Bidding wars in the suburbs (Part 5)

More stories of suburban buying:

https://www.nytimes.com/2020/09/18/realestate/hamptons-home-sales-continue-to-surge.html

"the independents can be difficult to deal with" - Is nobody else fascinated by this inefficiency? and moreover, how are these types able to survive?

@Woodside Paul - It was the school situation in Brooklyn and NYC in general that ultimately drove a family I referenced in another thread back to their home state. Their combined HHI was around $1M, and they love NY as much as I do, but they were not able to give their two children as much as they wanted to at the level they wanted to (education being at the top of the list) on that HHI. I don't have children so I am not-at-all informed on the subject, but quality of life for the children is the driver behind pretty much every family I know personally that has decamped from NY.

So many tradeoffs involved and then a whole bunch of moving parts I don't understand, like the best public schools' not being able to enroll all the children that live in the zip-code or something like that - where I am from, that is not a thing; they have actually combined/merged/shut down schools in many midwestern towns due to shrinking population.

@inonada - Interesting. See post copied below from earlier in the thread that I had missed (most likely due to "new poster" delay):

Response by SherlockGeorge
5 days ago
Posts: 0
Member since: May 2016
It's very clear George is talking about the Hamptons.

Hadn’t seen that either. I thought George was all whiny about taxes? In any case, glad to see George’s coyness / privacy / insecurity / whatever has pushed some 4-year-old StreetEasy member over the edge to make their first post.

inonada,
How does your theory of why rental prices haven't been dropped by landlords in the mid/low end account for condo owners/very small building owners doing the same thing?

Without a robust retail (to which I'll add theaters, restaurants, clubs, etc) I don't see residential coming back so fast because where is the attraction for most people?
https://www.nytimes.com/2020/09/19/nyregion/nyc-businesses-rent-landlords.html

30yrs, good question. I am by no means that knowledgeable about this, but here’s my attempt at an answer.

I figure there are those who dropped their rent (like EQR) and those who didn’t, and those who did became one of the 5K transactions that occurred in Aug while those who didn’t became one of the 15K inventory.

Even in a competitive environment, there are collective incentives to not drop your price down to 0 even if you only hold 1 piece of inventory. That dynamic has not changed in this market compared to before. I.e., the condo owner with the lone price of inventory is under the same exact calculus as before with respect to dropping their price vs not, in comparison to the REIT with 10K units. Maybe that dynamic explains (in part) why condo prices end up lower than REIT rental prices (which one observes) regardless of the current situation?

Using that logic what happens when you have inventory of 15,000 out of which 5,000 is Coop/ Condo/small landlord and 10,000 is big landlord/REIT and 5,000 deals are going to get done?

I thought this was kind of appropriate, anybody remember Green acres?

https://youtu.be/wzT1kO_-xbQ

30yrs, I think they just lose $30M in potential monthly rent on $9B of assets or so. Out of a pool of $1.8B in monthly rent on $540B of assets. These owners are no strangers to bleeding money slowly.

I was curious on how inventory has been doing at my bell weather building, Prism. Assuming they are transparent (and everything I see seems to confirm that they are), their inventory is flat at 45 units / ~16%. Their pace of new leases is through the roof, however. In Aug they did 28, compared to 14 last year. In the first 3 weeks of Sep, they’ve done 14 compared to 7 all of last Sept. So it seems that if you drop rent ~15%, you meet healthy demand from the market.

Just one data point, but I think it gives some insight into what the rental market looks like in the "mass" end of the market for small landlords.
https://streeteasy.com/building/479-west-22-street-new_york/2

My firm has been handling the rentals in this building for over a decade. The units in the recent past have been in the $3,800 - $4,000 range with the tenant paying the fee.

So the current ask represents over 25% off real rent.

Ruh-roh, my bell weather mass market apt’s down too: from $3450 to $2630. That’s 24% on the headline, no clue on fees or free months or anything like that.

https://streeteasy.com/building/prism-at-park-ave-south/8a

Does that change where your year out probabilities land?

30yrs, looking at the address of your firm on that listing, I both grew up and went to high school on the block your offices are on. I remember being in school and wondering, that’s a unique building to house offices in. I wonder who works there. And now, in a strangely satisfying way, I digitally know who does.

In my mind’s eye, ionada’s cheeseburger monologues take place in the diner downstairs, or the McDonalds across the street.

I've been sitting at the same desk, looking out the window at your old High School since 1990.

By way of color, when I first got here a "character" owned the building and lived on the top floor. When he got into trouble and had to sell the building the guy who owned the diner bought it because he was afraid if someone else did he might lose his cash cow.

