NYC landlord take hit on falling apt rents

http://www.crainsnewyork.com/article/20090324/FREE/903249973 Declining Manhattan rents are taking a toll on Equity Residential, a large real estate investment trust that owns 47 apartment buildings in the New York metropolitan area. The Chicago-based REIT appears to be among those most vulnerable to the deteriorating market here, according to Macquarie Research, an investment bank. Equity... [more]

http://www.crainsnewyork.com/article/20090324/FREE/903249973 Declining Manhattan rents are taking a toll on Equity Residential, a large real estate investment trust that owns 47 apartment buildings in the New York metropolitan area. The Chicago-based REIT appears to be among those most vulnerable to the deteriorating market here, according to Macquarie Research, an investment bank. Equity Residential’s New York City buildings are high-end luxury rentals which draw many of their tenants from Wall Street, where firms are cutting back and employees are suddenly looking to pinch pennies. Since February alone, Equity Residential has lowered its Manhattan asking rents by an average of 13%, said Michael Levy, an analyst at Macquarie. That reduction came on top of a 15% cut over the previous year. In a Tuesday research note, he noted that the greatest asking-rent declines took place at Equity Residential's Trump Place buildings on the Upper West Side, where rents fell by an average of 15.5% at 1,325 units. The biggest drops were for studio apartments, where rents were lowered by 19%. “This is troubling, given our view that Trump Place is Equity Residential’s regional crown jewel,” Mr. Levy wrote in the research note. “In this market we find that the upper-end of the rental market is getting hit harder in terms of having to lower asking rent.” Properties in the New York metro area contributed 10% of Equity Residential’s net operating income last year according to Macquarie. