New Manhattan Rental Report Out - still not good

http://therealdeal.com/newyork/articles/manhattan-peak-rental-season-muted-tdg-tregny-says

from the real deal (i'm really not quite sure how they equate a dismal summer with a bottom, seems like a throwaway comment for the industry):

Even with this quieter summer season, TDG/TREGNY still suggests that renters wait until the peak is over to sign a lease.

"While increased demand in summer generally inflates prices in the rental market, fall often brings a respite from the peaks," the report says. "If you're looking for a great deal, it might be worth the wait."

Even so, the earlier, dismal summer months could indicate that the market has bottomed out.

A recent Manhattan rental report from Prudential Douglas Elliman, showed that rental transactions were down nearly 60 percent for the second quarter of 2009. TRD

That is pretty hillarious.

Normally, summer is great, and then it gets worse. Now, sumemr stunk, but somehow its going to be UP because there will be even less demand?!?

Gotta love that broker logic.... then again, its the same logic that had them miss the tank in the first place.

Notably no mention of other incentives either, especially the now not unusual 13th month free.

Rent one apartment, get 2 free.

I'm offering promiscuous bedbugs as an incentive ... and they're all free, not just the 13th one.

I saw one apartment listed that came with a brand new Prius. Lol. So stupid.

How many newly minted attorneys for Big Law who had already been hired got letters of one sort or another telling them not to show up? One of the biggest reasons the Summer is the hot season is all the new hires of every industry moving to NY from elsewhere. Well, I don't know the numbers, but I'll bet it's some big one's in term of reduction of new grads getting jobs here who can afford Manhattan rents. And all those sellers who were going to sell and rent for a while and didn't go into contract in the Spring and close in the Summer, well, they be gone, too. And all the landlords who are doing all sorts of stuff (like rent reductions) to keep their current tenants in place? Those people aren't moving, And all the people who were going to "move up" are worried enough about if they will still have a job are not looking to increase their monthly nut now by moving.

One thing you won't see in the reports (that I know of) is when they talk about rental prices, the cuts are actually much more severe than they look, because when you go from a renter paying 1.8 months rent as a brokerage fee to them getting a free month and the broker gets their fee from the landlord, even if the number on the lease remained the same you're talking about an over 15% virtual rent reduction/ Any actually reductions in rent are ON TOP OF that. So when you see "rents down 20%", they may in a lot of cases actually be down over 35%.

30yrs, i recently heard of a biglaw firm deferring (on top of an earlier deferral so who can f'ng believe anyone) to late 2011.

get this people, graduates this summer are being deferred by a year and a half. it they get jobs in the end. and the dates keep moving (see proskauer).

the empty storefronts have to start taking a toll sooner or later. someone is paying for that empty space right?? another month is gonna be due soon

ar, i did work with a client today who just got hired by a big law firm (milberg) his first year out of law school with a 130k plus annual salary. i doubt he is the only one given all of the law firms in this city

LMAO.. that gets him what a $3000 1 bdrm rental, yep that one dude is gonna sop up this inventory... I feel it drying up right now... crap get ahead of this and buy your classic 6/7/8/9/10 NOW b/f you miss the BOAT AGAIN!

ding! try again...

f'n loser renter scum...

he was pretty conservative. he rented a nice pre war one bedroom in a doorman building for 2k per month. all i am saying is he cant be the only big firm hire this summer.

why are you so abusive?

When I read the report, though, I do note that doorman vacancies have continued to decline fairly substantially.

marco_m,

"the empty storefronts have to start taking a toll sooner or later. someone is paying for that empty space right?? another month is gonna be due soon"

Quote of the day.

eastsidebroker, many firms (including cravath, skadden, orrick, white & case, proskauer) have deferred, some for a few months, others for more than a year. others have simply decided to cancel next year's summer program (lesser firms, with one notable exception). this year's summers are experiencing awful offer rates, and being almost universally told they'll be deferred. the stipend situation varies enormously among the firms. healthier firms are now announcing plans to cut next year's summer classes by about 50%. a number of firms have even cut salaries, and that Millberg one you quote is below market, so i'd have to think Millberg is one of them.

the class of 2009 is quaking, the class of 2010 is frightened, the class of 2011 is wondering whether or not to quit now before acquiring more debt.

topper, few large landlords put all of their vacancies on the market at once. there are probably large numbers of overpriced units that aren't renting that aren't reflected there.

