Tales from the Rental Market

Back in August a reader of UrbanDigs forum wrote to me of a tenant in an UWS rental building built circa 2000 who attempted on lease renewal back in April to renegotiate $3,500/month rent. Landlord refused and tenant moved practically next door. Instead landlord had to paint/prep unit, lost 1 month rent, paid 1 month broker fee, and re-rented unit asking over $600/month less.

By my calculations the landlord could have negotiated $1,000 off the rent and still been ahead for the year.

I went to market a couple of weeks ago & pulled ended up pulling the trigger on a new place. My current apartment is everything I could have ever hoped for, didn’t really have any need / desire to change. However, sometimes the market makes you an offer you can’t refuse. I will end up in an apt that a good multiple fancier than the one I’m in now, for not a whole lot more. Even less when I think about where inflation “should” have put my current apt after this many years since I first moved in.

I don’t know how long this state of affairs will last, but my recommendation to those who actually like Manhattan is to stop putzing around with their suburban dalliances. While everybody is zigging, perhaps you should be zagging.

So how long do you think your current apartment will be vacant for after you leave and what will it eventually rent for?

Tough to say. They listed it with a realistic ask. In 2014, they had it listed at 1.0x and now it’s listed at ~0.8x. In 2014, I negotiated to ~0.8x and I imagine it’d go at & they’d accept another ~20% off at ~0.65x today.

For comparison, the closest comp in the building listed at ~1.3x in Dec 2019 (an asking price that had a taker, after unknown negotiation, in 2015). 11 months later, they are asking 1.0x.

FTR, I ended up taking a place whose sales price is 2.5x my current place at a price of 1.3x (using the scale of the last post). The apt is absolutely insane, and it boggles my mind compared to the fact that in 2015 someone rented an equivalent to my apt with a 1.3x asking price.

I’ll also state that properly discounted, apts do seem to move eventually. On the apt I ended up taking, there was definitely interest from other parties. And a few of the best-priced apts I was watching did disappear before I went to market. However, by & large some of the best opportunities are still there.

If I had to guess, we’ll probably hit absolute bottom rent-wise for these types of apartments for Feb 1 or Mar 1 start dates. After that, people will “get” that the vaccine is real and that their suburban dalliances should come to an end. A slow trickle early spring will turn into a mad rush by the end of summer for family-sized apts for the mass affluent and above as offices reopen & schools start.

I’m not saying this will mean rents will revert to pre-COVID, just that it’ll come out of the COVID winter doldrums.

Congrats on the move nada!

Early in the pandemic I posted about Admiral James Bond Stockdale during his time being tortured by the Vietnamese, when he said that the optimists died and the realists survived. The Vietnamese torture lasted 7 years, so it's best just to settle in and get used to the new reality.

The rental market is not coming back out of any doldrums in March. It will remain very difficult.

1. Leases through about June are still coming up for the first time since it became apparent that the pandemic would alter life for years to come. I know multiple people with spring leases who intend to abandon them as they come up. Even July and August rentals are still at high prices since the reductions didn't start till September.

2. The imminent shut-down of NYC public schools will cause even more suburban flight.

3. People will look more creatively at options for leaving the city. The rush to the suburbs has been slowed by zero new inventory. The demand is still there. But we'll see people going to other locations further afield - think Apple Valley MN, not Nashville, or Canarise not Bed-Stuy.

4. Unsold condos will start converting to rentals, pressuring the top end of the market. Both new construction and existing individual-owned condos.

5. Companies are not going to order their people back one day. It will be a slow process, and many people will only return for 1-2 days a week, or there will be A teams and B teams. Hence there will be fewer weekly commutes, and being further away becomes more reasonable.

This isn't a situation where we'll wake up, and Bob's your uncle, it's all back to normal. At best, the rental market will be flat for another year to come.

Nada, That seems like a very nice deal. Congrats!! Take the money when the owners of ultra-luxury are giving it you!!

Let me guess: Solid Gold faucets?? Just joking.

George,
AFAIK we still only have about 10% of Manhattan office workers back. A serious/severe second wave that pushes that beyond a year is going to have ripple affects, especially to retail. And as I've said before I don't see a turnaround in Manhattan residential Real Estate if retail is falling apart (and when I say retail I'm including bars/restaurants, theater, clubs, etc). Because what's the point in being here if you're not commuting to an office and you're not close to anything you do outside the office either?

I got an email blast today from an agent who is looking for a specific $21k/month rental and thought to myself "If you can't find something acceptable in today's market for $21k then you are not a reasonable person."

I am guessing that is phishing email and the broker is trying to get people to list with them.

The clients we're working with, including my kids, friends and the people that work with me want to stay in New York City simply because this is home. Suburban living doesn't appeal to them, it's not like you move to the suburbs for a cultural experience. They are certainly aware there will be less restaurants, bars etc and have no immediate plans to move.

Keith Burkhardt
TBG

Thanks, FP. My lifelong goal of never owning a piece of real estate continues!

300,
It was an email blast to brokers.

https://nypost.com/cover/november-15-2020/

George, can you talk actual numbers? I know you only got 2 free weeks because you were busy with your Nowhere purchase. But where do you think the market is and what exactly do you think will happen?

From what I see, for $7K you can find apts that went for $3M once upon a time. For $12K, apts that would have gone for $7-8M. For $20K (or less), a $12M apt could be yours. And for $30K (or less), there are even $20M+ apts.

>> Leases through about June are still coming up for the first time since it became apparent that the pandemic would alter life for years to come.

To anyone paying attention, that became apparent in March. And to anyone paying attention, all indicators are that we have reached the second half of the pandemic. FDA approval for the vaccine seems likely in December. And if the ingenuity of scientists doesn’t get us there, the stupidity of people will. How long before the US hits 1M daily infections?

