Faced with the pressures of the recession, more and more New Yorkers are looking to defray the costs of home ownership by renting out their apartments for short periods of time.
Brokers say they are doing more short-term rentals than ever, representing landlords and new condo owners who previously would have refused to rent their apartments for less than a year. For some owners whose plans to sell their apartments have been foiled by the real estate slump, the tactic is a last-ditch effort. For others, it is simply a money-making strategy. But while short-term rentals are popular with renters concerned about their job security, it means less money — and more work — for brokers.
In better times, the search for short-term rentals in Manhattan was confined mostly to Craigslist, where New Yorkers who needed to leave town for a few months could find temporary occupants for their apartments. Jorden Tepper, a senior managing director at Century 21 New York Metro, said that in the past, his company would have been unlikely to rent an apartment for less than a year. But that is no longer the case, he said.
“It’s not usually part of our business,” he said. “But we’re seeing more interest because of the economic environment we’re in.”
And in the current climate, brokers are grateful for any revenue. “It’s not something we’d turn our noses up at,” said Tepper.
Many co-ops do not allow rentals, but condo owners who can’t sell their apartments (or don’t want to reduce the sale price) often turn to renting as an option, Tepper said. However, because of the rocky climate, owners are finding that renting out their apartments at the price they want is not easy, either. So they’re turning to leases that last only three to six months, hoping to get a better sales price or a higher rent a few months down the road.
“If they’re not getting the interest that they’d like, they’re open to a short-term rental to tide them over to the spring and summer months,” Tepper said, adding that short-term rentals allow owners to list their homes for sale and rent at the same time.
Tepper recently found a three-month rental for the owner of an apartment at the partially completed Battery Park City condo conversion Rector Square. The owner originally had planned to sell the apartment, but by the middle of last month, he realized his only options were to “drastically reduce the price” or rent it out, said Tepper. The owner chose the latter option but failed to find a tenant to sign the usual year-long lease at the desired price. Instead, “we suggested that we do it as a furnished, short-term rental,” said Tepper. The owner quickly found a tenant for a three-month lease.
Jeffrey Carlson, an executive vice president of leasing at Platinum Properties, said that in the past, short-term rental leases were rare. Tenants who needed a short-term rental usually arranged to sublet an apartment from the current renter; others went through corporate relocation programs.
Since the economic downturn, Carlson said, his company has arranged short-term leases in buildings such as the rental tower 10 Hanover Square and the Cipriani Club Residences condo at 55 Wall Street. The option was particularly popular after the collapse of Lehman Brothers this fall, when a large number of tenants lost their jobs and broke their leases.
“Landlords were hit with a ton of inventory,” he said. “They needed to improvise to start appealing to people.”
Short-term rentals are particularly attractive to renters now when “no one knows if they’re going to have a job in a year,” he said, noting that a three- to five-month lease “makes them feel more comfortable.”
The abbreviated leases are also appealing for owners who need cash, since tenants are usually willing to pay more for the convenience of a shorter lease, and are also less likely to expect concessions, Carlson said.
He said they have become especially popular with foreign investors who have purchased apartments in new condo buildings Downtown, such as the William Beaver House and the Setai.
“They were expecting to rent for one to two years at a market rate, but now that the market has slowed down, it’s still expensive and they have to cover their mortgage,” he said. “In order to continue to get a competitive rate for the apartments, they’re more lenient on the lease terms.”
On the other hand, leases longer than a year are also more common now, since owners offering several months of free rent want to retain their renters as long as possible. “Twelve months is kind of unheard of now,” Carlson said.
New condo owners aren’t the only ones turning to short-term rentals. Susan Freschel, the owner of Affordable New York City, a business that rents privately owned, fully furnished New York apartments to tourists for a minimum stay of five nights, said she’s seen an uptick in interest from city residents interested in participating. “We’re getting more phone calls asking if we would like to rent out their apartments,” she said, adding that the calls are from homeowners in “strained financial straits.”
Even apartment owners who aren’t in financial trouble are turning to short-term rentals to help pay the bills, said Abigail Lash, a sales associate at Brown Harris Stevens. Two of her clients, Hawaii residents who recently purchased a pied-à-terre at the Parc Vendôme on West 57th Street, plan to rent out their condo for much of the year in stints of one to three months at a time.
Since some 70 percent of homes owned in Manhattan are co-ops, though, short-term rentals are unlikely to become widespread, she said.
That may be a good thing for brokers since shorter leases require more work and a typical commission for a three-month rental is generally a half-month rent, or roughly a quarter of what rental brokers usually make on a transaction, Carlson said.
“If we rent an apartment for three months, I wouldn’t expect them to pay me 15 percent,” he said.