As rental marketing improves, luxury buildings rise
A prospective tenant at the Corner, the aluminum and glass curve at 200 West 72nd Street and Broadway, had recently signed a lease, but then learned he had to relocate overseas. He was forced to back out of a one-bedroom penthouse, a rare setback for the building, but just three days later, another renter was found.
Despite the Corner’s ambitious rents - two bedrooms start at $11,800 per month and three-bedrooms that approach $40,000 - apartments have moved at a sizzling rate. After a mere six months on the market, only two of the 195 units in the building remained unleased.
“It was the perfect storm,” said Patty Schmitz, a leasing agent for the building. The marketing efforts involved a modest amount of print advertising, and it turned out that the best ad was the building itself: 60% of the tenants first saw the building on the street, along with some broker traffic.
The Corner is not your typical Upper West Side rental. For one thing, it has elevators, along with 47 different floor plans, and a unique position on Broadway.
“There are no bad views,” said Schmitz.
It has also benefited from the collapse, and still recovering, condo market, luring wealthy New Yorkers who are still skittish about tying up a large amount of their wealth.
“People are apprehensive about purchasing. This is a perfect place to park themselves,” said Schmitz. “They’re not giving up anything “
And in what’s becoming an increasingly popular trend, the Corner also has ground-floor retail space, including a Trader Joe’s, Bank of America and, soon, a Duane Reade. While that stretch of Broadway is relatively well-stocked with retail, having such commercial tenants adds another level of convenience, and another reason to rent at the building.
Throughout the island of Manhattan, similar new rental developments have appeared in the midst of the downturn and, as the entire market improves, the outlook is positive. The end of 2010 - a traditionally sleepy season that sees a lull of activity - was extremely busy.
The Real Estate Group New York (TREGNY)’s December 2010 data on the rental market reported inventory was down 4.52%, an unusual trend for the end of the year. Rents also increased overall by 1.38% compared to November.
Andrew Barrocas, CEO of TREGNY, said it was the first time in his 10-year career that he saw the economy as the main driver of the rental market, rather than seasonal trends. Local unemployment in New York, while still high, is lower than the rest of the country, and anticipated Wall Street bonuses will likely boost the higher end of the market even further. He predicts another 5% to 10% increase in rents in the coming months.
Historically, the last boom saw a fixation on condos, while there was a dearth of new rental buildings, particularly in the high end of spectrum. “There was very little rental inventory brought to the market,” said Barrocas.
Part of that shortage was tied to demand. Because of the ease of financing, prospective buyers could swiftly obtain mortgages and buy a home, which was often seen as an investment first, rather than a place to live. Although New York has always been a renter’s city, flashy new buildings were generally sold, rather than rented.
Now, that has changed.
The Ohm, a tan-and-turquoise behemoth at 312 Eleventh Avenue with 369 rental units, towers over much of the gritty neighborhood of West Chelsea. It seems at odds with the existing neighborhood, which was long known for its lo-rise manufacturing buildings and proximity to the rail yards.
Despite its sharp contrast, the Ohm has ridden the rental market to lease 95% of its units in less than a year with remarkable velocity, with upwards of 50 deals per month throughout the last summer. The building has just a few pricier units left on the upper floors.
“It’s very encouraging,” said Steven Charno, president of Douglaston Development, the developer of Ohm. “I think the rental market in Manhattan really performed very well considering how bad this recession was and how much product was built at exactly the same time.”
The development benefited from factors both internal and external. The much-lauded High Line park will open its northern portion this year, and the north entrance is next to the Ohm.
As with the Corner, the developers brought a grocer to the building’s base: a 2,500 s/f Hamptons Market Place, a gourmet deli that is convenient for residents. They also ran a morning shuttle bus to Penn Station, dubbed the Ohm bus, which proved to be popular, and added a night bus beginning this year.
Douglaston partnered with the Knitting Factory to bring in concerts, capitalizing on the neighborhood’s nightlife reputation, and has a comedy show planned for this week.
“Our goal, now that the building is full, is to keep our residents happy,” said Charno. “We’re not taking any services away.”
The Ohm is roughly 15% studios, 55% one-bedroom units and 30% two-bedrooms.
Douglaston is also marketing the Edge in Williamsburg and affordable housing projects, particularly in the outer boroughs, but the Ohm is arguably its biggest success in recent years.
To be fair, one driver of speedy absorption was generous landlord concessions. With so many units, developers were almost mandated to offer a month or two of free rent, or pay for brokerage fees.
But one company, Manhattan Skyline, bucks the trend. The family-owned business is one of the largest owners of no-fee rentals in the city with some 3,500 units among 20 buildings. Manhattan Skyline never offers free months of rent, and while it was paying for some brokers’ fees, that practice has also ended as the rental market has improved.
