New apartment rentals in Manhattan more than tripled in the third quarter, as landlords offered fewer concessions and tenants sought better deals by moving out. Photographer: Daniel Acker/Bloomberg
Dec. 28 (Bloomberg) — Home prices dropped more than forecast in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year. The SP/Case-Shiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. Bloomberg’s Jon Erlichman reports. (Source: Bloomberg)
Adam Neumann and his wife set out in
2008 to buy an apartment in lower Manhattan, hoping to get a
bargain on a 2,500-square-foot (232-square-meter) luxury unit.
Failing to find a deal, they chose an increasingly
practical option for the city’s wealthiest residents: renting.
They’re paying $300,000 upfront on a five-year lease for an
empty TriBeCa loft with almost twice the space that the landlord
will outfit to their design.
More people are leasing the most expensive Manhattan
apartments as rents fall and sale prices climb from last year’s
post-financial crisis lows. New leases signed for units with
monthly rents above $15,000, the top 1 percent of the market,
more than doubled to 77 in the third quarter from a year
earlier, according to appraiser Miller Samuel Inc.
“We want it to be just like owning, but you don’t have the
liability and the headache,” said Neumann, the 31-year-old
founder of an office-leasing company, who estimates the monthly
cost of his rental is slightly more than buying a unit half its
size. “I would rather keep the cash and keep my options open
than spend it all on property when I’m not clear where the
market is going.”
The median monthly rent for all luxury units in Manhattan,
defined as the top 10 percent of the market by price, declined
18 percent to $6,950 in the third quarter from a year earlier,
according to New York-based Miller Samuel. The median luxury
sale price rose 13 percent to $4.39 million, after bottoming out
at $3.78 million in the final three months of 2009.
Rental Supply
The divergent moves left the gap between the cost of buying
a luxury apartment and the annual cost of renting at its widest
since the first quarter of 2009, when the median purchase price
peaked at $6.6 million. Buying cost 53 times renting in the
third quarter, compared with 38 times a year earlier and 58
times in March 2009.
Leasing costs include annualized rent, taxes and
maintenance charges. The own-versus-rent comparison doesn’t take
into account the benefit buyers get by deducting mortgage
interest from taxes.
The supply of luxury rentals is being fed by owners who
don’t want to sell at today’s prices, said Jonathan Miller,
president of Miller Samuel. “Rather than wait, they rent it
out,” he said in a telephone interview. “It’s a win-win for
the disaffected seller and the nervous buyer.”
Adding to units on the rental market are developers of
unsold condominiums built during the property boom and condo
investors waiting for sale prices to recover further, said
Gordon Golub, executive vice president and director of rentals
at brokerage Citi Habitats in New York. There are about 6,000
unsold condos of all prices in Manhattan, according to Miller.
Trump Waiting List
Equity Residential, the largest publicly owned U.S.
apartment owner, has a waiting list of renters seeking penthouse
units in its three Trump Place buildings on the Upper West Side,
Frederick Tuomi, president of property management for the firm,
said in November at an industry conference in New York.
The units range in price from $9,500 to $22,000 a month,
with some would-be tenants seeking to combine more than one
apartment, said Marty McKenna, a spokesman for the Chicago-based
company.
“You don’t have to have ownership of the place to enjoy
it,” Tuomi said in an interview at the conference. Instead of
“tying up a lot of personal capital in a single asset,” he
said, “people are valuing optionality, flexibility.”
Manhattan Market
New apartment rentals in Manhattan more than tripled in the
third quarter, as landlords offered fewer concessions and
tenants sought better deals by moving out. New leases signed
across all price categories surged to 8,593 from 2,549 a year
earlier, according to Miller Samuel and property broker
Prudential Douglas Elliman Real Estate.
The surge in leasing was concentrated in the middle of the
market, which helped drive down the level of rents comprising
the top 10 percent.
In the Manhattan market overall, the cost of buying an
apartment was 25 times more than the annual expense of renting
in the third quarter, up from 24 times a year earlier. Rents in
all price categories rose 1.7 percent to a median of $3,000,
while the median purchase price gained 7.5 percent to $914,000.
During their two-year search, Neumann said he and his wife,
actress Rebekah Paltrow, sought out properties they thought had
fallen at least 35 percent in value since the market’s peak.
They found owners were unwilling to accept such a discount.
After seeing “at least 250” apartments in neighborhoods
south of 14th Street — including condos at 211 Elizabeth St. in
NoLiTa and TriBeCa’s Pearline Soap Factory — they decided
renting was a better deal.
‘Old-Fashioned Concept’
“You’re not owning, but you’re living better and you kept
your cash and you’re not falling into this old-fashioned concept
that you have to own a home,” he said.
The money he’s not spending to buy “can go into my
business,” said Neumann, co-founder of We Work, a New York firm
that rents shared office space by the month. “In my business,
my cash brings a much higher return than purchasing an
apartment,” he said.
“The good times we saw in the past are not coming back
anytime soon,” he said. “People are not going to buy a home
for $1 million and see it worth $2 million in five years. I see
the market going up but nothing like in the past.”
The couple is set to sign a five-year lease next month for
a 4,800-square-foot loft off Hudson Street that the landlord has
agreed to design and build out based on their input, said their
broker, Danny Davis of Citi Habitats. They plan to turn the
space into a four-bedroom, three-bathroom apartment, with
exposed brick and beams, Neumann said.
Simultaneous Listings
The couple’s $300,000 upfront payment will be used to
defray monthly rent once they move there in April. The lease
carries an option to renew for another five years, Neumann said.
In Manhattan, 45 properties listed for sale at $3 million
or more are simultaneously listed for rent, according to data
compiled by Sofia Song, vice president of research for property
listings website StreetEasy.com.
A 7,700-square-foot duplex penthouse at 610 Park Ave., with
five bedrooms, a “walk-in butler’s pantry” and a private
terrace, is listed for sale at $25.8 million, according to
StreetEasy. The monthly cost of owning the Upper East Side
apartment is $148,372, assuming a 20 percent down payment, a
mortgage at 5 percent and monthly common charges and taxes of
$18,786, according to StreetEasy.
‘Trophy Penthouse’
The monthly cost of renting that same apartment is $75,000,
or about half, according to the StreetEasy listing.
“It just seems like renting is a much better deal,” Song
said of the property.
On the Upper West Side, a 4,300-square-foot “trophy
penthouse” at the Grand Millennium, with “two massive
terraces” and Hudson River views, is listed for sale at $15
million, according to StreetEasy. Buying at that price would
mean monthly payments of about $77,000. It could also be rented
for $45,000 a month.
Of six properties listed for both sale and rent that Song
tracked in May, four of them were leased and two were sold.
“People are much more hesitant to put down their money
into such a large investment when there is such a strong
possibility that the market could go down further,” Song said.
To contact the reporter on this story:
Oshrat Carmiel in New York at
ocarmiel1@bloomberg.net.
To contact the editor responsible for this story:
Kara Wetzel at kwetzel@bloomberg.net