In the tightening Manhattan rental market, owners have seen rents rise — and the commissions they’ve had to pay disappear. But once you get to the edges of one of the world’s most expensive islands, owner-paid broker’s fees are still necessary, according to brokers and agents.
Owner-paid commissions, or OPs, typically equal a month’s rent and cover a portion of a broker’s fee for an apartment.
“Landlords are still paying commissions on Roosevelt Island and in a couple buildings in the Downtown financial area,” said City Connections founder David Schlamm.
You’ll also find owner-paid commissions in larger buildings on the far West Side near Riverside Drive and on the far East Side near York Avenue, as well as the northern end of Manhattan, said Bond New York Real Estate principal Bruno Ricciotti.
Revin Kittles, managing director at Mark David & Company, said most of the OP listings he comes across are concentrated in the Financial District in newer buildings with a lot of units to fill. That’s no surprise, Citi Habitats COO Gary Malin said.
“Owners who are offering concessions now are bringing new units to the marketplace and have a couple hundred units to fill,” Malin said. “A lot of owners, when they were putting their marketing packages and budgets in place, figured they would be offering some concessions.”
The rarity of OPs marks a big difference from as recently as last spring, when many landlords still offered the incentive. Over the summer, the rental market benefited from its usual influx of recent college graduates moving to the city to start work. That seasonal demand has been exacerbated by a slowdown in the sales market, which has made many people decide to keep renting, and has also been fueled by rental buildings being taken off the market to be converted to condominiums.
Prices increased along with demand for rentals, prompting people who normally would have tried to trade up to bigger or nicer digs to stay put. At the end of August, the vacancy rate for Manhattan apartments was 0.76 percent, according to Citi Habitats.
“If it’s a strong market, you typically don’t have to pay commissions, and the market is very strong right now,” said Halstead Property leasing manager John Wassermann. “Owners may be willing to pay if it’s a difficult unit that’s not renting for some reason. You see it every now and then.”
The use of OPs grew after September 11 but began drying up in 2004. Of the landlords who still offer them, a few only offer a half-month’s rent. But the incentive gets used more in the winter, when the market slows.
“As the economy strengthened, they dwindled away,” Ricciotti said. “Since then, they come and go through the seasonal flux — in winter you see some.”
Still, this winter may not bring an OP bonanza.
“In the winter months, if [landlords] have inventory on hand, they may decide to put commissions on temporarily, but not on all units,” Citi Habitats’ Malin said. “They may offer them on two-bedrooms, but may not offer them on the studios and the [one-bedrooms].”
But the rise in rental rates may lead to more OPs — particularly on newer buildings in 2007. Some developers who are currently in the process of finishing projects originally slated to be sold as condominiums are considering putting them on the market as rentals.
“I’ve had some developers calling me to assess their projects,” Ricciotti said. Developers are finding that they can get 30 percent to 50 percent more on the rental market than they could when they began working on their buildings, he said.
In some cases, a studio that would have rented for $1,800 a month 16 months ago would now rent for $2,800 a month, he said.
Divvying up rental commissions
Most Manhattan brokerages charge apartment seekers 15 percent of the first year’s rent in commission. So the fee on a $3,000-a-month rental would be $5,400. That fee is usually split 50-50 between the agent and the brokerage. At some firms, more experienced and higher-producing agents earn more in the form of a higher percentage of the fee or bonuses. At City Connections, which unlike most firms charges monthly desk fees, agents pocket 90 percent and the firm gets 10 percent.
In rental buildings that still feature owner-paid commissions, those commissions typically amount to one month’s rent, or about 8 percent of the first year’s rent, and the apartment seeker pays the difference between that 8 percent and the standard 15 percent commission.