image of 550 Vanderbilt in Brooklyn

Nearly 40 percent of the 191 condos sold at Brooklyn’s 550 Vanderbilt Ave. between late 2016 and early 2018 were listed for rent on StreetEasy within six months of closing.

Over the course of New York City’s recovery from the financial crisis, developers have invested heavily in new condos to appeal to the growing number of affluent professionals  seeking to call the city home. New York’s changing skyline stands as a testament to its ability to attract well-heeled buyers from around the world. However, a close examination of public records and StreetEasy listings illustrates that a crucial segment of the market is made up of buyers with no intention of living in their new condos. Instead, these buyers — who make up a significant portion of the ownership in many prominent new buildings — are placing their units on the rental market immediately after purchase, and treating them as another income-producing investment. According to our analysis, more than than one in every 10 condo units sold in New York City in 2017 was listed for rent on StreetEasy in the six months after its purchase.

Rental Condos Are Competing With Other New Buildings

Renting out condos for investment income is not new to New York, but the share of freshly purchased units listed for rent has risen substantially over the past decade. More than 1,300 condo units bought during 2017 were listed for rent on StreetEasy within 180 days of closing — the highest level in StreetEasy history, both in absolute terms and as a share of the number of condos sold in the city.[1] This growth was led by large increases in Brooklyn and Queens, where rental listings of recently purchased condos more than doubled in 2017. This trend has persisted despite the enormous number of new rental homes arriving on the market — often in the same areas as new condo development — and despite the fact that new development has slowed rent growth to some of the lowest rates since the financial crisis.

Listings of newly purchased condo units for rent have increased as the total number of condo sales has trended downward. Condo sales across the city have fallen steadily from their peak in the third quarter of 2013, reaching a five-year low in the first quarter of 2018. This suggests that one crucial source of demand for new condos in the city is investors dependent on the rental market, who buy new properties to rent out even in areas where the rental market is heavily saturated.

In Some Buildings, More Than a Third of Sales End Up as Rentals

Condo units listed on the rental market shortly after their sale tend to be concentrated in new buildings. The 10 top-selling condo buildings[2] in 2017 accounted for 10 percent of all condo closings in the city, but more than 22 percent of the total number of units listed for rent after closing. Six buildings with more than 25 closings in 2017 had more than a third of those sold units listed on the rental market.

Among these high-selling buildings were several in areas already dense with new rental development. The developers of 550 Vanderbilt, part of the Pacific Park project on the northern end of Prospect Heights in Brooklyn, sold 172 condos in 2017, making this the second best-selling building in New York City for the year. Of the 191 total units sold at 550 Vanderbilt between late 2016 and the first quarter of 2018, 75 of them — nearly 40 percent of the total — were listed for rent on StreetEasy within 180 days of closing.[3]

These units face significant competition from other buildings within the same development, along with nearby new construction. The market-rate rental building 461 Dean St. is part of the same Pacific Park development and opened at roughly the same time as 550 Vanderbilt, with more than 300 units for rent. 535 Carlton, another Pacific Park building entirely devoted to what were earmarked as below-market affordable rentals, now lists its income-restricted units for rent on StreetEasy after a lottery failed to generate sufficient interest.

Though 550 Vanderbilt had more newly purchased condo units listed for rent than any other building in the city, it is hardly alone in the trend of new condo buildings with numerous units sold and then listed for rent on StreetEasy. In Williamsburg, recent construction has focused predominantly on new rental buildings and less on condos. Yet one of the few major condo buildings to open in recent years, the Oosten on Kent Avenue, has seen 56 of its 172 units sold listed for rent on StreetEasy. Similarly, in the rental-dense waterfront of Long Island City, where rents have fallen sharply over the past year, 31 of 78 units — 40 percent — sold in the Harrison during 2017 were listed for rent on StreetEasy.

Rental Condos Are Testing the Limits of Luxury

image of one west end condo

The median rent for the 59 condos listed for rent in One West End is $7,500 — more than double the neighborhood median.

In many of these buildings, units listed for rent tend to be significantly more expensive than the surrounding market: rents in the fifteen buildings shown in the chart above were 85 percent higher on average than those in their surrounding neighborhoods.

The median asking rent of the 59 units listed for rent shortly after purchase in One West End, a condo building that opened last year on the Upper West Side, is $7,500, or more than double the $3,250 median rent for the broader neighborhood. Units in these buildings demand a premium for the high-end amenities they offer — One West End features a pool, fitness center, spa, and terrace with cabanas — and are testing demand among renters for an extreme level of luxury.

But the poster child for new condos flooding the top of the rental market is 30 Park Place in Tribeca, where the median rent of the 57 units listed on StreetEasy shortly after purchase was $15,450, ranking it among the five most expensive rental buildings of the past two years.[4]

How Condo Rental Income Compares to Other Investments

As we explained last September, the income generated from luxury condos tends to be meager relative to less risky investment alternatives, and it has declined over the past few years. When accounting for common charges and property taxes, units in 550 Vanderbilt earn a median of 3.1 percent in net rental income as a share of their purchase price.[5] Consistent with the trend of high-priced units earning less as a share of their purchase prices, investors in the more expensive 30 Park Place have earned a median of just 2.2 percent. With the yield on 10-year Treasury notes hovering around 3 percent, many of these investors appear to be betting on price appreciation to generate a healthy return.

But the trend of condo units winding up on the rental market illustrates how increasingly crowded this bet has become. This analysis refers only to units listed for rent on StreetEasy, making it a conservative estimate. It is likely that more condo investors elect to rent to families or friends, or pursue other avenues for rental income. Overall, it appears that an increasing number of condo buyers have no intention of ever living in their purchases, showing  the degree to which homes in New York City have become a global asset class unto themselves.

[1] Condo unit sales number reflect all sales in New York City, as reported to the NYC Department of Finance. Rental numbers refer only to units listed for rent on StreetEasy.

[2] Buildings ranked by number of units sold in 2017.

[3] Several units within 550 Vanderbilt remain for sale, and of the additional 19 units that have closed since the start of 2018, six have already been listed for rent on StreetEasy.

[4] Among buildings with at least 50 listings on StreetEasy.

[5] Median among units with available sale listing information from StreetEasy.

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