The Real Deal New York

NYC rental market “deteriorating”: Equity Residential

Boston Properties CEO defends WeWork on earnings call
By Konrad Putzier | July 27, 2016 01:00PM

Owen Thomas, Long Island City rental towers and David Neithercut

Owen Thomas, Long Island City rental towers and David Neithercut

UPDATED, Aug. 1, 10:06 a.m.: Equity Residential lowered its revenue projections amid “deteriorating” apartment rental markets in San Francisco and New York, the company said on an earnings call Wednesday.

The firm’s CEO David Neithercut called the amount of new rental supply hitting the market in cities like New York and San Francisco troubling. “It’s disrupting us somewhat,” he said.

Equity now expects same-store revenues in its New York apartment buildings to grow by a mere 1.5 percent during 2016 amid a surge in new high-end rental construction and slow economic growth. At the beginning of the year, the company had predicted 3.75 percent growth for the year.

“While the economy appears to be on solid footing, the bulk of jobs added today are mid-level compensation-type jobs,” the company said. The company’s occupancy rate in New York City stands at 96.2 percent.

Equity TRData LogoTINY expects 14,000 new rental units to hit the market in 2017 and another 14,000 in 2018, but said the expiration of the 421a tax abatement program could ease the flood of new supply in the medium run.

At the time of writing, the apartment REIT’s share price was down 4.2 percent since market close Tuesday.

Equity chairman Sam Zell in late May expressed deep pessimism about the state of the market, and the firm in June lowered its 2016 forecast on revenue growth at its properties nationwide to no more than 4.5 percent.

Despite weakening rents, the Neithercut said he has not seen a dip in sales prices for multifamily properties. “There continues to be perhaps not as much demand, but certainly sufficient demand for these hard assets in gateway cities,” he said.

Meanwhile, office REIT Boston Properties gave a slightly more bullish outlook on the U.S. office market, but acknowledged that economic volatility slowed down the pace of leasing. “There are uncertainties about economic growth and space demand,” CEO Owen Thomas said on the company’s earnings call Wednesday.

Earlier this week, the company announced that Under Armour will take over the retail space at the GM Building vacated by FAO Schwarz.  About 17,000 square feet of retail space remains available at the storied property. The firm is also marketing two full office floors in the tower, and Thomas said the firm will likely lease it out the floors in the form of smaller, pre-built suites. “We recognize it’s a velocity game and we’ve got to increase velocity,” Thomas said.

Asked about WeWork, which will anchor Boston Properties’ Navy Yard office development Dock 72, Thomas said he’s not concerned about the startup’s lowered profit projections.  “All evidence that we have point to the fact that the facilities that they have open are very successful,” he said.

Correction: an earlier version of this post claimed Equity Residential expects 1.1 percent same-store revenue growth in New York City in 2016. The correct figure is 1.5 percent.