Shadow Inventory-Fact or Fiction

Shadow Inventory is usually talked about with condos, not rentals. And its definitely true in some cased. Two Trees did it with 110 livingston. They flat out lied about what was available. So much so that after being "sold out" they had to rent some out they couldn't sell.

The issue is what is the magnitude.

In terms of rentals, I've definitely seen it at least once anecdotally. Thing is, full availability is rarely published.

"Shadow Inventory is usually talked about with condos, not rentals. "

Historically, and I'm sure still today, there has ALWAYS been shadow rental inventory in new buildings. Brokers very often get listings without specific apartment numbers, just "1 br's from $X, jr 4's from $Y, 2 br's from $Z".

I'm not only talking about vague listings such as that 30yrs, I'm talking about unreleased apartments.

Does this happen, do landlords hold back units from everybody including brokers to maintain pricing power?

Yes, absolutely.

Sure. I remember going to the Verdesian (one of my favorite rental buildings in the city) with a client, being told that all the alcove studios were gone except one and that no others would show up for at least six weeks.

Guess what showed up on the rental sheet the building sent over three days later?

ali r.
{downtown broker}

If you really wanted to do work to figure out for sure how much shadow inventory there is in a particular condo, you could:

1) FOIL request the building's offering plan, which will include a description of all the units.

2) Search all the units on ACRIS to see which ones have closed.

3) Check StreetEasy to see which units are in contract. (Note this is based on broker listings, which frequently call things in contract that are not actually in contract yet.)

4) Check the broker's web site or StreetEasy to see which apartments have been "released" that the sponsor is currently trying to sell.

5) Subtract (2), (3) and (4) from (1) above and the result is the minimum shadow inventory for that building. As I say, since (3) may be over-estimated, it's possible there is even more shadow inventory.

I'm not talking about condo's, I'm talking about rental buildings.

Invest - they have answered your question, but you aren't understanding it. While there is a bit of this occurring with normal rentals, the large numbers of shadow inventory that have been discussed focuses on condos that don't get sold. They will eventually come on to the market as rentals.

waverly, i can't speak for invest, but i think he/she is focusing more on the large rental buildings. for example, toward the end of the summer i read that silverstein had rented approximately 1/4 of their new silver towers (and they were relatively pleased with the result). this building has more than 1000 units, i believe. i hardly think they actively have 750 released in the market. just like PCV/ST had at one point 5-6 buildings worth of vacancies, but you'd never see more than a few units listed on SE. and then the question follows, how common is this? does Glenwood really have one one bedroom, one two bedroom and one three bedroom available per building? or quite a few more. and how are those counted?

i've asked this question a number of times over the past few years. if somebody has provided the answer and i missed it, my apologies, but to date i don't recall seeing an explanation of how rental vacancies are calculated and whether that number can account for excess inventory being kept in the shadows. or whether the units that are available for rent by owner in condo buildings are included.

Though one explanation for rental shadow inventory.

If you have a new building, you might also want to stagger leases so they don't all come due one year later. You might want to keep some apartments of each type behind, so they "release" as leases ends consistently, not all at once.

somewhereelse, there are many reasons to not unload a huge number of units at once. they make good business sense. my question is whether and how these are counted in the vacancy rates.

I am in the Glenwood Grand Tier Building. On my floor alone there are 2 recently empty one bedrooms. I have a two bedroom and am leaving at the end of the month. Yet on SE there is only one two bedroom listed in the building-- which may be mine because they don't list date of avail. But it may not be mine because though I have one of the largest two bedrooms, they are listing more sq footage than my apt and a higher rent. So, who can tell.

Maybe they have rented out those one bedrooms already and people haven't moved in yet. But since one has been vacant two months now, you have to wonder. If it is just shadow inventory, why wouldn't they list at least one one bedroom if it was available? It is also difficult to believe that the vacancies are only on my floor. Perhaps it was something I said.

"I'm not only talking about vague listings such as that 30yrs, I'm talking about unreleased apartments."

They are rally one and the same.

"Sure. I remember going to the Verdesian (one of my favorite rental buildings in the city) with a client, being told that all the alcove studios were gone except one and that no others would show up for at least six weeks.

Guess what showed up on the rental sheet the building sent over three days later?

ali r.
{downtown broker}"

Bill Cosby had a routine about going into so Art/antiques place and looking at some object and the owner saying "You have a good eye, that's a one of a kind piece", Bill saying "That's too bad, I was looking for bookends" and then the owner pulls out another and says "Did I say ONE of a kind? I meant TWO, TWO of a kind......"

I'll take a stab at this:

- The simplest form of "shadow inventory" for rentals gets created by landlords simply listing only the currently vacant units. They may know full well that they have units emptying out one or two months from now, but all they'll fess up to is what's empty.

- I think it's getting to be standard practice in big buildings to only list a representative unit of each size. One reason for this, I think, is that they can cherry pick the units they show (for example, only list the cheapest if they're trying to draw traffic, or the most expensive if they're trying to slow down traffic). Also, since there's plenty of casual shoppers who look at buildings, if they only admit having, say, three units, they can get away with just trudging around the building and showing those three. If they get the impression that somebody is really serious, they may finally reveal the extent of what they have.

- Frankly, this time of year, I also think that for older buildings that are redoing kitchens or replacing appliances, I think they're taking advantage of the slowdown in work by the trades and are batching up their vacant apartments and doing a bunch of units at once in the winter, with the intention of bringing them back online once spring hits and there's more people looking.

- Finally, I also think that onsite leasing offices play the most games with inventory. Since they're onsite, they have a good sense of what their traffic is. I think they decide to put more units online in public listings if they get a sense that the building across the street is attracting more people than they are due to more listed vacancies. When there's no office onsite, I think the landlord is bit more cautious about understating inventory, in case people figure there's nothing available and stay away.

anotherguy and aboutready, I think you hit the nail on the head.

batchwork happening in my bulding as i write--and there are 8 apts for rent tho ads only refer to2, the two types represented in the 8 that are vacant--quite interesting--hadnt thought about rental shadow--dunno whether "vacancy rates" seek to account fo rhtis