Luring Affluent Renters in Manhattan

Author: VIVIAN S. TOY, The New York Times
Date: Sunday, June 29

Luring Affluent Renters in Manhattan

By VIVIAN S. TOYPublished: June 29, 2008

ONE month’s free rent. Two months’ free rent. No security deposit.

How about a year’s worth of storage at Manhattan Mini Storage or an appointment at a doggie day spa for Rover on moving day?As the rental market in Manhattan has softened in recent months, these are some of the incentives that owners of high-end buildings are offering to lure tenants. The more elaborate enticements tend to be in new buildings that landlords are trying to fill as quickly as possible, but even owners of some established buildings are offering incentives to avoid having apartments go vacant.“We definitely have seen a shift in the dynamic of the marketplace,” said David J. Wine, a vice chairman at the Related Companies, which owns and manages about 5,000 rental units in New York City. “The frenzy of a year or two ago has abated, and we’re seeing renters be a lot more thoughtful in their rental decisions.”Landlords have adjusted accordingly.“A lot of landlords were getting ready to increase rents for the busy season, but they’re finding that those projected rents aren’t attainable,” said Daniel Baum, the chief operating officer at the Real Estate Group New York, a Manhattan brokerage. “No one anticipated having problems on the rental side, and it’s definitely forcing property owners to take a second look at marketing and to rethink their pricing.”Market-rate rents have continued to rise, but the rate of growth is nowhere near the double-digit increases that landlords got in recent years.

Brokers and building owners say that the troubled financial markets and layoffs on Wall Street probably led to the slow start of the rental season in April. Volume had increased by late May, but professionals in leasing offices say that the incentives being offered in the prime summer rental season are a clear sign of a weaker rental market. (Rents in the city’s one million rent-stabilized apartments, regulated by government and not the market, this year will be allowed to increase by up to 4.5 percent on one-year leases and 8.5 percent on two-year leases.) Market-rate rental buildings offering incentives tend to be clustered in specific neighborhoods, including the financial district, Harlem, Washington Heights and areas in the far eastern or western edges of Manhattan. “If a neighborhood is far from the subway or if there is some kind of negative, then that’s where the owners are going to want to do something to make it more attractive to renters,” said Gary Malin, the president of Citi Habitats.At 20 Exchange Place, a 57-story bank building in the financial district that is being converted into rental apartments, the owner is offering to pay brokers’ fees, giving one month’s free rent and agreeing to forgo a security deposit. The building is also offering the free day at the downtown pet emporium, the Salty Paw, to help make moving day as stress free as possible for pets and their owners. Tenants began moving in earlier this month. Jack Berman, a vice president at Metro Loft Management, the building’s owner, developer and manager, said the incentives seemed like a good tactic. “The market’s a little bit softer than it was this time last year,” he said, “and we wanted to hit the ground running. There are other competing buildings as well, and we have to play along.”

For Mackenzie Rosenthal, who will be a senior at New York University next year and who will be moving into a one-bedroom at 20 Exchange Place this summer, “the perks were just kind of too good to pass up.” She said she and her father had “pored over the lease, saying: ‘Where’s the catch?’ but as far as we can tell, there doesn’t seem to be one.”When she and a roommate moved into her current two-bedroom walk-up in the East Village, they had to come up with $12,000 to cover the broker’s fee, security deposit and first and last month’s rent. “That was just ludicrous,” she said. “But when I move into my new apartment, all I need is the first month’s rent.”Ms. Rosenthal said that after factoring in the free month’s rent, her $3,000 apartment will cost her $2,750 a month. She worries that she will not be able to afford to stay in the apartment when her one-year lease is up, but her broker, Jeffrey Carlson of Platinum Properties, said that as an original tenant, she might be able to negotiate the same rate at renewal time. Whenever the sales market slows, as it has in the last year, the rental market generally improves, absorbing potential buyers who opt to rent instead. But so far, both markets seem to have hit a plateau in New York City, and brokers and landlords fault the overall economy.“Like every other business, the apartment market is a little tentative right now,” said Linda Early, vice president of New York operations for Archstone, which owns 11 luxury rental buildings in the city. “People are being more tentative and selective, so we’re having many more people coming back for second looks.”As in past summers, recent college graduates have arrived in the city with job offers in hand, but not apparently in the same numbers as previous years.

