Candace Taylor

Publication: The Real Deal
Date: Wednesday, July 1

Spring awakening for rentals

July 01, 2009 02:48PM By Candace Taylor

The jury's still out on the sales market, but Manhattan's notoriously hectic summer rental season is carrying on at its usual pace — financial crisis or not.

Prices may be lower and incentives more plentiful, but summer is still the busiest time of year for rentals, and that hasn't changed, brokers say.

Some brokers are even reporting that they are doing more business this year than last year, spurred by the low rents and broker's fees being paid by landlords.

"From January to May, every single month was better than the previous year's for rentals," said Issac Krispin, the president of Urban Sanctuary, a brokerage with two Manhattan offices.

While the strongest part of the rental market is still apartments at rents of less than $3,500 a month, Adina Azarian, the founder of rental brokerage Adina Equities, said she has started to notice some pre-Lehman Brothers market memories starting to reappear.

"In June we have experienced bidding wars on rental apartments, and tenants filling out applications for apartments after only one day on the market," she said.

Meanwhile, some customers have started to pay broker's fees again.

Azarian attributed this activity to the fact that, financial crisis or not, Manhattanites are still willing to fight for the right apartments, albeit at a lower price.

"I think it's a combination of it just being the rental season, and [the fact that] when a tenant sees an apartment they like, they do want to make it their home, regardless of who pays the commission," she said.

With the sales market still uncertain, agents who previously did primarily sales are more frequently turning to rentals, and firms are doing their best to harness the strength of the summer rental market.

Marilyn Harra Kaye, president of MLBKaye International Realty, said sales contracts are down some 75 percent from the same time last year, but she has hired more rental agents to capitalize on the altered marketplace. "There is a bigger rental market this summer," Kaye said. "Last year it was mostly sales."

The shift is leading to some frustration on the part of experienced rental brokers, who say these rental newbies are bungling transactions.

"Rental deals are falling apart because sales agents are ineptly trained in dealing with landlords, managing agents and renters," said Antonio del Rosario, president of sales at AC Lawrence & Company. "Rentals are a very different animal than sales. It frustrates seasoned rental agents to work with veteran sales agents who have never done a rental."

He added that the company's rental managers have been busy coaching former sales agents.

With that said, there has been some improvement on the sales side, with an increase in open house activity and contract signings. Brokers say that's largely a result of seasonality and the fading of the initial paralysis caused by the Wall Street meltdown.

"There was so much pent-up demand that buyers who were waiting on the sidelines exploded once they started experiencing this seasonal uptick," said del Rosario, who noted that one 23-year-old agent at his firm had two signed contracts in one week last month for apartments in Park Slope and the Upper East Side.

Still, the sales market is shaky at best, with prices undeniably lower than before the crash. Kaye estimated that prices for walk-up buildings have fallen up to 30 percent; less-prime locations have seen their prices drop by at least 20 percent; and even highly desirable areas, like the West Village and Upper East Side, have seen 5 to 15 percent price drops.

"The strongest market is on the Upper East Side and the weakest is probably the Lower East Side and Harlem, so pricing is critical in all these areas," said Karen Gastiaburo, a senior vice president at Warburg Realty Partnership.

Despite the recent uptick in activity, sales are drastically slower than they were last year.

"My team volume is off by 50 percent from this time last year," said Sotheby's Nikki Field, though she expects that to improve because she has several deals in the process of being completed.

Zhann Jochinke, the co-chair of the market trends committee at the Manhattan Association of Realtors, estimated that overall contracts and closings volume for Manhattan is down 25 to 30 percent from June 2008.

And the economy is still weak. Brokers are well aware that activity may drop again once the summer's activity is over.

"I just hope it sticks and it isn't just a psychological spring awakening," del Rosario said. "I would be more assured if the fundamentals of our economy [were] fixed, like the rising unemployment and the cleanup of our banking system."

Indeed, the credit crunch continues to hinder buyers' chances of getting mortgages.

"Financing is wreaking havoc with regards to transactions closing," said Frances Katzen, a senior vice president at Prudential Douglas Elliman.

Evidence of the remaining malaise can be found in larger, more expensive apartments, which are still barely moving despite an increase in open-house attendance, a likely consequence of the lack of jumbo loans.

"Anything over $2.5 million doesn't move," said Elie Pariente, managing partner at Urban Sanctuary, noting that more of his business is in the $500,000 to $1.8 million range. "Consequently, the Soho/Tribeca market, which is mostly made up of big lofts and family apartments, has been extremely hurt over the past year and I don't see any recovery, although the open-house traffic has increased."

As a result of these factors, the long-predicted contraction of the real estate workforce has now begun, with more agents dropping out of the profession.

"You now have to be a fine negotiator to close a deal, and not just a showing agent," Pariente said. "I do believe that only the talented agents will survive this market."

Or, as Field put it: "The Wild West is over. A successful broker must be a true professional to survive."

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