I just got my lease renewal - no reduction. Hahaha. 2 other apartments identical to mine are up for rent for less, I sent the building manager a fax saying, "Thanks, but no thanks," with a few nybits listings for significantly larger apartments for $1,200 a month less. At this point not worth even negotiating with them; let them stew in their overpricing, let them lose a creditworthy tenant who has always paid on time, let them try to freeze rents at the peak (before Lehman).

I'm sure they'll come back with a better offer, but I'm still moving. Such is the joy of not owning: FREEDOM to save money, and lots of it!

When is you lease up, steve? Nov 1?

who is your landlord steve?

i dont know what those firms were paying in the past, but that is not a bad starting salary for a 25 year old right out of school. and where there is one, there must be some (although assuredely not as many as in the past, just like banking) others. the one thing i have notices as opposed to the past is a heavy streak of conservatism. new hires are renting below their means, that didnt happen last year

steve: Come on, you know better than this attitude. You dropped the ball. Negotiating 101. You know these are trying times for all. You never want to let the owner be in a position where he feels threatened. You should have approached hime a month or two ago and started talking markets. Stocks, art, who cares, and a bit about rental prices falling. How you may be looking around because the competition is so much cheaper than you are currently paying. How you like living there, but the market is the market and neither you or him can control that. But NEVER talk specific price. THEN, when it is time for the rental letter, all of these seeds have been planted, a lower lease price comes in, and the negotiation STARTS from the lower price.

eastsidebroker, that's because they're not sure they'll have their jobs in four months. latham did a real number on the psyche of the first year associate.

"where there is one, there must be some (although assuredely not as many as in the past, just like banking) others. the one thing i have notices as opposed to the past is a heavy streak of conservatism. new hires are renting below their means, that didnt happen last year"

So if I understand your post (or, rather, if YOU understand your post), then you are taking a fundamentally bearish position here. The issue is not whether there is one, or more than one, or quite a few, but rather that there are fewer (and I believe that AR is telling us it's actually many fewer and in at least some cases at lower salaries) than before. And, as you point out, just like banking. Further, those who did still get jobs are renting below their means, so the overall comsumption of housing has fallen more than the number of prospective biglaw/banking renters. That's a very downbeat assessment of the market that a one-off anecdote about a new biglaw associate renting a one bedroom - which, we must admit, isn't much of a news flash - doesn't do much to mitigate.

AR,

"the class of 2009 is quaking, the class of 2010 is frightened, the class of 2011 is wondering whether or not to quit now before acquiring more debt."

I have a friend who is quaking, I told them it will all work itself out.

How timely
http://www.nytimes.com/2009/08/26/business/26lawyers.html?_r=1&dbk

i have worked with new hires in both banking and a few in law (new hires or associates in their first year or two). they are not earning as much as last year, but are still getting offers healthy enough to rent where they choose without exceeding their budgets. the fact that this client in particular was able to get a doorman one bedroom in a good building for $2000 per month is in my mind a positive thing. the fact also that in the majority of cases they are able to pay the rent and have money for loan repayment, entertainment, etc i think is very healthy.

mutombo, we used to call the combination of law school debt and biglaw salaries "golden handcuffs." one of the many reasons that biglaw hasn't had the natural attrition rate it needs is because law school became so expensive. the associate was literally handcuffed to his/her job, not just to pay the rent, but also the student loans.

sad to say, and i hope it does work out for your friend, but many law school grads are well and truly fucked.

November 30.

patient09, not the right strategy. When the opening bid is way outside an acceptable range, you just walk.

steve, who is your landlord, if you don't mind? some are being a lot more flexible than others, some are sort of playing a "brinksmanship" game then taking offers

"sad to say, and i hope it does work out for your friend, but many law school grads are well and truly fucked." Probably true for quite a few people caught up in these transition classes (or recent grad junior associates laid off in the last year). Like any market, it will eventually work itself out and there will be a new normal on compensation, what % of classes go to biglaw vs. other jobs, who decides to go to law school in the first place, etc. Unfortunately, the system working itself out is not the same as the individual situations working out for many in the classes of, say, 2006 through 2010 or 2011.

