From seller to landlord: Agents say more clients making switch

Brokers find success putting stagnant properties on rental market

NYC Sellers Become Landlords Amid Hot Rental Market

(Getty)

Jake Indursky

Aug 2, 2024, 7:00 AM

For some sellers, the grass is looking greener on the rental side of the fence.

With rents near an all-time high and mortgage rates deterring buyers, the temptation — or need — for demoralized sellers to rent out their homes instead has been too hard to pass up.

“Sellers are hearing all these things about record prices for rents and they don’t want to miss out,” Corcoran agent David Palmieri said. “They want to test the waters and see what they can achieve.”

Corcoran agent Kunal Khemlani struggled to get offers this spring on an Upper West Side condo. But after dropping the asking price from $675,000 to $500,000, he rented it for $3,150 a month. The commission was far smaller than if he had sold it, but it was a worthwhile tradeoff for maintaining a client relationship.

“The best way to keep the relationship is to do a transaction,” said Khemlani, whose client paid a 12 percent broker fee. “This is a conversation I’ll have next year with her. And if she decides she wants to sell, it’s a guarantee, almost, that they come back to you.”

Khemlani said his client signed an exclusive rental agreement to make the switch.

Renting out co-ops and new-development units is less appealing because of bureaucratic or financial burdens for sellers, but they have also taken the road less traveled.

Palmieri had a client who listed her Upper East Side co-op for $1.5 million in March, dropped the price to $1.375 million over the course of the spring but still failed to garner high-enough bids. The client listed the unit for rent in early July and 15 days later landed a tenant at $7,500 a month.

Co-ops, which are known for stringent rules around renting, now have more incentive to tolerate it because a depressed sale price would reduce the value of units building-wide. “They don’t want their share value to really be [diminished by] the low sale number,” Palmieri said.

The appetite for renting co-ops extends to the top of the market. The three priciest co-op rentals on StreetEasy were all listed in the last three months.

The penthouse unit at 428 Columbus Avenue, newly listed at $38,000 per month, was for sale from May to July at almost $12 million. Compass’ Bahar Tavakolian, who has the listing, said the unit has already drawn interest from renters.

Perhaps even more surprising are new developments that have turned to rentals. Among them is a 25-story project at 100 Vandam Street that had a projected sellout of over $400 million in its 2020 offering plan, but has closed sales on just nine of its 72 units, according to public property records. The average discount from the offering-plan price was 21 percent.

A Jeff Green–led development in Hudson Square made headlines with a $125,000 per month rental last year and now has five units available for rent on Streeteasy. (One is listed for sale at $35 million, up $7.5 million from its initial offering price.) The building has listed 45 different units for rent since 2023, around the time Nest Seekers and Core Group Marketing took over sales from Serhant.

“It made no sense to sell them all in a market that seemed soft, when every indication I have is that this market will explode,” Green said.

New developments often don’t have the luxury of renting to avoid a down market, but Green said he has minimal debt on the project and no partners to answer to.

Jonathan Miller, a New York City-based appraiser, said he doesn’t expect the renting trend to continue much longer, with the Federal Reserve expected to cut interest rates in September.

“When there is a rate cut, rents will slip and housing activity will pick up,” Miller said.