Rental fees at condos leap on strength of investor-owned units
Brokers complain that tenants are walking away from deals
In a city where landing the right rental apartment is celebrated like the birth of a child, brokers and tenants are aware that landlords hold all the cards, and have become used to paying a multitude of fees.
But as the market continues to heat up and an increase in units with absentee owners drives up the percentage of rentals in condominium buildings, some property managers have responded by hiking fees – leading to costly application packages that are frustrating both agents and their clients.
While brokers were divided on the impact such fee hikes have had on their business, they remain a sticking point for some agents; one described the increase in application fees at certain properties as “ridiculous,” telling The Real Deal that he had “lost plenty of deals” as a consequence.
At 555 West 23rd Street, for example, a $500 tenant application-processing fee has jumped to $650, according to rental application documents. In addition, the building has implemented a $500 non-refundable fee for both moving in and moving out – which, added to other document retention and consumer report fees, have taken application costs over $1,800.
Agents attributed the hike in fees to a change in management last year that saw property management giant FirstService Residential assume management of the building. FirstService did not respond to requests for comment. StreetEasy lists over 500 transactions at 555 West 23rd Street since 2006, at an average rent of $3,483.
“I think it’s a way for the management company to make money and also to present to the [building’s condo] board that people will less likely rent it out,” Douglas Elliman broker Frank Arends, who has done numerous deals in 555 West 23rd, told The Real Deal.
The fees make it more difficult for absentee owners to find tenants for their apartments. The reasons for doing so range from logistical considerations – “No tenant cares about their apartment as much as a unit owner,” one property management source told TRD– to more complex financial ones.
A Hell’s Kitchen condo at 505 West 47th Street, for instance, recently initiated a 3 percent “sublet fee” to be tacked on to renters’ monthly payments. Halstead Management, which runs the building, also introduced a condo processing fee that runs $250 for one-year leases and $500 for six-month leases that are written into the building’s bylaws.
Added to existing fees that include a $600 application fee from the management company and $500 fees for both moving in and moving out, the building’s total rental fees can now run in excess of $2,000.
A considerable factor in Halstead’s implementation of the fees was financial regulations, according to sources with knowledge of the management company’s decision. Certain Fannie Mae and Federal Housing Administration requirements prohibit banks from packaging or bundling condo mortgages if the percentage of rented units in a condo building is too high– which consequently hinders condo owners’ ability to obtain Fannie Mae-secured loans.
It is a problem that condo boards increasingly must consider if they contain a large amount of investor-owned units likely to be rented out. Higher application fees designed to control the percentage of rentals in a condo property are one knock-on effect of such requirements, and rental brokers have noticed the effect such fees have had on prospective tenants.
“Condo fees have seemed to be going up across the board, and I think it’s just because they can,” Cantor-Pecorella broker Ben Haymes said. “It adds up, and renters in other cities in this country don’t experience these fees anywhere else.”
“For renters moving in from out of the city, it’s a little disconcerting,” Haymes added. “It is a significant cost.”