New York City renters may be at the mercy of landlords, but landlords say they are helpless in the face of rising operating costs.
Escalating rates for insurance, energy and construction prices top the list of major expenses, said Steve Hakimzadeh, a principal at HH Realty Group, who personally owns and manages two Manhattan buildings along with his brother. He said he has seen 20 percent increases in each category.
A hot rental market is helping offset the mounting expenses.
“The saving grace,” Hakimzadeh said, “is the rents are going up.” Hakimzadeh said that he does not unnecessarily jack up rents, but, “our costs are so much higher than they used to be and someone has to pay for it.” He noted, “We are in the real estate business to make money.”
Hakimzadeh raised one tenant’s rent 10 percent at lease renewal time in September, a big jump from last year’s 3 percent rise.
Costs for running rent-stabilized buildings have increased by 7.8 percent, driven by fuel costs, real estate taxes and utility costs, according to the 2006 price index of operating costs, which measures the price change in the operation and maintenance of New York City rent-stabilized apartment buildings. The costs increased at a faster rate than last year, when the percentage change was 5.8 percent. Operating costs are projected to increase 6.2 percent next year.
“Some of the costs incurred by these units would be similar to buildings that contain free-market apartments,” said Andrew McLaughlin, executive director of the New York City Rent Guidelines Board, which prepares the price index.
Between April 2005 and April 2006, the cost increases were as follows: fuel, 22.8 percent; utilities, 7.9 percent; real estate taxes, 7.8 percent; administrative costs, 6.5 percent; contractor services, 5.9 percent; parts and supplies, 5.5 percent; replacement costs, 4.5 percent; insurance costs, 2.5 percent; and labor costs, 2.5 percent.
All of the cost increases would apply to market-rate buildings except taxes and insurance, McLaughlin said.
In rent-stabilized buildings, rents are determined in part using the price index.
Jack Freund, executive vice president of the Rent Stabilization Association, said the price index is outdated and does not allow for new costs. “It can be more or less accurate depending on the year,” he said. “It tends to underestimate costs.”
Unlike in cooperatives and condominiums, where residents bear the brunt of the bump in costs, landlords of stabilized buildings have difficulty making the money back, they say. Rent-stabilized landlords try to recoup costs by making improvements or looking to turn over units or both, which result in rent increases.
Joyce Kwiecinski, office manager for property owner and management company Ogrin Associates, said that rising real estate taxes and the surge in the price of oil are having the greatest impact on Ogrin’s out-of-pocket expenses. Other woes include growing insurance costs and what she called frivolous city-issued violations. “The city is killing the real estate market,” Kwiecinski said, “because they are trying to bleed the landlords.”
Kwiecinski also said landlords are forced to increase rents in order to make up for costs. “The owners are getting stuck with all the expenses so we have to raise rents,” Kwiecinski said.
But rent hikes are not solely about recovering operating costs.
“The reason rents have gone up is not so much about increased operating costs. It’s simply because of supply and demand,” said Michael Regan, manager of new business development at Citi Habitats, which includes landlord services. “Most of the landlords I speak to can’t increase them enough. They simply can’t keep up with the marketplace.”
Landlords may kvetch about growing operating costs, but their benefits appear to be outweighing their costs.
“Their business is as good as it’s going to get,” Regan said.
Paul Brensilber, president of Manhattan residential building management company Jordan Cooper & Associates, concurs with Regan’s assessment.
“The question is, ‘What are your real estate taxes and what is your debt?'” Brensilber said. “The rental market is not driven by your expenses. It’s being driven by the market and the market for rentals is huge right now.”