From the June issue: After experiencing an incredible run-up in prices over the last five years, the NYC luxury rental market may be finally hitting a ceiling. All told, an estimated 8,000 rental units are entering the NYC market this year. They include the Durst Organization’s 750-unit starchitect project VIA 57 West at 625 West 57th Street, Related Companies’ 84-unit complex 456 Washington and Moinian Group’s Sky at 605 West 42nd Street, which will boast 1,175 apartments and 70,000 square feet of amenity space. Meanwhile, investors who bought condos at projects like One57 are adding to the luxury rental market.
In our third and final web installment, we turn to Brian Upbin of Two Trees and Andrew Barrocas of MNS.
Brian Upbin
Head of asset management, Two Trees
What kind of monthly rents are you seeing in Brooklyn? How do those rents compare to a year ago and the recent past in general?
We continue to see strong demand and growth in monthly rents in the Brooklyn luxury rental market on a year-over-year basis. Our newest rental offering at 60 Water Street in DUMBO, which opened in late in 2014, has commanded the highest rents in the borough per square foot because of its incredible waterfront views and amenities, including a roof deck designed by James Corner Field Operations, while the rest of our Brooklyn rental portfolio has shown solid year-over-year gains and very high occupancy rates. We fully expect there to be strong demand for BAM South, our latest mixed-use project in Fort Greene, which includes market-rate and affordable rentals, slated to open later this year.
Are you concerned about a rental glut?
While this new supply coming on line will sharply expand the inventory to renters, we wouldn’t characterize this growth as a glut. We believe that the quality of product coming to market will attract a larger set of prospective renters to consider these areas.
How long is it taking for luxury rental buildings to reach full occupancy?
Many factors can affect the time it takes to reach full occupancy, including the number of units, the time of year and season when leasing begins and when the building first opens to residents moving in. We generally see rental buildings reaching full occupancy one full leasing season after construction has completed.
Andrew Barrocas
President, MNS
Where are you seeing softening in the luxury market? How do rents compare to a year ago and the recent past in general?
At $10,000 per month and above, you’re going to continue to see softening, as investors look to rent out units or developers, like Extell, take a block of apartments and try to rent them. That’s going to be very challenging. On the super-high-end luxury side of the market, the 2,000-square-foot-plus apartments don’t pencil out well as rentals. Rentals tend to be more efficient units. Yes, there are renters willing to pay $100,000 for a month, but how deep is that market? A lot of people who purchased units to rent out or developers who can’t sell inventory fall back on renting them out. There’s no oversupply of tenants willing to pay over $20,000 per month. That means investors who bought units with the intention to rent will have to rent them for less than they anticipated because of the oversupply. Below $10,000 per month threshold, there’s still lots of demand in neighborhoods like West Chelsea on the High Line and moving all the way up to Hudson Yards.
And what concessions, if any, are landlords offering in the luxury rental market these days?
It varies. On a single unit for rent in a condominium, there is typically no concessions. If a landlord has 10 units of that size, they’ll probably offer the normal concessions, like a month’s free rent or coverage of the broker fee. I haven’t seen any weird ones, though that is usually an indicator that the end is near, when you see them throwing in cars and fun stuff. I haven’t seen that. You’ll probably see that in the next couple of months in Miami.
Where do you see rents for luxury apartments in Manhattan and Brooklyn going in the next six months? Will there be a recovery or do you see a continued decline? Which Manhattan or Brooklyn neighborhoods are seeing the biggest declines in rent prices?
At the $10,000-a-month-and-lower price point, there are certain areas that are seeing a little bit of slowdown as large amount of product comes to those neighborhoods. People’s anticipated prices are not being met because of the amount of supply. These areas include Long Island City, Downtown Brooklyn and Williamsburg. People priced units expecting increases based on history, but at a certain point, a market always catches up with itself. Take Williamsburg. There’s a tremendous amount of inventory. The way you can differentiate yourself is based on service you offer. We represent one of the largest buildings here, and we focus on the lifestyle that is created inside the building, on giving tenants a good experience. We’re not seeing the rent declines yet. There is demand for quality.
What is the lending environment right now for financing the construction of new development rentals, especially without the 421a tax abatement?
It’s virtually impossible. Without the tax abatement, you cannot make the rental work. It will be a huge hindrance to the rental market.