In any case, the June renewers are exactly my point. By the time they figure out this pandemic is real and perhaps they should be making some decisions, the pandemic will have started waning.

"By the time they figure out this pandemic is real and perhaps they should be making some decisions, the pandemic will have started waning."

Sounds like many investors.

We still have a couple of bad months of virus spreading virtually unchecked but after that selected high risk people will start to get vaccines reducing the fear factor. And there is possibility of therapeutics.

If the vaccines are going to be as effective as being reported, moderna stating today 94%. This will be a major game changer for New York City in general, and a great platform from which to rebuild.

After all the various forms of destruction, I think we will see the city rebuild itself with business people, entrepreneurs, creatives taking advantage of the opportunities being created by the current destruction.

Just a thought.

TBG, what destruction? Prices have changed less than 5% from my reading of your posts... can these scrappy underdogs "rebuild" with nearly identical (high) cost of operations as pre-Covid?

Please point to one of my posts where I said prices are down less than 5%.

So how much are prices down then? Because if you're not willing to post a number then saying "Please point to one of my posts where I said prices are down less than 5%" is bull.

I'll put a number out there. For luxury apartments popular with the affluent young, asking rents are down anywhere from 10% to 25% including amortized concessions. Source: watching a few buildings in Streeteasy over the past few years. Fwiw.

30/Reno, Are we talking rental prices or purchase prices and over what period? Rental prices are certainly down more than 5% YOY. For average purchase prices, one can look up Streeteasy condo index which probably has 2% decline to catch up by the time it gets published in Dec for contracts being signed in August/Sept. I posted some data on nycbuyer thread.

Also, if one were to look at average rental price, it will be down less than new rentals George is quoting as the existing renters just do not get the same deal as people who are willing to move.

Thanks, George. Seems like you & I have our heads in different places. Sure, if I viewed “the market down anywhere between 10-25% with one time concessions” then I’d be where you are at. But I don’t really care about the broad market & all the listings that won’t rent. What I care about is the best thing available to me. And in the current environment, I could get 2.5x my current apt for 1.6x my current rent on a long-term lease. That’s 36% off by a straight calc, though perhaps one should make an adjustment for higher-priced apts renting at a discount.

Maybe a year from now people will be offering multi-year leases at 50% off, but with the pandemic waning by then I’m not really seeing it.

In any rental market, there are kinks (economic kinks, not the Dan Savage kind) where a little more paid gets you a lot more house and vice versa. I don't know where you live in NYC or your price bracket or how you value various amenities, but if you're close to a kink, what you say could be true even in the best of times.

Isn't "2.5x my current apt" fairly arbitrary?

300 — sorry I was referring to the sales market since Keith (I think) just does sales.

George / Ino / 30, you all had good comments, and they actually bring up an interesting conclusion — if depressed rents are indeed only temporary, then whatever “rental-price driven NYC resurgence” is only likely to completely fade away as soon as rental demand recovers. Or maybe the thought is, “the rebirthers will stay for 1-2 years until they’re discarded by the yuppies of ye old 2019 who replace them again.”

Dunno, maybe just me but that conclusion strikes me as a fantasy.

At any rate, back to the subject of the thread — I think the most interesting question is what duration landlords are willing to sign vs the Year 1 rental price decline. Ino, did you attempt to sign a multi year lease (say w tenant options at identical rent prices?)

George, I ended up downtown but actively look everywhere. #2 & #3 options ended up in the UWS. Probably #2 was the better “deal”, but for a few reasons I was less attracted to it.

These aren’t kinks in the market, and they weren’t available in prior years: I have actively searched in each of the last 3 years. Option #4 (also downtown) is approximately the same sales price as my current apt but is now sporting an ask that is ~20% lower than what I pay. I’m pretty sure you can get the deal done at ~30%. The reason it’s #4 is because if I’m gonna go through the hassle of a move, I’d rather do it for upgrade than price. (FWIW, I didn’t even bother asking but based on prior experiences the owner of my current apt would have come down on price; I probably wouldn’t have pushed it to 30% out of goodwill, but I would have been insistent on 20%).

I’ll also say that while I didn’t spend extensive time browsing apts below my price range, it’s there as well. I rented apts at lower prices in the past, so I know what the market is. Spot items I’ve seen, tales from what others have paid, etc. all say the same thing.

>> Isn't "2.5x my current apt" fairly arbitrary?

When there are dozens of apts that are essentially replicas across the two places, with sales happening across same years, not really. In the new building, there are a lots of 1x apts that are pretty much the same as the lots of 1x apts in my current building. Same-ish size, same-ish theme, same-ish sales prices over the years, same-ish asking rents over the years, etc. Then there are the fewer 2-2.5x apts that sold for 2-2.5x over the years.

Reno, it was indeed a multi-year lease. There are preset increases that are high by my typical standards (CPI) but not high by the standards of what rental buildings do (double-ish CPI, say). I did not push back on it because it was the only ask from the owner on my (well below ask) initial bid. I have enough sense to see the big picture (multiple years at 2020-ish prices) than to nit on the details (whether it’d take a decade or two decades of that rate of increase to reach pre-2020 prices).

I have been doing multi-year leases for 10+ years now. I ask the broker upfront about it at the showing, and if a condo owner is not willing to do it I just move on. It usually means they have definitive plans to do something in a year (move back, sell, etc.). It’s just not worth it to me to do a move, get the new place set up, etc. unless there is a contractual right to stay a few years and an implied outlook of staying indefinitely (because the owner has no specific intention of coming back or selling).

