New York Times - Ronda Kaysen - 06 January 2017
New York renters would be the first to tell you that rents go in only one direction: up. But after a long and relentless climb to historic highs, the momentum has stalled.
With renters unwilling, or unable, to pay ever higher sums, rents have largely flatlined. And it seems we have come to the year of the renter’s market.
In Manhattan, Brooklyn and Queens, inventories and vacancies are up, and landlords are offering new tenants discounts, like several months of free rent and no broker’s fee. In the Bronx and Staten Island, rents are holding steady because those boroughs did not experience the same rapid rent escalations or volume of new development. But that could change when new rental buildings open in both boroughs this year and in 2018.
The biggest deals are happening at the top of the market, where some luxury developments are offering as much as four months of free rent on a two-year lease. But deals are to be had in older, less expensive buildings, too. Despite these concessions, some apartments linger vacant for months. Worried that a slowdown will continue, many landlords are not raising the rent when leases come up for renewal, and some are even throwing in perks like gift cards.
any landlords and real estate brokers attribute the renter-friendly trend to an influx of new apartments: 11,514 new rental units came on the market in Manhattan and Brooklyn in 2016, and 13,340 are expected this year, according to Citi Habitats, a real estate brokerage. The large number of condominium apartments that investors have turned into rentals has added to the glut. These apartments are mostly luxury rentals, and too expensive for many New Yorkers. So tenants with smaller budgets are fanning out to neighborhoods like Crown Heights, Brooklyn, and Jersey City.
For the first time in years, apartment hunters and tenants renewing leases have the upper hand.
“Clearly, the market has reached a peak,” said Robert Scaglion, the executive managing director of new business development for FirstService Residential New York, which manages about 11,165 rental units in the city. Landlords across FirstService’s portfolio — from small older buildings in Brooklyn to luxury towers in Manhattan — are offering concessions and raising rents on renewals minimally, if at all. “There’s a sense in the industry that rents are not going to go up” in 2017, Mr. Scaglion said.
Cracks in the rental market became evident to many brokers last spring, when the typically brisk rental season felt lackluster. By fall, some brokers said the market felt as slow as the holiday season. “Last summer, things were definitely a lot different,” said Christophe Tedjasukmana, a salesman for Citi Habitats. “Some of the concessions are like out of the ordinary, extraordinaire.”
David J. Maundrell III, the executive vice president of new developments in Brooklyn and Queens for Citi Habitats, thinks the market started flattening out almost three years ago, and since then “we’ve been Band-Aiding everything with concessions.” In September 2015, “the rental market went off a cliff. It just went crazy quiet. That’s where we turned on two months’ free rent,” he said. “That was, in my opinion, the beginning of the downturn.”
By November 2016, concessions in Manhattan and Brooklyn hit record levels, according to a report by Miller Samuel, an appraisal firm, published by Douglas Elliman. That month, a quarter of all leases signed in Manhattan included a concession, nearly double the amount offered in November 2015. Concessions in Brooklyn more than doubled, to 15.4 percent from 6.6 percent during the same period.
Ben Shaoul, a landlord with about 1,200 rentals in Manhattan, offered concessions all last year, both for new leases and for renewals, with rents ranging from $2,500 a month to $30,000 a month. He plans to offer deals this year, too, paying new tenants’ broker fees and offering one or two months’ free rent, depending on the length of the lease. When tenants renew leases, Mr. Shaoul offers two-year leases with no rent increase and sometimes a $500 American Express gift card, too.
“That doesn’t usually happen,” Mr. Shaoul said. Other landlords are making similar offers. “Landlords are trying to lock in tenants for longer durations of time, if possible, because they’re concerned that softness will continue,” he said.
Despite these trends, rents hover near record highs. In the third quarter of 2016, the median rent in Manhattan was $3,405 a month, just shy of the second quarter when the median rent, at $3,424 a month, reached its highest level since 1991, according to Jonathan J. Miller, the president of Miller Samuel. There is a need for reasonably priced housing, yet developers are mostly building luxury apartments, which many renters cannot afford. “It’s not that too many rental units have been built,” Mr. Miller said. “It’s that too many rental units have been built at the high end.”
Mr. Miller expects that the market will be “slow going for a couple of years.”
Landlords would rather offer a few months of free rent than lower the base rent, because when base rents fall, the building’s value falls too. But come March or April, when the rental season moves into high gear, landlords will be pressured to move apartments. “Rents have got to come down,” Mr. Maundrell said. “That’s the only way to get the absorption rates back.”
While rents skyrocketed over the last decade, salaries have stagnated. Couple that with rising student debt, and you have a population that is struggling to pay the rent. Half of all renters in New York City are what is known as cost burdened, meaning they spend more than a third of their income on rent and utilities. Tenants often barely meet the income requirements necessary to sign leases, according to many brokers and property managers. Renters with full-time jobs frequently have to enlist a wealthy relative — assuming there is one — to guarantee a lease. At some point, renters hit a wall.
“When you are a tenant, you have a lot of headwinds that are in your way that are impacting your ability to pay,” said Gary L. Malin, the president of Citi Habitats. “Owners think that the market is always in their favor, and most of the time it is.”
But sometimes it isn’t.
Consider 7 DeKalb Avenue, a new rental in City Point in Downtown Brooklyn. The housing lottery for the building’s 200 affordable units drew 95,000 applicants. Yet the developers have spent nearly a year trying to lease the building’s 50 market-rate units, despite offers of a month or two of free rent and waivers of the $60 monthly amenity fee. Two-bedrooms are listed for $4,071 a month and one-bedrooms are listed for $3,257 a month.
