Manhattan rental building developers are taking on more high-end amenities to entice would-be dwellers.
From swimming pools and saunas to playrooms, dog services and state-of-the-art health clubs, rental buildings seemingly have it all. But the perks are not exactly freebies: Tenants are increasingly paying more to live in these buildings.
“The rental buildings are almost being taken to the level of condominiums [or] hotels,” said Daren Hornig, managing partner of Saxa, a real estate investment and development company that is scouting out Manhattan sites for a rental building.
At 545 10th Avenue, close to 41st Street, the Sheldrake Organization is breaking ground this year on an as-yet-unnamed 650-unit rental building that will have a sand volleyball court and a self-service bar, possibly run by City Bakery, according to J. Christopher Daly, president of the Sheldrake Organization. City Bakery is already slated to set up shop in Sheldrake’s soon-to-open Riverhouse condominium in Battery Park City.
Riverhouse offers a swimming pool, fitness center with yoga studio, pet spa and on-site car rental service among many other amenities.
In-house commercial tenants appeal to renters.
When Whole Foods Market opened a store in the Avalon Chrystie Place rental development on the Lower East Side, rents rose dramatically, said Neil Binder, principal and co-founder of Bellmarc Realty. Buildings in fringe neighborhoods, such as the far West Side, Wall Street and Battery Park City, to some degree, often include amenities to entice would-be-renters and fill in for a neighborhood’s lack of services.
“It’s not about getting more [services], it’s about getting attention,” Binder said.
While these bells and whistles may affirm a building’s image and in some cases help a company brand its name — as in the case of Trump — they often mean more money out of a tenant’s pocket. Some developers charge extra fees, others build it into a higher rent, while still others — often those developing buildings in fringe neighborhoods — chalk it up to the cost of doing business.
A gym is bare bones in most buildings and 25 percent of the time is included in the rent, said Gordon Golub, the senior managing director of Citi Habitats.
If there is a pool and roof deck, the majority of the time there is an additional fee for usage. They are typically marketed to tenants as a package, Golub said. The price can range from $500 for seasonal pool access to $1,200 for a year-round pool, Golub said. If the building has a roof deck, but no pool, generally its use is free. To use an on-site party room, buildings typically charge residents at least a $50 to $250 cleanup fee.
With today’s emphasis on health and wellness, gyms are now found in around one-quarter of Manhattan rental buildings, Golub said, and typically there is a fee to help with servicing the facility. In some buildings, the fee is nominal. In Rockrose Development buildings, most gyms are free, but others charge $200 to $700, said Sofia Estevez, vice president of Rockrose Development.
At the Ritz Plaza, a 479-unit building at 235 West 48th Street, building owner Stonehenge Management charges an annual $850 health club fee for gym membership, which includes access to an indoor heated pool and social lounge with outdoor deck.
To entice potential tenants to move to less prime parts of Manhattan, developers may throw in amenities.
At the 333-unit Olivia, a rental building across from Penn Station at 315 West 33rd Street, just west of Eighth Avenue, Stonehenge Management does not charge for use of the 5,400-square-foot gym.
“We needed a draw,” said Marc Kaplan, director of leasing at Stonehenge Management, at a May Citi Habitats rental forum, and it has helped rent apartments.
In highly desirable neighborhoods, some developers do not feel compelled to include amenities.
Skyline Developers is slated to break ground on a rental project at 79th Street and Third Avenue in about a year. There will only be a small gym with a few machines inside.
“It’s the best location,” said Orin Wilf, president of Skyline. “I’ll rent that with no problem whatsoever.”
Still, it’s clear developers are devoting more and more space to amenities than before.
On average, a large rental building has 7,000 to 10,000 square feet of space for amenities, Hornig said, compared to five to 10 years ago, when it was closer to 3,000 square feet. But not all amenities warrant the hype.
Pools on rooftops and fully equipped, big health clubs add value.
Pools in the basement, roof decks and small gyms with little equipment do not add value, Bellmarc’s Binder said.
“It’s a matter of magnetism. It’s about filling me up before you fill up. Whether it justifies an increase in rent, I don’t think that’s so.”
When landlords don’t want to raise rents
Pushing rates to market level with lease renewals proves no easy task
The Manhattan rental market can be relied on to follow its own variant of a basic economic law: High demand and limited supply leads to increased apartment rents.
But as they actually ink new numbers on lease renewals, landlords often find reality to be a trickier proposition.
While the answer to how high rates can go is most often whatever the market can bear, there are plenty of exceptions.
While jacking up the rent on a vacant apartment is one thing, lease renewals can present a more delicate situation.
In typical rent renewals, landlords often raise rents to less than market-rate levels to avoid vacancies — which would take money out of a landlord’s pocket. Landlords also avoid going straight to market-rate rents when they acquire new buildings where existing tenants pay well below market level.
“Renewals are primarily market-driven,” said Marc Kaplan, director of leasing at Stonehenge Management. And, “in fair market rate-units, [we] also look at payment history and the longevity of the lease.
“You really have to know how to finesse it,” he said. “In this market, nobody’s happy.”
At BLDG Management, the company considers the longevity of a lease as well as the current rent when setting renewal rates, Mickey Napolitano, vice president and director of residential real estate at BLDG, said at a May Citi Habitats residential rental forum.
Obviously the company increases rent, but “it’s very rare that I bring them right up to market,” Napolitano said.
Archstone-Smith has a similar approach. The company determines the market rate and then discounts it, “because we want to show residents that we value their business,” said Linda Early, vice president of operations at Archstone-Smith.
Today, Stonehenge Management’s renewal rate hikes vary from 4 percent to 12 percent, Kaplan said.
More extreme rents can reasonably be bumped up as much as 20 percent in cases where a tenant had been paying far below market-rate, said Gordon Golub, the senior managing director of Citi Habitats. The numbers aren’t linked to the size of an apartment, Golub added.
“They can be as aggressive as they like. There’s no limit,” Golub said, but “it’s very common for a landlord or a management company to raise eyebrows if they bump up a rent to market-rate.”
For long-term tenants, BLDG is not overly aggressive, Napolitano of BLDG said. If a tenant is paying 30 percent below market rent, it would be unreasonable to charge a 25 percent increase, Napolitano said.
Rents have been increasing in Manhattan, according to Citi Habitats. The average rent in the first quarter of 2007 for a Manhattan one-bedroom was $2,515, up 5.8 percent from $2,376 for the year-ago quarter.
In determining renewal rents, landlords generally consider the rates per square foot in the building and compare them to others in those neighborhoods, said Golub. Landlords rely on turnover to increase rents and profits, but Napolitano said that the process is not always that cut and dry.
“You are always trying to maximize your net income,” she said.
If a tenant moves out of a $2,000 apartment, leaving it vacant for one month, the company loses 8.3 percent of the annual rent.
On top of the rent loss, the cost to turn over an apartment can run from $750 to $3,000, depending on the work the unit requires, she said.
BLDG typically turns over a unit within a month, although renovations can keep an apartment vacant for up to six weeks, Napolitano said.
On the other hand, keeping an existing tenant, even with a reduced rent increase of $50 a month — or 2.5 percent of the annual rent — can be a better deal for the company.
Renewing leases is also beneficial because it already fills units with responsible tenants and results in fewer moves in or out, reducing wear and tear on an apartment and building.
“You’ve established a building where you have a stabilized rent roll,” Napolitano said, which means there are lower turnover costs, and “you know what kind of tenants you have.”