That's good advice Ino -- especially the part about asking the broker up-front and just taking a hike if they say no. In my past life as a NYC renter, I wasted a helluva lot of time trying to convince landlords (or seller) of things they had no desire to do. Better to just filter those people out.

Do you have multi-year tenant options at CPI, or just 2 years?

So you're basing it on historic sales price?

https://www.nytimes.com/2020/11/16/nyregion/nyc-tourism-covid.html

To renovate suggested that I posted somewhere that prices are down less than 5%, I've never posted anything to suggest that. As I said in a previous thread, drawing conclusions based on ask versus close is not always very useful, simply because a seller can ask whatever they like. I think the better comparison is previous close versus current close.

The market had been softening since some point in 2015, initially it was a very slow, almost undetectable decline. We then started to notice things firming up again starting in approximately December 2019, then covid hit (John Walkup suggested the same in the last Urbandigs vlog).

I don't think trying to calculate a general percentage decline for New York City is very helpful to me or my clients. I think every neighborhood has responded differently to the severe market decline brought on by the global pandemic. The West Village is different than Sutton Place is different than Sunnyside, is different from Cobble Hill etc. And certain types of homes have fared better; private homes in Brooklyn along with large homes with outdoor space.

If you want to know the specific % of the decline you can find that on Jonathan Miller's website as well as Urbandigs.com, it is what it is, nothing to argue about.

I'm a broker with his boots on the ground, working with approximately 50 buyers, with about 15 recent deals in contract. I simply try to bring the perspective of a broker that's actively working in the market, to this forum.
http://www.theburkhardtgroup.com/transactions

We're a small team that's made some tweaks to the traditional brokerage model to benefit consumers. We operate in 100% transparency, we don't do search for clients, the people that come to us prefer to do their own. We don't advertise, we are 100% referral-based for the last 12 years. And because we run a very efficient business and there is no broker overlord, we rebate between 50 to 67% of the commission we receive back to our client. We don't consider ourselves traditional sales people, you will never find us trying to sell you. It's not for everybody but it certainly has worked for quite a number of buyers, we do between 70 and 100 million dollars a year in deals. We deal with current and historical data, however we don't get involved with trying to predict short to midterm trends.

I do believe if the vaccine is as effective as these initial reports suggest, we will not only see life improve throughout the world, we will see a significant improvement in all aspects of life/business in New York City.

And that's it in a nutshell.

Keith Burkhardt
TBG

>> Do you have multi-year tenant options at CPI, or just 2 years?

This one was longer than 2 years, with fixed increases (that will be above CPI). The structuring was as a multi-year, with option to terminate early with sufficient notice. Effectively the same as a renewal option, but with a bit more flexibility. Main preference for structuring it that way is that it saves the hassle of needing to re-sign / re-submit the renewal every year.

In other instances, I’ve tended to do the same. I believe a family member’s lease had actual increases written as local CPI. So anything goes, if you & the owner agree. But a key is to make sure the owner’s intentions and yours are aligned to start with.

>> So you're basing it on historic sales price?

Yep, based on dozens of contemporaneous sales of equivalent units in the same building. But if you did it by other metrics, you’d land in the same place.

Ceiling height?

Something tells me that Nada’s new apartment has higher ceilings than his old one and he didn’t factor that into his x times the previous apartment.

What 300 said. If I go by sq ft, ceiling height, elevation, neighborhood, light, views, finishes, etc. it lands higher than 2.5x. But the market said 2.5x, so I say 2.5x.

Why the 20 questions, 30yrs? If you want the deets, you can just ask me to send it over. The only ask would be for you to then certify the results on this thread: “Having inspected all the details, I, the illustrious 30yrs, so hereby solemnly certify inonada’s new apt as 2.5x his old apt”.

May I certify or novice's certification does not matter?

Certify away, I’ll take as many as I can get!

After having looked through all the details but without visiting the new apartment in person, FWIW, I , 300 Mercer, certify that Nada's new rental is between 2-3 times better than his previous rental without even factoring in the rarity of the new apartment.

Disclosure: No payment has been accepted for the above certification.

But Ino, the real question inquiring minds want to know is... how crappy is the crappy rental yield your new landlord is getting on his investment ;)

Because whenever someone says something X times "more" it's one thing, but when they say it's X times "better" I think there is a certain amount of subjectivity. Of course my ceiling height comment was tongue in cheek, but meant to point out one ridiculously obvious metric that wasn't used.

But when you judge "better" solely by $ I don't think you control for everything. Let's say you had 2 units which sold for the same amount of money. One was a 3 bedroom, 3.5 bath penthouse with killer views in a non-descript building in a not terrible location and the other is a shitty 1 bedroom with no view. And let's so the person themselves finds the first location preferable and doesn't care about the things the second offers. I seem to remember you writing something like you don't care about the whole market, just in the unit you're looking for (apologies if if twisting or misremembering your words). So in the above convoluted scenario would the "reasonable man" consider those 2 units the same amount of "good" for them simply because the market valued things which don't matter to them a lot more highly then they do?

For a very long time when asked "How do I find the right place to buy?" I have counciled "Try and find the place the the highest number of features you care about and the least number of features you don't care about. Because the market will make you pay for all the features whether you want them or not. If a unit has a balcony and you don't care about a balcony you are going to pay for it whether you want it or not."

So my point is that within a building I can understand using sales prices (although I can think of inter-building cases which don't necessarily work), but once you leave the building and certainly once you leave the neighborhood using price sales price alone to compare to units "goodness" becomes more subjective to me unless you somehow have the exact same value system as the market does - and very few people are like that.

I think I left out the two units above have historically sold for the same amount.

I'm so scatterbrained lately. The thing I left out is the 1 bedroom is in "the best building in NYC."

