but said its second most expensive deal of the year was brokered by Anthony Cangemi, who rented a Midtown East five-bedroom duplex for $25,000 per month to another family who moved to New York temporarily for work.
Shtainer said that in this market, “everything has been discounted.”
“If you’re overpriced, no one comes to see your listings,” she said.
Even the wealthy have been looking to curtail unnecessary spending in the current uncertain climate.
“There’s a point at which even the rich are not going to splurge on extra items,” said Charlotte Van Doren, a senior vice president and associate broker at Stribling.
Van Doren, along with Corcoran’s Jared Seligman, rented the 1 Morton Square penthouse owned by actresses Mary-Kate and Ashley Olsen at the beginning of last year for $35,000. The home, which was also for sale, had previously been listed for an asking rent of $50,000 per month.
Changing behaviors
Though not as active as it was during the boom, brokers agreed that there is activity in the high-end rental market, underpinned by corporate relocations.
Before the financial crisis, Midtown law firms and hedge funds willingly paid top dollar to house new executives near their offices.
Amid the recession, however, “corporations slashed those budgets,” said Van Doren, who frequently works with furnished high-end rentals in Midtown, a market in which she said prices have dropped between 30 and 50 percent from their peak.
Corporate relocation budgets once averaged around $10,000 a month, plus the cost of brokers’ fees, Van Doren estimated. In 2009, they fell to around $6,000, with brokers’ fees no longer included.
“Corporations said, ‘Those rents look too high, and we’re laying off workers; what are we doing bringing people in from out of town? We don’t even know if we’re going to be in business,’” Van Doren said.
Pied-à-terre renters with discretionary income also changed their habits last year, she said.
Two years ago, for example, Van Doren rented a $12,000-per-month apartment to a Texas banker and his wife, who frequently visited the city to see Broadway shows. That couple did not renew their lease, she said, and others like them became rare.
“That market has completely disappeared,” Van Doren said.
Shtainer said she, too, has noticed a difference in the renters of high-end apartments: High rollers seeking showy crash pads have been replaced by local and international families looking to take advantage of good deals to upgrade their primary residences.
Meanwhile, higher inventory levels are also impacting pricing.
“There are a lot of apartments available for rent, more so than there is a demand,” said Elliman’s Peter Costas, who represented the owner of a three-bedroom penthouse at 101 West 67th Street, which recently rented for a short-term lease of $25,000 per month. The apartment is also for sale for $8.2 million, he said.
But while there are more pricey rentals available than in the past because of the lower pace of sales at the high end, “there’s not a glut,” said Jonathan Miller, president of appraisal firm Miller Samuel.
Like Costas’ client, an increasing number of homeowners started putting their apartments on the market for both sale and rent last year, hoping to make some extra income while they wait out the market.
“The thought of selling for a loss could be difficult. They’re thinking, ‘Maybe if we rent it for a year or two and see what happens, we may be able to turn the sale around,’” said Chris Halstead, a sales agent at Halstead Property and nephew of company founder Clark Halstead.
This summer, the younger Halstead represented the owner of a four-bedroom townhouse at 178 East 64th Street that went for the asking rent of $35,000 per month — the firm’s largest rental deal of the year. The listing had been on the market for a year when Halstead got it, and he convinced the owner to drop the rental asking price from $40,000 to $35,000.
The house was also listed for sale at $15.7 million, and the tenants considered buying but ultimately felt more comfortable renting, Halstead said.
“There are a couple of deals I’ve done recently where people have decided to rent for a year to see where the market goes,” said Bond New York’s Tommy Doyle. This year, Doyle represented the renters of #54E at 10 Barclay Street in Tribeca. In Bond’s priciest rental deal of the year, the three-bedroom was leased for $27,500 a month.
Some home seekers prefer to rent because they are loath to part with large amounts of liquidity in the current climate.
“In their mind, they can keep their money invested doing other things,” said Doyle.
Concessions also played a role this year in very high-end rentals, according to Susan Forrest-Reynolds, a broker at Charles Rutenberg Realty.
Forrest-Reynolds completed Rutenberg’s largest rental transaction of the year, in which her clients leased a 2,500-square-foot three-bedroom at the Grand Tier at 1930 Broadway near Lincoln Center. They paid a net effective rent of $19,500 after receiving one month of free rent from the landlord, Glenwood Management, who also paid the broker’s fee.
The added concessions helped push her clients toward this rental, Forrest-Reynolds said. “They were going to rent from someone else at a condo and pay a full fee, so this was a fabulous deal for them,” she said.
Brokers say conditions for high-end rentals are improving, a trend they expect will continue this year. “Since early fall, there’s been an enormous increase in activity,” said Bay.
Van Doren said corporate relocation budgets that had fallen to $6,000 are now back up to around $6,500, and companies have started paying brokers’ fees again.
“There’s a little bit of an increase,” Van Doren said. Thanks to rising unemployment and continuing economic turbulence, however, “it’s going to be a long time before we see that apartment that’s renting for $6,500 renting for $10,000 again.”