PS front_porch / Ali used to occupy the desk next to mine.

LOL I found a picture of my desk in an old listing:
https://cdn-img-feed.streeteasy.com/nyc/image/77/12835577.jpg

>> Does that change where your year out probabilities land?

Nah, more of a confirmation to me, I think. I thought market rents (i.e., transacting) would bottom winter 2020/2021 and will be higher winter 2021/2022. Your compelling counter-argument is that LLs might not move prices fast enough as inventory piles up. So this is showing some movement.

My guess is that inventory will sit unrented throughout winter & into spring, no matter the discount, and they’ll maintain winter pricing (35% off?) as inventory starts finally clearing in the summer. So for our beloved 8a, that would mean an ask of $2250 from its perch of $3450. At $2250, it’ll clear at the beginning of next summer if not sooner.

What is your guess on the fate of our beloved 8a here?

It's hard to say because I have never seen a market with this much oversupply relative to demand. A month and a half from now will owners simply accept that they won't be renting anything for another 2 months and just suck it up until the middle of January? And if they do what will that January 2021 market look like? And what do some of these building's bottom lines look like carrying so many vacancies - certainly some will be insolvent.

It's me. Happy Saturday night. Mrs George forced me into a social media detox while we closed, furnished the house, moved back, and got back into school.

Closing was remarkably easy. Closing costs were 0.15% of the purchase price all-in, including all government fees, taxes, lender title insurance, etc. No lawyers involved. We didn't even go to the title company's office. A mobile notary came to our rental place and processed everything there.

I remember in NYC buying and selling, and nobody really knew how much money would be changing hands until we arrived at the closing table. I was told in NYC to bring my checkbook when buying, and of course the title closer expected a tip else my docs might not get processed right. At both the buying and selling, arguments broke out among the lawyers about fees and who pays what to whom. I suppose that some of the improvement in the close process I just went through is title companies having to give the closing disclosure 3 days in advance, but there seems to be great virtue to designing a process not involving lawyers. Having a standard contract where the parties just tick boxes is so much simpler.

From the few Manhattan-based people I've seen since returning, mostly at school drop-off, I'm not sensing anything upbeat among those who have remained. One parent told me that they would move to NJ if they could unload their UES coop. Another regrets not having moved to Larchmont last year but is pleased that school admissions have become so much easier.

So y'all are stuck with me for another year until our lease comes up next summer.

So what are your current thoughts on where NYC is headed? What do you think about Corey Johnson and whoever else?

Corey Johnson dropped out. Stringer seems competent, which would be an improvement.

For the first in a long time there is a Stuyvesant Town 1 BR under $3,000
https://www.stuytown.com/nyc-apartments-for-rent/1-bedrooms/apt/649-east-14th-street/0m-d
And that's not including concessions which bring it down to around $2,600.

But I'm seeing people moving out daily because they refuse to negotiate on renewals.

I wonder how many people are moving out for a month, taking an extended stay upstate / with parents / whatever, and coming back a month later for “new lease” at discounted rent & free months.

While I don't necessarily believe the 50% figure isn't just some kind of data anomaly, it's still an interesting story.
https://www.6sqft.com/rents-in-noho-and-on-the-upper-east-side-have-fallen-nearly-50-since-march/

Prism is down to 40 active listings. The highest I had seen was somewhere between 46-49, I think. 22 apts rented in Sept through the 28th, compare to 6 last year.

Just one datapoint, but it seems that inventory moves briskly at reduced rents. No doubt much of it is coming from reshuffling of LLs who refuse to budge.

That 6sqft data must be looking at contracts signed rather than at neighborhood wide rent roll. So it's especially vulnerable to sampling a tiny % of the market that happens to change hands in a particular time window. There's no other way to define rents in a neighborhood -- any neighborhood -- in such a way that the "average" is over $28K/mo.

People who write articles like this are just churning out numbers for clicks. No concern for robustness checks or statistical significance.

I was shocked that there were even 47 rental listings posted in NoHo. The only neighborhood with fewer is Roosevelt Island at 31.

@flarf, I work Roosevelt Island (sales) sometimes, and that number sounded low to me.

I love the Island and love the quality of the buildings there... but I also didn't have to work too hard, checking around, to come up with more than 31 rental listings.

Riverwalk alone I get 36 (13 @ 480, RW Point; 11 @ 405, RW Crossing per SE; 7@415, RW Court; 4 @455, RW Place; 1 @425 RW Landing, per OLR). Then I see 9 at Manhattan Park (per its website), 1 sublet at Island House...

ali r.