ToReno, the rental yield is 1%, plus or minus, depending on what price you use and how you define the yield. However, I would not characterize it as an investment. From what I can tell, the owner (who seems like a mensch) left NYC indefinitely for now but likes the apt too much to sell it in case they come back & wanna live there. Could just leave it empty as the amounts are pocket change, but perhaps (and maybe I’m projecting) feels it wasteful to do so and just needs a responsible house sitter who isn’t a PITA. Enter inonada.

Think of Queen Elizabeth leasing out unused properties on her estate, I suppose. She doesn’t need the money, but it doesn’t seem sensible to leave it empty. Sorry, just started Season 4 of The Crown.

In case you are interested in the real deal, £3750 a month for a 6 BR manor on a 20,000 acre estate. Very sensible:

https://sandringhamestate.co.uk/about-us/properties

I think you are allowed to roam, but beware the shooting parties. Apparently, cats are banned because they kill the game birds.

Is this a standard British thing:
"Please be aware we have a strict no cats policy. Dogs will be considered on a house by house basis. "

30yrs, thanks for explaining your point.

I agree with what you said, and there were certainly other “2.5x more” apts in the running. However, they weren’t “2.5x better” to me but this one was, which is why I took it. Hell, there was even a “3.5x more” apt that I found at best “2x better”.

In the end, I chose an apt that is pretty much the same as my current one but on steroids. Same style of apt in same style of building in same style of neighborhood. Sure, some people care for one or the other because their kid goes to school X or whatever, but they’re the same to me (and the market prices them the same).

>> Please be aware we have a strict no cats policy. Dogs will be considered on a house by house basis.

For royal estates, probably. Another thing you figure out quickly from the Crown is that the royals sure do love their hunting.

“The ban, which was first introduced in 2016, is thought to have been brought in after domestic cats killed game birds on the estate that had been reared for Royal shooting parties. Dogs are permitted on 'a house by house basis'.”

https://www.dailymail.co.uk/femail/article-8902103/Queen-seeks-new-neighbour-rent-six-bedroom-manor-house-Sandringham-estate.html

But living on the Queen’s estate is in high demand, so don’t think 3750 pounds gets you in automatically:

“Please note due to the high volume of applications that we receive we do not respond to unsuccessful submissions.”

On the other hand, at 28 listings the Donald’s estate seems like it’d take anyone with a pulse & some cash:

https://streeteasy.com/building/trump-tower

No cats allowed either, though, after the 2013 incident with domestic cats attacking the hair.

And peed on it turning it orange?

I noticed he's switched to platinum blonde recently. Elder statesman?

It might have been the cat piss that took it from orange to platinum blonde.

At the beach this summer, Trump supporters would sometimes set up big encampments with tents & big Trump flags & whatnot on the beach. As people would walk by, some would give thumbs-ups / take pics / etc. while others would just pass by. So a parlor game my wife & I would play was to guess who would give the thumbs-up or other show of support vs not. We came to the determination that fake platinum blonde hair was the most reliable indicator of a thumbs-up.

So it might be that he dyed his hair to play to his base.

Nada, still on Season 1, where at least some of the characters are likeable.

I swear, he is changing his hair and foundation color more frequently than Gaga. Now he's ash blonde with a more realistic pink base.

Returning to the main topic of the thread for tales from the rental market. You’ll recall the first tale I posted in this thread about my apt change. Well, I have an outlandish follow-up tale spun up for this reader’s curiosity:

30yrs>> So how long do you think your current apartment will be vacant for after you leave and what will it eventually rent for?

Recall how I said it was tough to say, as they had listed it for a realistic price. Their 2014 ask was 1.0x, I’d been renting at ~0.8x, and a competing apt started asking ~1.3x last year but still sits at 1.0x (alongside another newer 1.0x-er and a stale 1.2x-er).

I get an email on Friday from a work friend that used to head my group, who has an expansion project on his apt whose start date he’d been pushing back. He said he heard we were moving: from the broker for our apt. Turns out he’d been eyeing the market since they’re starting the expansion project. He saw the listing a day or two prior and negotiated it sight unseen: he already knew it because he had friends on a nearby floor, he thought. From there, the broker & them put 2+2 together and figured out it was just us. 40,000 listings in NYC on SE, and it’s going to be him taking it!

Pretty happy about it, as it’s a spectacular apt, and I was hoping it’d go to someone who’d enjoy it as much as we did. I was already getting nostalgic about our final days here with unique vantage points on certain landmarks, never being able to see it again. Problem solved!

So now to answer your questions definitively a mere week later (who woulda thunk it’d be possible???), it’ll be a 2 week vacancy at a price of ~0.75x. I wouldn’t read too much into it market-wide, as my ~0.8x was much lower than any ask that had ever been published.

Copying over what George wrote on the “rental yields” thread as a tale, as I’d like to make a point about it:

George>> Out in Nowhere, my agent told me about a property that sold at $4 million over the summer and is now rented at $30k/month on a 2-year lease. That's three times the gross rental income of the NY property. Before expenses, the gross rent is 9% of the purchase price. It's in a place with much lower taxes, so even with a generous budget for a property manager and repairs/maintenance, it's still an excellent yield. Once "investors" from the city arrive, they'll look at that yield and pay far more than $4 million for it.

In relation to what I wrote earlier in this thread:

>> I don’t know how long this state of affairs will last, but my recommendation to those who actually like Manhattan is to stop putzing around with their suburban dalliances. While everybody is zigging, perhaps you should be zagging.

George’s Nowhere has been has $4M houses (bid up from $3M?) renting at $30K, presumably taken by some mass affluent lemming. George thinks this state of affairs will net price increases in Nowhere by investors chasing the $30K yield. I personally think that $30K drops come the end of the pandemic.