In December, 10 months after leasing began, the developer amped up the concessions for the remaining five apartments, which were larger than other units and had features like terraces. To lease these units, the developer offered three months’ free rent on a two-year lease, offered a gift card for dry-cleaning and waived the $110 monthly storage fee along with the amenity fee. In early January, three apartments were still available.
“For a long time people felt like they could keep raising rents,” said Aron Gooblar, the vice president of Washington Square Partners, which is a developer of 7 DeKalb Avenue. “We’ve reached a ceiling.”
Savvy renters show up at leasing offices armed with binders full of brochures from other properties and pepper agents with questions about price per square foot, concessions and amenities packages. They have often visited dozens of other buildings, and they take notes. They are also more willing to travel far to find the right deal. “They’re looking at the Upper East Side, they’re looking in Jersey City,” Mr. Gooblar said. “We’re not just competing with the buildings around here, but with everybody.”
When Tess Rex and Kevin Denton started looking for a loft in Williamsburg, Brooklyn, last month, the couple did not want to spend more than $4,000 a month. They also did not want to pay a broker’s fee, which is typically 15 percent of the annual rent. After looking at about five apartments, they saw a two-bedroom in the Williams, a new building in South Williamsburg. It was no loft, but with views of the Williamsburg Bridge and amenities like a roof deck and pet spa, it was hard to resist.
But at $4,720 a month, the rent was significantly higher than what they wanted to pay. However, once they factored in the discounts — no broker’s fee and two months of free rent on a two-year lease — the apartment would actually cost them $4,326 a month. The couple also received a $250 holiday credit, which they used to pay the one-time pet fee for their dog, Bowie.
Although the apartment “was way out of our budget,” said Mr. Denton, 37, the national mixologist for Pernod Ricard, “it’s not so bad with the free rent.” Ms. Rex, 27, is the business development manager for M Tucker, a food service equipment supplier.
Of course, these concessions are likely limited-time offers, pegged to a softening market. Factor in the concessions, and the monthly rents are effectively lower than what appears on the lease. But once these introductory terms expire and the climate favors landlords again, these tenants could face sizable rent hikes.
Even novice renters are getting deals, like Brandon Kline and Abigale Koppa, a couple who moved from Long Island to Queens last month. They looked at a handful of apartments before settling on a $2,150 one-bedroom in Sunnyside. Their broker, Michael Sargent, a salesman for Citi Habitats, noticed that the apartment had been on the market for seven weeks and asked the landlord for a concession. The landlord offered a month of free rent.
“It was just sort of a wonderful surprise,” said Mr. Kline, 27, a high school teacher. “We didn’t even know that was a thing.” Ms. Koppa, 26, commutes to graduate school in Stony Brook, Long Island.
Of course, not all landlords are offering deals. Argo Real Estate owns and operates 2,000 rental units in Manhattan and Queens and has about two dozen units available, but the company is not offering any discounts. “In the long run, you do better with your client retention when you offer a good product at a fair price,” said Marina Higgins, the director of leasing for Argo. “At the end of the day, that’s what people want.”
Some new construction is leasing up quickly, too, even at the top of the market. Last May, 456 Washington Street opened with 84 luxury rentals, with rents averaging $15,000 a month. (The building’s 22 affordable units, leased through a housing lottery, started at $800 a month.) The entire building was leased in five months. “It had some of the most expensive units in the city,” said Chris Schmidt, vice president of leasing for Related Companies, which developed the property.
Still, Related, with 6,000 rentals in Manhattan, is offering some deals, like 1214 Fifth Avenue, where a few apartments come with three months’ free rent.
Why did a property like 456 Washington Street, with a $50,000-a-month apartment, lease up, while others languish? Not all luxury housing, apparently, is created equal. With so many apartments on the market, renters with deep pockets can be picky.
At 456 Washington Street, renters get sweeping Hudson River views and finishes more typical of a condo than a rental, like imported Turkish marble in the bathroom. The list of building amenities includes a library with an outdoor terrace designed by David Rockwell. “The days of generic luxury are over,” Mr. Miller said. “If you are going to be in the luxury market, it has to be extremely refined.”
Some landlords and brokers see the slowdown as a blip on a graph that is still heading up. Once the glut of new apartments gets rented, rents will start to rise again, they say. “It will continue to grow. It’s not stopping,” said Andrew Barrocas, the chief executive of MNS, a real estate brokerage. “When you think it’s hit the max, you hear things that just blow your mind.”
For some renters, the market still feels frenzied and painfully expensive, even with discounts. “It was easier to buy a house, quite frankly, than it was to rent an apartment,” said Ed Townsend, who sold his house in Maryland last fall to move with his wife, Lana, and son, Jesse, to the Upper West Side. The family started looking at apartments in September, hoping to find a two-bedroom for $3,000 a month.
The apartments they saw were tiny. “Typically, if there were discounts, they weren’t really great apartments,” said Mr. Townsend, 47, who works in start-up technology. Ms. Townsend, 30, works in accounting.
Then their broker, Kenneth Rhys, a salesman for Citi Habitats, showed them a two-bedroom in a prewar building on West 107th Street. It had large rooms but was listed for $3,600 a month. The landlord agreed to reduce the rent to $3,500 a month, pay the broker’s fee and give the family a free month of rent. “I was shocked,” Mr. Townsend said. “We were almost willing to pay the original price.”
But where Mr. Townsend saw a hot market, his broker saw a slow one, with deals to be had. “Landlords have considered lowering prices,” Mr. Rhys said. “But lowering the price alone hasn’t resulted in the units renting.” So he asked for more discounts, and got them.