Manhattan rental market tightening

Real Estate Weekly, August 17, 1994 by Lois Weiss

"The story is simple," said Joel S. Herskowitz director of the rental division for Lawrence Properties. "There is nothing around. You can die for inventory. Anytime something decent comes up, boom, it's gone."

The demand for decent, affordable rentals in Manhattan has burgeoned in the last six months and brokers report a lack of new product, light turnover of low-rent apartments, and a decrease in shares contributing to the trend.

Even more significant, says Nancy Packes, president of Feathered Nest, a Manhattan company specializing in rentals, is that people are choosing to rent and not to buy studios, one-, and two - bedroom apartments.

And for the first time, she noted, those renters with the most money to spend - the two-bedroomers - are picking the West Side over the East Side.

"This demonstrates a marked preference of affluent renters for the neighborhood ambiance of the West Side," she said. "People take what they can get because the market is so tight."

Lisa Ann Rose, a broker in the Midtown offices of William B. May, says there are many people in the rental market that were never there before. "You have the sellers and I'm busy through the summer because a lot of people settle their lives in September." Indeed, the Rent Stabilization Association notes that 60 percent of all leases come up for renewal this September.

Tenants coming onto the market for the first time in several years are also discovering that for the most part, there is no longer any such thing as free rent, or an Op (Owner Paid), "no fee" apartment. Even those brokerages that sometimes negotiated on the 15 percent tenant-paid fee are holding firm.

"The prospective renters are confused," says Sari Goodstein, executive director of Goodstein Equities, the sales and rental division affiliate of Goodstein Management, "because they have friends who rented two years ago and didn't pay fees, and now there is an educational process for them to understand that it's a landlord's market."

Attorney Mark Rudd, a partner with Rudd Rosenberg & Hollender, agrees the rental market has tightened. "Clients are offering few, if any, inducements to attract tenants, nor are they offering to renew leases at the same rent just to keep the tenant."

While the addition of co-op and condo units and many market rate apartments are causing pressure on affordability for tenants coming into the market, owners are finally beginning to make some money. "Half of the market is non-stabilized," observes Packes, "and many owners are at the maxes [for rent regulated rents.] But look at the owners from 1988 to 1991, who were giving out below market rents."

Those owners who gave preferential rents to tenants must leave them in place, however, until that tenant moves out.

Until about a year and a half ago, recalled Gary Jacob, executive vice president of Glenwood Management, owners were paying a full fee. At that time, Glenwood and others switched to paying only half a month's brokerage fee, and within the last year, have stopped paying completely.

Coincidentally, as owners halted concessions, Jacob said, the vacancy rates have gone down. "There is a real strain on the market," he added.

Brokers believe the residential market is so tight because few new buildings have been constructed and the market has already absorbed the rental of most of the last of the unsold condominiums. And the owners of those condominiums and coops that are becoming vacant are seeking to sell them now, prior to another rental, because the sales market is picking up. At the same time, says Rose, boards are limiting rental terms to one year, with the board option to renew.

"While one bedrooms are not tight for sales, they are for rentals," she added.

Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), an organization representing apartment building owners, believes the market is rebounding in Manhattan below 96th Street and that is the reason for the lack of rentals. "The rents stopped going down, and started going up," he said.

"The most important thing is that prices are going up for studios, one- and two - bedrooms," explained Packes, "so people who could buy are renting, except for the largest category."

Even so, Rose said most rental buildings are 98 percent occupied for both one-and two-bedroom apartments. "People in the building get the first chance at vacant apartments, and nowadays, brokers have to call weekly," she said. "The people are renewing at the last minute." Many of them may have gone looking, and were not able to find something comparable or better for their money.

Projects like the new 36-story Glenwood building on the old ASPCA site that will be open this Fall with 273 apartments; the Lincoln Square condominium due to come on line this fall with a portion of the apartments for rent, and the Brodsky Organization developed Manhattan West, a two-building 421a, 80/20 project, containing nearly 1,000 rental units, are eagerly awaited.

Nathan Brodsky said they are striving to have a building open in the early part of 1995 and the entire project is scheduled for completion in the Summer of 1995. "The market is tighter than it was before," added. "No question about it. But we'll be having a lot units."