Meanwhile, as George & his mass affluent brethren are focusing their attention & money in Nowhere, Manhattan is left with opportunities like this 15,000 square ft meticulously renovated UWS mansion asking $50K and probably doable for $40K:

https://streeteasy.com/rental/3105605

Measure the sq ft, the 15,000 is real. Sold as a wreck in 2006 for $14.5M:

https://streeteasy.com/closing/85753

30yrs, 300, Keith, etc., people who know: how much do you think it takes to restore & modernize a mansion like that? $10M?

Anyhoots, my point is this. The mass affluent lemmings are falling over themselves to pay $360K/year for some $3M McMansion in Nowhere. Meanwhile, a real $25M (?) mansion in prime UWS next to the park has been lingering for (relative) peanuts. How long before one of the lemmings comes to their senses and says “Lemme see if I can get a deal on it for $480K/year”?

I know $480K/year in rent is a lot, something few can afford. But if you make $2M+, you can afford it. NYC has many thousands of such people. How many mansions like that in the UWS?

This UWS mansion is a white elephant. I'm not sure how reasonable it is to be comparing it to highly functional housing in ultra-prime parts of Nowhere. (Not every large house is a McMansion, see https://mcmansionhell.com/post/149284377161/mansionvsmcmansion ). Also I pointed out in another thread that houses over 10,000 sq ft are still not selling anywhere. What people want is maybe 3000-4000 square feet. Fwiw, the place in Nowhere at $30k a month is a restored historic house of just over 4000 ft2 above grade = large but still a reasonable house.

The difference in viewpoints is that I think the shift we are seeing is a long term generational shift, with covid accelerating shifts already in progress. Others see it as more like 9/11, a temporary blip in a long term trend in favor of cities.

I justify my position as follows:

- The price differential between cities and suburbs had reached an extraordinary degree just before covid, several orders of magnitude larger than on 9/12.
- Incompetent leadership today in cities vs competent on 9/12
- Broadband
- NYC in particular is heavily overbuilt, vs the opposite on 9/12
- Foreign buyers are not coming back any time soon, with long-lasting entry restrictions and whatnot for all people, not just those from terrorist supporting countries.
- Changing consumer preferences for green space, not just a postage stamp in the back.

I think 300 could tackle the renovation cost question adequately, he has quite a bit of recent experience. The differential between postage stamp size yard and suburban yard has always been same.

It's also been less expensive to rent versus own for as long as I can remember in Manhattan.

And now for those who prefer the postage stamp allure of New York City living, the world is your oyster or I should say the rental world is their oyster. I personally know a handful people coming back because of the extraordinary deals available to them in the rental market. They're giddy. I won't digress to sales Market opportunities since this is a rental thread ; )

So where do you want to live, what's going to make you happiest? That's where you should live. And if that place happens to be New York City... Enjoy the sale while it lasts!

FYI: nada killed it with his most recent deal.

On UWS mansion, while it is hard to tell without seeing old pictures and enough new pictures, min $6mm if there are no structural changes and if it was in an ok shape before. $10mm is certainly more like it.

I was going to ask what's the cap rate on that mansion, but the annual tax is only $32,000. There are $4 million places with more tax, like 249 Waverly that I posted earlier. Another reason property taxes are ridiculous here.

I know this discussion is based on a different criteria then perhaps I'm suggesting. But I don't think anyone ever moved to NYC thinking it was the most economical, easy place to live. It's about love and a passion to want to live in this great City. The multitude of suburbs surrounding the city have always offered the same thing; more space and a much more affordable price point, schools etc... Nothing new there, and it's an option many choose every year.

The only thing a global pandemic has done to change that equation (besides all the obvious horrible things!) It made you pay a lot more money in a market that was fairly, at least recently stagnant and for many sellers depressed. I'm not necessarily talking about the Park City's of the world who's pricing shifted into ludicrous mode long ago.

Here's the thing though... the people who came in the last 20 years are people who love NYC as it was until recently. They were in diapers in the bad old days, and their expectations are totally different.

There is no sign of a return to the NYC of 2007. The favorite to be the next mayor already told people they can go back to Iowa if they don't like how he runs things.

George, While I take your point about De Blasio not having done enough to protect the retail shops from rioters, I do find NYC far more livable than 2007. The biggest difference is public plazas - around cooper union, Madison Square being a couple of examples. In addition, increasing tech companies has made Manhattan less stiff vs before and added people with a different mindset.

And did I mention west side park and bike path?

Perhaps we value different amenities. The biggest recent plus for me is the new central terminal at LGA. Unfortunately most people have never experienced it, but aside from stores that charge $4 for a KitKat, it's great to have a real modern airport terminal. In second place are the subway boards that tell you how long till the next train. But I also see this sort of stuff as table stakes. Sadly most of the rest of our infrastructure still lags global standards, and Blas isn't up for fixing it.

To add positives, while I do not use Citibike, many people really like it. Playgrounds in the city are far better than 2007. New condos have cleaned up areas like North Chelsea.

George,
I think I pointed this out a year or two ago, but I think actual infrastructure (like 150 year old water mains, a cantilevered highway which is a major artery into Manhattan, etc) are crumbling with no real plans and certainly no funds to fix them.

Wasn’t there a big noise about L train shut down and they managed to do the work with only service reduction.

Water Tunnel #3 should finish any day now. The BQE should probably be turned into a park (good riddance) though that may make it harder to use Federal highway funds.

"Perhaps we value different amenities."

Boom - Get thee to the suburbs where thou will be happy, and if any member of the household doesn't like it, tell them to get a job that will pay enough to enable you all to stay in NYC in the manner in which you all would like to live. I suspect they will come around pretty quickly.