There are no firm statistics for recent hires, but the city reported losing 4,000 jobs in May, which is the biggest monthly job loss since May 2005 when 6,700 jobs were lost, said Marisa DiNatale, a senior economist at Moody’s, a research company in West Chester, Pa. “It’s definitely been getting progressively worse,” Ms. DiNatale said. The numbers are almost sure to grow, she said, because many of the people laid off by Wall Street firms will not officially become unemployed until their severance pay runs out. For the entire metropolitan area, she said, Moody’s is projecting a loss of 60,000 jobs by the beginning of 2009, with about 45,000 of those jobs in financial services.Mr. Wine traced the change in the psyche of the rental market to the collapse of Bear Stearns in March. “The Bear Stearns fallout froze everybody,” he said. “Anybody who is in the financial markets saw that unfold and said, ‘Let me just take a breath.’  ”He said that so far Related had not offered incentives across the board at any of its buildings. “We offer incentives selectively, depending on the day, the individual unit and lots of different factors,” he said. “But there definitely are negotiations taking place in the marketplace.”Shane Kramer, director of leasing for Bond New York, said that not since the months after Sept. 11, 2001, had he seen so many building owners offering free rent and agreeing to pay brokers’ fees. “The theory is owners may be anticipating something,” he said, “so they’re doing what they can to keep the rent rolls higher.”Landlords are also being a little bit more flexible about move-in dates. “In the past, if you come in today, they might want you to sign a lease immediately and move in tomorrow,” he said, “but now they might be willing to let you move in two weeks.” Incentives and negotiability, of course, are not happening uniformly. Most buildings that are offering incentives are ones with higher rents, but at least two of the city’s biggest luxury apartment landlords have not offered any incentives: the Glenwood Management Corporation, which has 23 luxury rental buildings in the city, and Rose Associates Inc., which manages about a dozen high-end rental buildings.Competition for apartments in the midmarket — where one-bedrooms rent for about $2,500 a month and two-bedrooms fetch about $3,200 — is also as intense as ever. Jakobson Properties, which owns and manages about 2,000 midmarket apartments in Manhattan and Queens, had a busier April this year than last and did not offer any incentives, said Peter Jakobson Jr., a principal in the company. But he said that he had not increased asking rents as much as he might have in a stronger market. For a one-bedroom in Queens that had been renting for $1,800, he might have sought $1,900 for it six months ago, but it is now on the market for $1,850, he said. “We’re not offering incentives,” he said, “but we’re reducing the prices to the market.”

Mr. Malin said a recent Citi Habitats search found about 70 buildings offering incentives. The owners of these buildings, he said, “are doing what they can to make their property stand out from another property across the street.”Joseph Keane, a managing partner of Keane Homes Inc., which owns and manages about 450 apartments in 18 buildings in Queens, said he had started advertising one month’s free rent for apartments in Astoria and Forest Hills after seeing the incentives being offered by landlords in Manhattan.“When I started to see the ads in Manhattan,” he said, “I wanted to be on top of the curve here in Queens. I would help pay broker’s commissions, too, just to fill the units up.” The incentives at 188 Ludlow, a 25-story building on the Lower East Side, have gotten better since the building started leasing apartments in September. It is now 90 percent leased and in addition to one month’s free rent and paying the broker’s fee, it is offering to provide and coordinate a renter’s move and to pay for a year of storage at Manhattan Mini Storage. “I think we have the most comprehensive incentive package out there,” said Scott Taylor, the building’s leasing manager. “We’ve been playing with it to see what incentives inspire people.”

Two of the largest buildings offering incentives are conversions that are adding about 1,000 new units to the financial district: Dwell, at 95 Wall Street, and 20 Exchange Place. At Dwell, an office building being converted into 503 apartments designed by Philippe Starck, the owners are offering two months’ free rent and paying a broker’s fee worth two months’ rent. Clifford Finn, the managing director of new development marketing at Citi Habitats, which is marketing the property, said the incentives were more than typical for a new development, “because this product is very unique and it’s a very high price point for the financial district.” Studios start at $2,665 a month, one-bedrooms at $3,890 and two-bedrooms at $6,260.Paying brokers’ fees naturally helps to market the property, because it not only encourages brokers to bring clients to the building, but also means the agents will spend their own money to advertise it. Edward Cho, an agent at Urban Sanctuary, who has listed apartments at 95 Wall Street on the Web site Craigslist, said he thought the incentives were working. “They have a lot of units,” he said, “but with all the incentives they’ve been offering, they’ve been quite busy.”The incentives persuaded Steve Alaimo, one of Mr. Cho’s clients, to rent a one-bedroom for $4,100 a month. Mr. Alaimo said he had looked at buildings across Manhattan and probably wouldn’t have chosen 95 Wall without the two months’ free rent. “Averaged out over 14 months,” he said, “the rent is about $3,500, and I know I got a lot more for my money than anything in that price range would offer.” He was referring to the apartment’s design, and to amenities like 24-hour concierge service and free breakfast served daily in a penthouse lounge.Looking ahead, Mr. Wine of Related said that a year from now, the Far West Side of Manhattan between 37th and 42nd Streets may be one of the busiest areas in the city for rentals.Related and several other major developers plan to open buildings that are expected to add 1,500 to 2,000 new apartments to the area.“In that submarket,” he said, “there will probably be incentives for renters. Or maybe the timing will be great for the market to absorb it — it will be a very interesting time when all those buildings come online.”  


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