Over the summer, broker Reba Miller had high hopes that her rental listing at 56 Leonard Street would fetch $32,000 a month. The owner had signed a contract on the new condominium more than three years earlier, and the plan was to sell it and collect a tidy profit.
But with new development resales “not lining up to what everyone dreamed and wanted,” Miller said the owners decided to rent it out until the right buyer came along. However, a drawn-out closing and a weakening rental market meant they had to lower their expectations. They pulled the listing.
The owners relisted the apartment in August, but with the rent reduced by nearly 30 percent.
“That $23,000 is a giveaway price….she’s done her part, now I have to do my part, that brokering pressure is on me,” the president of RP Miller said.
There are plenty of luxury condo owners facing the same set of issues. Across all price points, the rental market is challenged. In September, the median net effective rents slipped in Manhattan, Brooklyn and Queens, according to data from appraisal firm Miller Samuel. Citi Habitats estimates that 21,793 new rental units will be added to the market across the three boroughs by the end of this year. And another 21,434 units are expected to become available next year — meaning the rental glut is only going to get worse.
Luxury condo owners who are renting out their units are in a uniquely challenging position. Along with competing against major landlords in rental buildings who use concessions to reel in tenants, they are also up against a suite of condo investors who picked up units in pricey luxury buildings during the new development boom, and are now renting them out.
“There are more people who bought in the buildings as an investment than I or anyone was aware of,” said the Corcoran Group’s Robby Browne, whose own unit at 15 Central Park West is now rented for $16,250 a month, a drop from the $18,500 it used to score. “I would say the market for luxury rentals is down at least 10 to 15 percent.”
Landlords in some of the city’s most expensive condo buildings have been forced to slash prices to fill the eight-figure pads. At Macklowe Properties and CIM Group’s 432 Park Avenue, there are four units available to rent, according to StreetEasy, three of which have been price reduced.
“You’ve got two choices: you stay with it, or you make your adjustment so your owner is able to get his cash flow,” said Corcoran broker Stephen Gutman, whose listing at 432 Park was reduced from $55,000 a month down to $49,000 a month. According to Gutman, a condo owner 20 floors up listed their apartment for below market rent last year, which meant all the rentals in the building had to adjust. “It’s a spectacular building… but it takes a certain type of person to spend that type of money on rent.”
Dennis Hughes, also of Corcoran, said many condo owners now have to offer concessions — covering brokers fees and throwing in a month or two of free rent — in order to keep up.
“Otherwise you are the lone wolf out there with a high priced apartment… the consumer is savvy,” he said, adding that his two bedroom listing at Extell Development’s One57 has now been reduced by 5 percent down to $22,000 and includes the broker fee. “It’s simply more challenging… [but investors] came into this realizing this is not a static market.”
Brokers said renters at the high-end are overwhelmed with choice, and no one will rush to sign a lease. “You are competing with brand new rentals — places like the Four Seasons — the list just keeps going,” said Compass’ Kirsten Jordan. Her no-fee loft rental listing at 79 Laight Street is now advertised for $20,000 a month, even though the current tenant is paying $26,000.
“This year, there were people who thought they were going to get $50,000 who ended up with $30,000,” she said, although she noted that it can be impossible to know exact rents because brokers do not always disclose them. Jordan suspects that many renters could be choosing to stay in their apartments and negotiating new lease terms, which is slowing down the number of people on the market. “It’s an open market economy and you have to compete in different ways,” she said.
“On the renters side, the common feedback is that there is no rushing at all — even at the high-end they are looking at value,” said Brown Harris Stevens’ Bastian Weinhold, who is listing a three-bedroom rental unit at One Beacon Court for $40,000, which is a $20,000 price cut on the rent it scored in 2015.
“From a certain point on it’s not worth renting an apartment…they are not desperate for money,” he said.
Not too shabby
It’s not all doom-and-gloom, other brokers said, with some high-end rentals moving relatively quickly. “You have to be very sharp with what you are offering, there has to be something special to it,” said Corcoran’s Andres Perea-Garzon, who manages a portfolio of short-term rentals at the Pierre, including a unit that is on the market asking $500,000 a month.
That unit, he said, performs well because they allow short and long term rentals, and it works out to be cheaper than staying in the hotel. “It’s a very niche market,” he said. “We are not as affected [by the weaker market] as an another premier building would be.”
Others claimed, even where is tough competition, distinctive units will always rent well.
“We’ve negotiated very little on them, and our fees have been paid and there’s been no pushback,” said Stribling’s Sean Turner of her rentals this year, which includes a no-fee penthouse at 62 Wooster Street asking $75,000.
“Everything is cyclical, and if you are in the business and you wait long enough, it will always change.”