As I've said before, I don't think the shift to the suburbs is anything new. I think there always has and always will be a certain group of people for whom the suburbs is the right fit. I suspect George's entire friend group is going through this all at once, so maybe it appears to him that the phenomenon is more widespread than it actually is. Add on top of that that the pandemic has likely pushed this decision to be made a few years sooner than families may otherwise have made it, but for a certain group who want certain amenities for their children, NYC is simply not going to be a fit, and right now there does appear to be an exodus; only the passage of time will be able to tell us whether this a demographic shift with all that entails.

I think we have a new divide on the SE Forum. Rather than debating rent vs own, it seems the debate du jour is whether progressive urban cities will go into the dustbin of history. I am in the camp that believes they will not, and that while NY is definitely in for a bumpy ride over the next few years, it is going nowhere in terms of being the desirable world class city that it is where it will always be less expensive to rent than it will be to own.

Again, all of my parents' friends moved to the suburbs in the mid-late 60's at exactly the same time, and it had nothing to do with civil unrest or crime; it was the introduction of children into the mix. With my generation, the introduction of children hit couples' lifestyles even harder because during the younger years you typically had two high-income individuals living in a sweet one-bedroom apartment living a life unencumbered by financial constraints. Enter children: Number of mouths to feed/clothe/house increases; size of housing must increase; frequently what was a 2-household income drops down to one as one of the parents chooses to stay home, and go figure, NYC is no longer a good fit. What used to be an easy weekend trip becomes prohibitive; what used to be a fun night out costs twice as much once childcare is factored in, etc.

With that said, time will tell and we won't know for a decade or so. Hopefully SE and its archives will still be here so one side or the other can enjoy a good "I told you so!"

And while history is sorting all of that out, congrats to Inonada on the new place. I cannot even imagine how jaw dropping the new place is given that I thought the previous two places were already jaw dropping.

Indeed, whether you think cities can survive determines if you should buy or rent in the city.

I think MCR's analysis is correct at the household level, but there is a long arc of the history of urbanization that needs to be considered. From the industrial revolution onwards, people came to cities because that's where the high-paying jobs were, because cities were the great centers of productivity. Trains enabled suburbanization but in a limited context like Philadelphia's Main Line or Chicago's Gold Coast. The great post-war suburbanization was enabled by the private motorcar and exacerbated by an enormous need for post-war housing and the financial, social, and physical deterioration of the great cities, along with a heavy dose of racism. Additionally, the widespread adoption of air conditioning allowed the southern cities like Atlanta and Houston to become bearable. Jobs and people moved together.

For an example of a city that looks to me like I suspect US cities were like in the 1970s, I suggest the younger generation visit Johannesburg. The city center is decrepit and populated by vagrants and small bodegas in formerly attractive buildings. Most of the big companies have moved out to the gleaming suburbs like Sandton and Rosebank. They never got the move back to the city.

It wasn't until the 1980s and early 1990s, when the suburbs began to get expensive while the cities hit rock bottom in terms of prices, urban life became trendy, and a generation of centrist and pragmatic mayors came to power in the cities, that people stopped moving to the suburbs as soon as they reproduced (if they ever came to the city). But there is no reason to believe that this move was permanent. The arc of history suggests another suburbanization cycle may be underway already, but this one focused on inner suburbs, southern cities like Charlotte and Nashville, and resort towns. It's not just me and my friends saying this; I'm hearing it from economists, mortgage professionals, and sociologists.

As for progressive mayors, while they have many great ideas and laudable goals, they are terrible at governance. The people who pay city budgets may express progressive leanings on matters like gay marriage, but they are much more conservative on matters like public safety, quality of life, and fiscal responsibility. If cities continue to elect inept progressive nutjobs, the city will be left with just MCR and Keith saying, "I still think it's a fun city."

Let me correct you George, I thought the city was much more fun/exciting in the 80s and 90s. But then again I think my expectations don't align with yours. I came to the city in 1982 as a teenager and was part of the underground music scene.

An observation I made a few years back. I worked with more and more families that were having children and were buying larger homes in the city. That's when I knew the dynamic of the big apple was really changing.

I know when I lived here in the eighties, and while working in real estate in the nineties, once kids came into view people left for the burbs. My experience with many friends as well as clients, they wanted to experience the city for five or so years, and as soon as marriage and especially children came into the picture, it was time to head to the suburbs.

It's hard for me to pinpoint an exact time when suddenly I was working with more and more people that were staying in the city, worrying about schools and upgrading to larger homes. This was a total paradigm shift to what I experienced as a civilian and as a real estate agent previously. I guess this began to change during and then post Giuliani and into Bloomberg years. Suddenly New York City wasn't so scary! It felt even safer than Greenwich!? And you can be home from work in 15 minutes... One contingent of my friends absolutely despised what Giuliani did to New York.

Perhaps this is even something 30 and I can agree on? Do you recall things this way or was this just my own experience and observation regarding people starting to nest in the city and forsaking the suburbs.

@keith - one person I used to discuss this topic with posited that the generational shift he observed was that the young affluent marrieds in the more recent generations started out with both people working and more disposable income when the kids arrived such that young families were able to stick it out in the city a bit longer than their counterparts from the 60's, 70's and 80's. I wonder if what you observed started in the 90's? That would be consistent with his theory. I know a couple families who were enjoying family city life quite a bit until they decided to have that third or fourth child. I remember when one set of friends was going for child number 4 around 2002 the group joked that it had become a status symbol to say that you were able to remain in the city with more than two children.

I confess to not having any original thoughts on this topic and have just listened to friends on both sides of the debate, ultimately siding with those who have concluded that NYC never has been and never will be family friendly for "the mass affluent." However, I am keeping an open mind and do not pretend to have certainty on this point.