Its newest project is 55 Thompson, a smaller building with 38 units in Soho, which is 50% sold. Rents start at $6,500 per month for one-bedrooms, $12,000 for two-bedrooms and $18,000 for three-bedrooms.
“The rents are extraordinarily high,” said Zucker. But as with its other buildings, Skyline declined to offer concessions like one or two months of free rent, and that hasn’t deterred buyers who are looking for condo-level amenities, including a 24-hour doorman, washer and dryer in each apartment, and a fitness center.
Skyline is also saw unusually high amounts of renters at the end of last year, in all demographics. Renters at 55 Thompson include young families, hedge fund managers and, shockingly, grad students (with generous parents). Even some Californians and Europeans who were staying at the Thompson Hotel, which is across the street, and Trump Soho, decided to rent their own place instead of continuing to pay by the night.
And in move that’s sure to please the city government, after the company’s blockbuster purchase of purchase of 111 Eight Avenue, Google employees are already inquiring to Skyline about rentals, particularly at its building near 30th Street and Ninth Avenue.
Throughout its rental portfolio, Skyline’s vacancy rate is a mere 1.5% or so, indicative of the tight inventory throughout the city.
“Usually this rental season is very slow,” said Zucker. “It’s been a steady stream.”
Part of 55 Thompson’s ability to command such rents is, again, due to lack of inventory - particularly the sort of modern, upscale stock in a neighborhood like Soho. That isn’t an accident - Greenwich Village and Soho are among the most difficult places to find vacant parcels, and most new construction involves demolition.
55 Thompson replaced an ancient parking center, which Skyline had owned for years. Zucker says it was in disrepair, but local preservationists unsuccessfully fought to have the building landmarked when Skyline announced it was going to demolish it to build a rental building. In the end, they managed only to save a priceless medallion that adorned the original building’s façade - it depicts a Model T Ford exiting the Holland Tunnel - which now sits on 55 Thompson’s roof. The demolition of the building remains a sour point for some locals.
“There were no dangerous conditions violations issued by the city, no citations for unsafe conditions, no signs from the outside of structural failure, bowing, or anything like that. Plus, right up until demolition they were parking cars there, so there were several tons of stress on the building on a daily basis. I’m sure the building was old, but that’s about it,” said Andrew Berman, executive director of the Greenwich Village Society for Historic Preservation, one of the main opponents of 55 Thompson.
Further downtown, a less controversial, but hotly anticipated development is leaving many brokers and renters salivating.
That tower is, of course, 8 Spruce Street, which is being marketed as “New York By Gehry,” named for its renowned architect. The striking, rippling steel building will likely command the highest rents in the city, with the tallest apartments have some of the best views in the entire city, if not the world.
Cliff Finn of Citi Habitats, one of the rental agents for the building, said they had received hundreds of interested renters, with marketing set to formally begin in February. Citi is teaming up with Nancy Packes Inc., which is a marketing consultant, on the project.
Although they have yet to settle on final asking rents, he said he expected studios to start just under $3,000 per month, and the higher apartments to have rents over $20,000.
Aside from its architecture, the building will also provide three floors of amenities, including a 50-foot pool, and house a public school in its base. But a major reason to rent at 8 Spruce is its unique stature.
“When you market a property like that, you can’t ignore the fact that it’s going to be unique,” said Finn.
In the Financial District as a whole, things are also looking positive. Brokerage Platinum Properties recently issued a report that found extended lease terms bringing a stability to the market and the decline of landlord concessions.
“Rents are definitely up,” said Daniel Hedaya, executive vice president of Platinum and a veteran of downtown, who prepared the report.
In a way, the area predicted the rise of the amenity-rich rental building. Most of downtown’s stock is new, stemming from conversions of old commercial office buildings. Along with relatively cheap rent compared to the rest of Manhattan, these buildings have gyms, furnished lounges, rooftop decks and more uncommon features like a golf center and screening rooms have become commonplace. They seem to have paid off: just a few years ago, Hedaya had to offer to pay for clients’ cab ride to get them to look at what Kent Swig dubbed “FiDi,” but now people actively want to rent there, he said.
“Downtown and the Financial District is really where the concept of a good amenity package came into being,” said Hedaya. “It’s something that’s definitely luring renters down here.”
It seems that competition has been no deterrence for success. Some of Finn and Citi Habitats’ other rental efforts have been very successful, despite coming on to the market at the same time as hundreds of other units. Silver Towers at 600 West 42nd Street, the two-building complex with an impressive 935 units, is 95% leased. The Beatrice, comprised of 302 luxury apartments on top of a 290-room luxury hotel at 835 Sixth Avenue, is 75% leased.
“In Manhattan, we’ve found, the more the merrier,” said Charno of Douglaston Development.
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