you have tons of time, my guess is they will back way off. nov 30 is a horrible time for a landlord to have a vacant apartment they can otherwise have a tennant in

steve,,,you misinterpreted what I said,,,,you fucked up by letting them make an opening bid. Seeds needed to be planted before an opening bid was even due. Whatever, it worked for us. Over the summer we negotiated a 30% reduction.

p09, on the other hand, if steve doesn't mind moving, and he has no kids so the hassle shouldn't be that great, late november would be a lovely time to find a better apartment at a lower price. i am very sympathetic to steve's unwillingness to let a large landlord try to dictate prices just because they think people are too lazy to say go to hell.

although i was too lazy myself this year, but i had other factors that mitigated my stupidity somewhat.

agreed, nov will definately be a great time for a renter to look....or negotiate a much lower rent either or

AR: good point. there is clearly a difference between dealing with a major landlord vs a boutique type owner. I see my landlord weekly and have many economic discussions so it was an easier approach. Bottom line is, if you like living where you live, you need an early strategy to get what you want. Waiting for a notice to show up in the mail is a bit late.

"you fucked up by letting them make an opening bid."

No I didn't. I knew what they were going to offer because 2 other apartments in my line are for rent. No use talking to them in advance. I just said it was a well-managed building that I enjoy living in, but their renewal offer was completely unacceptable.

B&L.

A.R. - I'm not keen on moving because it's a lot of work but if I have the chance to reset my rent at $3,500 or less instead of the almost $4,700 they offered me for A LOT MORE room, then I'm game. It will take years for my rent to rise back to the current level.

b and l is tough. are you dealing with Carlo Piau? not easy to negotiate with (from a renters perspective) in my opinion. you in the building in chelsea?

Steve: One more post then I'm gone. 3 is my limit.

"No I didn't. I knew what they were going to offer because 2 other apartments in my line are for rent. No use talking to them in advance. I just said it was a well-managed building that I enjoy living in, but their renewal offer was completely unacceptable."

Even worse, they gave you free information and you didn't use it to your advantage. Those 2 other apts told them and you where the unrentable high offer is. shame.

E.S.B. - I'm not planning to negotiate with them. I know them (p09 doesn't) and it's up to them to make the next move. The best strategy under these circumstances is just to let them stew with 3, perhaps 4 identical apartments they can't rent. They will not budge at this point - as you so rightly state - so negotiation is not an option. Let them blink. They have months, as do I, and I have tremendous flexibility even to move into a one-bedroom if need be. What they will do is when they can't rent out the two available apartments they will lower the rent to $3,800 two weeks before the vacancy, and try again to rent mine at $4,500, see if they can find a sucker to do it. It's exactly what they did the last time they were in this position.

over the winter and through the spring b&l was offering a free month of rent prorated to incoming tennants, and making further concessions on price. since may they have stopped offering the free rent and tightened up on negotiating, even with incoming people. they list their apartments months in advance, while still occupied (few landlords do this). so brokers, like myself, faced with a client who doesn't want to move for a few months can and do show b&l apartments. it gives them a pretty good idea of where they stand regarding a parcticular apartment. as you stated, they can continue to stonewall a current tennant until they get a clear picture of interest. only then they may potentially offer a lower rent to you.

You are exactly right, E.S.B. They changed the lease terms to require 60 days' notice for that very reason. I've been watching them for a year. They were able to keep vacancies relatively low in the summer but they are increasing. Unfortunately for them every other landlord is reducing rents and offering incentives, and when I move - in the middle of the holidays - very few other people want to move. I decided not to wait to give notice precisely because they now have 3 identical apartments for rent.

But I don't want to deal with them like this - I'm moving anyway, no matter what they offer me unless it's $3,000 a month or less, which it won't be. I know what they're going to do b/c I've seen them do it before.

Pan Am is alot more tennant friendly. Hell, at the prices you are paying Related has great apartments too.

if you want to stick with a major landlord anyway

But in the case of Pan Am you won't know what you can get until November....they show nothing until vacant and renovated.

AR,

Law school grads and just about a lot of grads of 2009, 2010 & 2011.

Someday this storm will end.