Actually, his theory is also consistent with George's to the extent that the 90's is when the pragmatic mayors came in. All interesting and time will tell. I am still rooting for NY and am hoping that the superrich will be able to keep it afloat so that the the rest of us can enjoy it for whatever aspects of it each of us appreciates.

The baby status symbol thing was absolutely real. I have a handful of friends that definitely fit that category! At least a couple of them are rethinking that strategy.

At least a portion of the mass affluent did start to view New York City as a family-friendly place beginning in the early 2000s. In a peculiar way I think this was also a status symboly thing, thumbing your nose at those living the suburban life, while they lived the more sophisticated urban experience.... I definitely have a few friends that fit that category.

Perhaps George is right, once this Bloomberg generation sees the first homeless person crapping in between two cars in mid-afternoon and several squeegee guys trying to clean their windshield.... Oh hell, there goes the neighborhood! Honey! Call Moishe's, offer them double for an appointment next week! Lol.

Just to put a fine point on it, if you have 4 kids you need at least one nanny at $75K/year (all-inclusive) (some of my friends have two) and 4 school tuitions at $75K a year (including summer camp, donations, after-school). So that's $375K after-tax or $750k pre-tax, just for the kids. Or you can move to Nowhere where the private schools cost half as much, the taxes are lower, and the nannies can live-in.

George, You left out a desire to have a big woodworking shop and game room from the reasons to move to the burbs.

@keith - And good riddance to them.
@george - I suspect the suburbs will bore both you and Mrs. George. There is a reason you are still “here.”
@inonada - I recalled your data from the last go-around with George on this point. My money remains on your POV. And further to that point, thank you for residing in NYC and continuing to subsidize the rest of us. The income taxes you pay dwarf the RE taxes I pay. The most talented individuals I personally know have not abandoned the great progressive cities, and that gives me hope.

Keith, giddy is the operative word indeed. Last time I was this excited about shoveling oodles of dollars into something was in 2013 buying AAPL at (a split-adjusted) $14, with w67th joining in shortly thereafter. Might be wrong, but just feels like one of those situations where the chatter (Samsung has a shiny new phone / everybody wants to live differently now) overtakes the reality (Apple has & prints oodles of cash with committed customers / $3M poured into Nowhere McMansion will never be $25M poured into UWS Mansion).

MCR, thank you. We’ll get that poker game lined up for Mr MCR as soon as this thing is over. FWIW, I’m fine with the taxes: my pie is plenty big. Even when the pie was not plenty big, I came to the conclusion that living in the suburbs was uneconomical by my calculus. If I work (say) 8 hours a day and incrementally commute an extra 35 mins each way, that’s a 15% tax on my time. If I ever leave NYC, it won’t be about the taxes.

George>> This UWS mansion is a white elephant.... What people want is maybe 3000-4000 square feet.

To paraphrase 30yrs (?), what people want is 30,000 sq ft for nothing. As MCR suggested, you might be projecting a great deal onto the rest of the population based on the circumstances you & your acquaintances are in. It is a valid & important viewpoint, but not the only one. For example, I know most people say that no one is in NYC for the RE. I’m kinda on the other side of that, I’m here for the RE. Some of the things you can do here RE-wise cannot really be pulled off in Nowhere.

>> Just to put a fine point on it, if you have 4 kids you need at least one nanny at $75K/year (all-inclusive) (some of my friends have two) and 4 school tuitions at $75K a year (including summer camp, donations, after-school). So that's $375K after-tax or $750k pre-tax, just for the kids. Or you can move to Nowhere where the private schools cost half as much, the taxes are lower, and the nannies can live-in.

Let’s pretend one of your over-extended friends wasn’t so over-extended and actually had the money.

If they want to live in NYC, doesn’t the prospect of landing a meticulous 15,000 sq ft UWS mansion at $40K/mo or $480K/yr sound pretty attractive? In 2017, this “white elephant” found a taker at a $100K/month ask after 1 month on the market.

Or is your advice that if they just wait a year, based on your theories of urban migration, as it will surely be available for $30K/mo next year and $20K/mo the year after that?

Or forget about NYC altogether, because paying $30K/mo for 3000 sq ft Nowhere with 4 kids, 2 nannies, and a couple of dogs will be absolute bliss?

I wanted to bring this thread back to life, to get a 6-month update, particularly from those who might be out there in the rental market. E.g., George, Anonymouse, others.

My anecdotal data from the highest end is that the bottom came and went this past winter. E.g., all the best deals from 6 months ago are long gone, with nothing as good replacing them. Inventory seems down. E.g., both my old building & new building used to have ~10% of apts available for rent. Now, they have ~0%. In some cases, they rented; in other cases, the owner pulled the listing.

Miller Samuel's data for the typical market is showing lots of leasing activity in April, matching what I anecdotally see in the highest end. On the other hand, inventory remains high with pricing that tested winter lows.

https://www.millersamuel.com/charts/manhattan-inventory-new-leases-and-monthly-absorption/

https://www.millersamuel.com/charts/manhattan-median-monthly-rent-net-effective-versus-face/

What are people out there seeing?

@Inonada

I happened to check in on forums to see what others are saying, but here goes!

We are still in my old unit. The best deals were clearly in December of last year. Pricing is definitely higher than that period, but it isn't a massive rebound to pre-covid levels. Higher quality units (e.g., an oven not from the 1980s on a $9K/month apartment) at reasonable pricing (15-20% discount to last ask, say in 2017-18) get lifted within a few weeks. Owners are willing to make concessions as well, a month or two... 2YR leases seem to all be acceptable via email I think a 3YR option would still be entertained, but I sense more hesitancy in saying so automatically till owners test the market.

