Hedging bets with rental-condo hybrids

Rental-condo mix appeals to developers

The condominium and rental markets are faring well at the moment, but their futures remain uncertain, prompting some developers to build both — under a single roof.

An increasing number of Manhattan developers are proceeding with or are contemplating rental-condo hybrid buildings, some to hedge their bets, and others as part of complex transactions.

Halstead Property’s development marketing arm has been in discussion with about six different developers about building hybrid projects, where some units get sold, and some are simply rented.

“With the rental market getting stronger it’s a more appealing option,” said Stephen Kliegerman, executive director of development marketing at Halstead. “They are spreading out their risk and they won’t saturate either market.”

A hybrid arrangement works best in a large building with hundreds of units, brokers and developers said.

“In a 100-unit building, you wouldn’t be able to offer enough services to either side to make it work properly,” Kliegerman said.

Separating rental and owner space is also important, several marketing specialists said.

“If you do the rental portion to the same spec as the condo product, it’s not as important to separate everything because you’re basically marketing to the same types of people,” said Cliff Finn, managing director of Citi Habitats Marketing Group. But if the units speak to different audiences, then distinctions are important, he added.

Forest City Ratner Companies is considering building a rental-condo hybrid in the massive, 75-story Frank Gehry-designed tower in the works on Beekman Street, near City Hall.

Time Equities is in talks about having a rental section at the ground-up hotel and condominium project planned for 50 West Street, said chairman and chief executive officer Francis Greenburger. These rental units would be more hotel-like because they would be furnished and overseen by the hotel, but they would have apartment-size layouts. Thirty percent of the 500,000-square-foot building would likely be a hotel, 50 percent would be condos and 20 percent would be rentals, Greenburger said.

“If you have a large number of apartments, say something in the 300 to 400 range as opposed to a more typical 150 to 200, that may be a lot of units to absorb at a given place at a given time,” Greenburger said. “So having a mixed sale and rental strategy could be a good approach. Also, it’s an interesting way to hedge the market.”

Greenburger said both kinds of apartments would have a similar profit margin in the long run.

The first hybrid in the city may have been the Related Companies’ One Carnegie Hill, a 42-story building at 215 East 96th Street completed a year ago. The 200 for-sale apartments start on the 23rd floor, with 275 rental units on the floors below.

Both apartment options are the same size and share a lobby, but there are different elevator banks, said Bruce Beal Jr., executive vice president at Related.

“We are trying to brand both the rentals and the condominiums with the same feel,” Beal said.

Currently the company is building another hybrid, the Caledonia, at 450 West 17th Street along the High Line.

Buyers don’t seem to mind the combination.

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The Caledonia, which was topped out two months ago, sold all of its 190 condo residences within eight months at more than $1,400 a foot, Beal said. The 288 studio to two-bedroom rental units are priced from $3,495 to more than $10,000.

The condos will open in the fall or late summer of 2008, with the rental portion to follow in the winter of 2008.

Also on the table is a hybrid at 440 West 42nd Street between Ninth and 10th avenues. Related, Twining Properties and MacFarlane Partners are planning a mixed-use development, including rental and condo apartments, at the site.

“I think that we’ve shown that this can be successful,” Beal said. “There’s a lot of emulation going [on] around town.”

The Moinian Group and investor MacFarlane Partners are building a mixed-use tower to include 1,000 rental and condominium units at 605 West 42nd Street, less than half a block east of Moinian’s Atelier condo.

Extell Development Company is building the Lucida, a high-end rental-condo at 151 East 85th Street that boasts high-end finishes, said Raizy Haas, a senior vice president at Extell.

There is uniformity in the rental and condo products, so they will compliment each other, Haas said.

“They will share the entrance and amenities,” Haas said. “They’re going to have the same finishes as the condos.”

At the 21-story building, which developers call the neighborhood’s first LEED-certified residential building, there will be 110 condo units and 24 rentals. LEED, or Leadership in Energy and Environmental Design, is a voluntary “green” rating and certification system developed five years ago by the U.S. Green Building Council.

Sales at the Lucida are under way, and rentals will go to market when the building nears completion at the end of 2008 or the beginning of 2009, Haas said.

“These are going to be very, very, very high-end rentals,” Haas said, with prices upward of $100 a foot.

Extell did not look to do a hybrid building; it was a matter of ownership rights, Haas said. Extell owns floors eight and up outright, and leases from Goldman Estate the bottom portion of the building, which houses the rentals and retail.

Some condo developers have rejected the hybrid concept. RAL Companies & Affiliates initially planned to build a hybrid at Tower 270, but opted against it. It is a 39-unit condominium at 270 Broadway in Tribeca.

One prolific Harlem condo and rental building developer is not interested in building a hybrid.

“The interests in rentals and sales are very different,” said Robert Ezrapour, vice president at Artimus Construction. Owners, for example, take better care of a building than renters, and there’s the issue of how the condo board fits into the equation.

Artimus is building a rental building at 119th Street and Manhattan Avenue, on the same lot as one of its condominiums. But the projects are unrelated, Ezrapour said.

“If you own you don’t want the guy next to you moving in and out,” Ezrapour said.