B&L were always good and inexpensive until recently. Don't know why they changed. Related remains more expensive but with the benefit of rent stabilization on most if not all buildings. Archstone is extremely expensive but I've heard of people getting 3 months' free rent, + they're also stabilized.

The fact is there's a lot of choice out there now & B&L is trying to hold out for that one person who will pay last year's prices. Guess they got spoiled. All that will lead them to, though, is lots of students and 10 people to a flat.

yes, mutombo, lots of pain to go around. law school grads tend to have quite a bit of debt, usually $150-200,000. doctors, often even worse. it's bad enough to not have a job, but to have that debt on top of whatever undergrad debt you might have around your neck as well, that's just ugly.

in prior recessions people had a very difficult time, but we hadn't yet experienced this bubble in the price of education. those increases have been horrendous. we have a huge group of young people who are very scared right now.

I'm in Glenwood in LIncoln Center. I am moving also because they will not budge on the rent. Two apt.s on my floor moved out for same reason. Rents are very high here and they are non-nego. They drop the price for new renters and they are dropping rents for current tenants on the east side -- even before the lease is up. So I am moving. But it has left a bad taste for Glenwood. They are a good management company but I'm with Steve. How can it be good business to give up a long term reliable tenant, only to give the discount to a new arrival with unknown reliability. I love this building but can do a lot better price wise.

one reason i think is that offering an incoming tennant a month of free rent looks better on a balance sheet than a reduced rent. and after the first year the free rent goes away. a lot of the concessions are built around the free month, lots of advertised rents are the "net effective", so after the first year, the rent goes back up.
also, maybe their is some benefit in renovating the unit after a current tennant leaves (capital improvement) and the effect tax wise.

Unfortunately, to pile it on for the lawyers. WSJ just did a cover story on law firms being moved to flat fee (meaning less in fees). Pfizer apparently spends $400 million on lawyers for patents and such, and they plan on cutting that by 15% by moving to fixed fee schedules with their law firms.

Translation... here comes the pressure to push down fees even more, and permanently.

10022, there is definitely a huge shift in focus in terms of legal fees. but it's not as cut and dried as you might think. the hubby keeps getting calls from clients who need him to help them clean up the legal messes that were created when they hired less expensive law firms. penny-wise...

it will change, there will be wage deflation, and far fewer attorneys will enter large law firms over the next few years, but some claims will prove to have been over-hyped.

FWIW, stevejhx, I think you're dealing with them correctly. It seems like you are looking for a 30% reduction, and they're positioning themselves for a 10% reduction after negotiation, thinking that they'll go to a 20% reduction worse-case if you leave and they have to go to the market. Given that they're thinking 20% worst-case, your 30% is not going to happen, so not worth the effort.

In any case, I find it pretty interesting that they are trying to lock you up a full 3 months before the end of you lease. Not a bad strategy on the face of it as they'll get you comparing to summer inventory / prices: if your lease were up July 1, I'm pretty sure the initial renewal offer would not have gone out March 20. But of course, you know all that.

A.R. - I agree. I do lots of work for almost all the top law firms, and occasionally I get an ambulance chaser. HUGE difference in quality.

New York LAw Firms are in trouble. They made too many people partners during the boom and there is not enough money to go around.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQ4ik1Yd4C9Y

"The firm hired 225 law school students this summer and expects to hire less than half of that for summer 2010, Skadden recruiting partner Howard Ellin said yesterday in an interview.

%u201COur expectation, and we have been upfront and honest about this, is that our summer program will be less than half of what it was this year,%u201D Ellin said in a telephone interview from Harvard Law School, where he was conducting on-campus interviews. %u201CIt reflects lower demand in the industry.%u201D

Early this year, the largest U.S. law firms began firing junior lawyers, delaying the start dates of first-year associates and revamping compensation models. Orrick, Herrington & Sutcliffe LLP and Morgan, Lewis & Bockius LLP have said they won%u2019t hire students for summer jobs in 2010. "

btw, asked a law prof friend of mine (columbia univ) what do they expect in terms of tuition impact going forward. said the 2nd tier universities will suffer (if so) as the top tier always gets about 9 applications for each spot available. the average quality of the students will go down, but not their class sizes.

so it seems a good time to apply to a top univ (for those out there that feel the need to become lawyers) and wouldn't have a chance to enter into a top one during normal times.