Re Prism: keep in mind that Equity doesn't show their incentives on Streeteasy (no idea why). Some apts have up to 3 months free, and Equity doesn't do 24 month leases, or at least they didn't when I inquired a few years ago, so it might be a real 25% reduction beyond the headline rents... or a 25% hike in a year depending on how you look at it. So the actual reductions might be quite massive, but you have to be willing to move in a year.

I have zero knowledge of whether it's happening at Prism, but an increasing number of landlords who used to officially list every available unit are capping the number they allow to show, and you see units disappearing (where the assumption they got rented always used to be true) and then showing up again later. But I also agree with George that it's getting increasingly difficult to judge what's really going on in the rental market based solely off the publicly available info on websites like StreetEasy. This also means (as far as I can tell) that various firms' market reports aren't going to accurately reflect the market in terms of availability, deal volume, and pricing.

Also, I'm seeing buildings like Prism with what appears to be this huge spike in leasing volume over September 2019, but from what I'm hearing overall rental deal volume YOY isn't reflective of that. It will be interesting to see both the month-end and quarterly reports which will be out soon, but something funny is going on.

It reminds me of a home poker game where at the end of the night everyone is up.

On Prism, everything seems transparent / real as far as I can tell. They just added 3 new listings over the past day, bringing inventory up from 40 to 43. If they were playing games, you would think they'd stop adding to their inventory. Looking at the 43 current listings and the 65 listings removed in the last 3 months, there is not even a single repeat.

What is kinda mind-boggling, though, is the fact that the 43+65=108 unique apartments have shown up as rented over the past 3 months or in current inventory, out of 269 total units. For comparison, last year had 26 rented over those same 3 months plus, let's say, 9 units in inventory for a total of 35. Assuming they are not listing occupied / unavailable apartments (which seems like a safe assumption), that means 108/269=40% of their apartments have been vacated over the past few months. Last year, it was around 35/269=13%.

Reading the tea leaves, I think Prism has been ahead of typical competitors in terms of dropping prices. Of the 40% that left, you figure 13% were normal turnover. And of the 27% that left, some were leaving Manhattan and some were moving to capture lower rent elsewhere (if Prism was not lower rents for existing tenants). This paints a grim picture for competitors who have not lowered rents for existing or new tenants: presumably, they too have lost 40% of their tenants. Except, unlike Prism who ostensibly signed up 24% of those apartments to new tenants through lower prices, they probably signed up very little.

So it kinda seems that if you lowered prices like Prism, you have 16% vacancy. If you didn't, then something like a 30-40% vacancy rate now and likely rising, so long as the Prisms of the world are offering lower prices. And at that point, the game of chicken has been lost. E.g., if it's the winter and you find yourself at 50% occupancy at 100% pricing, you'll be collecting much less rent than being at 85% occupancy with 75% pricing.

George, Equity Residential’s website shows rents for different durations, up to 24 months. They are unsurprisingly defaulting the displayed one to 18 months, with 24 months being a bit more expensive. So I read that as 3 months on 24.

For what it's worth, in my cab ride to the office this afternoon the driver told me he had just dropped someone off at the Stuyvesant Town office who claimed to be in management and told him there were over 1100 vacancies in PCV/ST.

That would make sense. Aren’t something like 6000 apts market-rate and 5000 rent-stabilized? As a fraction of market-rate, that would be 15-20%. Seems consistent with Prism.

They are also leaving the below market Rent Stabilized apartments vacant. I guess they are hoping the 2019 revisions will go away.

On Prism, the numbers are astounding, but EQR buildings tend to be frat houses, so they will be hit harder than established buildings. EQR accepts roommate situations that others wouldn't, and roommates only take one person backing out to kill the lease. Also they told me a few years ago that they do not do 24 month leases despite what it says on the website. Maybe they've changed that, or maybe they have just gotten aggressive on the 3 months free rent.

I agree, but I also think that even though we have seen reports of record numbers of vacancies and rent reductions, the issue is more severe than the reporting is indicating. Do we really have 30,000 vacancies rather than 15,000? Are rents really down by 1/3 and still falling? Despite DeBladio's claims to the contrary, is there any other road to solvency besides raising Real Estate taxes? What is the tipping point and how close are we?

Don't forget how Blackstone ended up with Stuytown in the first place.

Moving to a new thread here: https://streeteasy.com/talk/discussion/46032-bidding-wars-in-the-suburbs-part-6