Brokers do seem open to offers being matched by those with better financial picture, which makes me think more than a few applicants are financially stretched in some capacity to upgrade. Units where owners are very proud of never putting in any $ to update applicances, closet doors etc., go unrented unless going for steeper discounts.

Many of the units I have seen are owned by investors. Rates are low, stimulus is high and there is some hope that NYC will see the housing inflation seen in other markets. These investors seem OK with a 2YR lease because they just think prices have to go up as US continues to fund stimulus (its a little crazy to me... Fed is buying mortgages while we run out of housing stock... Fed is considering raising interest rates while Biden wants another trillion dollar stimulus).

While we are off the lows, I think the overall market remains weak.
1) I am aware of multiple buildings that are holding back inventory to the Fall and some buildings you call and claim things are "so busy" (and a particular building unit comes to mind which I saw 1.5 months ago and remains unrented... "so busy"!).
2) I personally do not buy into this massive Fall recovery. I don't see it at my office... I think there will be a push to get people back into office seats by post-Labor Day, but I think the real push will be in 2022. People don't want to commute and the car traffic is horrendous. I think the firm knows they will see turnover if they put a line-in-sand too soon, and will just be escalating pressure slowly into Spring 2022. The success of vaccines is a lever for them, however... and also bonus cycles!
3) I think more and more people realize they are unhappy in NYC (given COLA etc.). Just this morning I spoke to a half dozen parents doing private K next year who said they would move if they could find the "right job". This is a major shift in sentiment from pre-COVID where no one ever were so unguarded about being unhappy in NYC . To be clear, none of these families are actually leaving (they just wrote big tuition checks!)... but the 'stay in NYC' at all cost mentality is not there.
Another round of tax hikes or gutting of the public school system (e.g. G&T) I think would result in some more outflow.
4) I see many listings that have gone unrented for a while and the owners have repriced them UP by 5-10%. It just reeks to me of desperation. E.G., to me, they are implicitly saying "I know you are going to ask for a discount and get one, but can we please take the super lowballs off the table".

To be clear, I am not bearish NYC calling for return to 70s or 80s. But I just don't see this desire to be back in NYC. For example, my employer is very bullish on NYC (publicly so), yet they too didn't exercise some options to increase office space in NYC. Very senior members would move to Florida if they could figure out how to do so (they tell me this one-on-one, although the firm is publicly endorsing NYC!).

To be clear, the floor is not falling out. My firm is not leaving NYC. In the UES, we are aware of multiple families that upgraded from 2BR to 3BR or came back from Suburbs for Fall schooling.

All-in, I feel OK missing the lows in December. I saved a lot on rent in the interim. We only passed on one really good deal (a previously $14K apartment where we negotiated $11K/month for 3YRs.. my guess is today it would go for $12K for a similar 3YR lease). But since then, we lowered our budget to $7.5-$9K. We were stretching too much, and frankly we continue to underestimate the COLA here (Lyft/Taxi prices keep going up, restaurants are 20% higher, summer camps for kids) so I just want to stretch less on rent.

In our $7.5-9K bracket we find ourselves squeezed a little. Have found a couple good 2BRs at $7.5K, but they just lack a little space for a home office (desk) + Peleton. We have seen many apartments in $6-8x range that fit some specs but have very low ceilings (8'3) or have flooring/closets/ovens that are 20+ years old. I've thought about renting places and just offering to put in the $2K of new appliances in myself, but decide against it (where else is the owner scrimping on, if he thinks someone is going to pay a quarter million on rent and be happy with closets falling off the rails?)

I remain confident something in the mid/high 8s will come along eventually. But I know we will have to move quick when it does, but I think it will lease in a week (or earlier) when it does come up.

Implicitly, I am not bought into this massive Fall move in recovery and I'm content to wait till Q4 to pull the trigger. We would move now., but if owners prefer taking $0s on rent for a few months longer we cannot stop them. I think (hope!) we will see a little more inventory or perhaps slightly lower pricing than what people are offering today, which hopefully puts something in our price range.

If I don't see anything by Nov/Dec of this year, I will feel a little more stressed... but will be more willing to increase the budget having saved a year of lower rent.

Another point of anecdata:
Despite being hot summer rental season and despite Brooklyn booming.
Our good friend in Williamsburg is moving out of town and notified his landlord he would not renew his lease this week.
Immediate opening offer from landlord was 3 free months of rent.
My friend isn't even trying to negotiate, so I do wonder what more he could have gotten if he was staying in NYC and decided to play ball.

Anonymouse, thanks for the update. If you've sat it out for this long, waiting for Q4 seems like the right play to me. I think inventory will come down through the fall, but it'll still remain at historically elevated levels. Owners seem to be underestimating the degree to which people stayed due to uncertainty / inertia, begrudgingly accepted above-market rents, etc. last summer. The anecdote from steve123 is probably a common story.

Steve123, do you have any idea where your friend landed in his 2020 renewal relative to 2019? Or was he on a 2-year lease?

Spoke to a senior partner at major blue chip law firm this past weekend. They are reducing their NYC HQ footprint by 40%. He said the lawyers overwhelmingly prefer a hybrid work schedule going forward.

No opinion/knowledge of the current rental knowledge, but the idea that the Fed is anywhere near adjusting rate is simply untrue. Rates, if they are ever able to be raised (which is a real question now that the economy has been so massively levered in the last year and a half and that debt was mostly monetized by the Fed), will be a 2024 event. You *may* see a minor tapering of asset purchases in early 2022, though they won’t really be able to allow treasury yields to run considerably higher than they are now, the math just doesn’t work. Great time to hold RE and other real assets.