actually, samadams, it really depends on the firm. many who are firing are doing fine. the non-partner/partner ratios changed quite a bit at some firms. they made the same number of people partner, but had significantly more associates, at all levels, supporting that.

they just don't need any more bodies right now. and they're willing to get rid of quite a few.

then there's orrick. and dla. and cadwalader. and morgan lewis.

aboutready do you work in that sector? Are the cutting pay?

samadams, my husband does. and yes, many firms are cutting pay. although not so much the top large firms, yet. but bonus does constitute a portion of pay (not nearly as great a percent as banking), and for most associates bonus has been considered salary (never wise, but human nature). so we won't see until this winter where bonuses will land, but at this point many will just be grateful to be employed.

aboutready I have heard that some big ny firms have been deequitizing partners and they are having a hard time keeping up with the payrolls.

samadams, there are a few firms that are in awful shape. most of the top firms will do just about anything to not deequitize partners, unless it's done for "cause." some dead wood just really needs to be let go. london seems to have done a great deal of deequitizing this round.

in terms of payrolls, there are different issues. a number of firms are trying to lower reliance on debt for payrolls, including partners, so that may affect what and how they pay for awhile. i haven't heard of firms (maybe heller, but they went under) not paying associates and staff yet. not saying it hasn't been happening. it's just hasn't hit my radar. do i think a number firms, big and small, will go under? absolutely. when you have financial difficulties there is almost always an opportunity that arises for your top rainmakers to jump ship. and they will do so as soon as they are able. it's a downward spiral.

"reliance on debt for payrolls"

wow, that's really scary. these guys didn't see it coming at all? so distributed all the cash during the fat years? guess that not being able to make payroll also has to do with bad receivables.

Lots of companies rely on debt for payroll. Working capital is often debt.

Remember, there were reports of multiple firms doing bonus cuts going back a year. There was a crain's link in particular I remember that hit a couple top ten firms. So the reduced salary thing isn't new.

exactly, steve. law firms also received phenomonally good rates. and generally had no difficulty obtaining the cash.

recently collections have been down (shockingly i've heard that banks aren't paying on time, if companies received credit ratings most of them would fail, as the 180 day pay period seems alive and well). so law firms are trying to be very cautious. it's actually a very conservative measure.

10022, the base salary reductions are indeed new. yes, everyone did a "half-skadden" but that was in electing not to pay the "good times" extra bonus that had been given the previous year, i believe. some cut more, but it wasn't a dismal season for many. this year, who knows.

OH NO, bonuses are being cut at law firms. Boo hoo. Give me a break, it's much better than losong your job. And bonus cuts at law firms are not that devestating since bonuses there are not as large as they are in finance.

alpie, this thread is about what, exactly? support for the rental market. and fewer highly paid individuals, making less, matter to the rental market.

do try to keep up.

lawyers still make a lot even without bonuses.

Credit lines to the law firms to pay payrolls is being cut like credit card limits on consumers. There are a couple of firms that wont be able to meet payrolls

samadams, only where the law firm is already in trouble. for others the credit is still there, it's just more expensive.

alpie, lawyers and doctors and finance people need to make a boat load to keep those lincoln towers units at over a million. you don't get it.

and you need the numbers. fewer of them making less while inventory is still growing, both rental and purchase, doesn't bode well.

"Lots of companies rely on debt for payroll. Working capital is often debt."

very true, including companies i had very successful puts on. i would NEVER be long a company that depends on the credit mkts to make payroll. sure, it works fine till... it doesn't.

"10022, the base salary reductions are indeed new. yes, everyone did a "half-skadden" but that was in electing not to pay the "good times" extra bonus that had been given the previous year, i believe. some cut more, but it wasn't a dismal season for many. this year, who knows."

Sorry, I chose my words wrong. We're agreed, bonus cut before, and this is new.

I just meant that the whole cuts to *compensation* thing goes back quite some time now, so this shouldn't be surprising.

> lawyers still make a lot even without bonuses.

Yeah, not gonna be buying any million dollar condos with a $180k base.

Sorry.

I know thats big money in Jersey, but thats gonna hurt here...

"alpie, lawyers and doctors and finance people need to make a boat load to keep those lincoln towers units at over a million. you don't get it."

When has alpo ever gotten it?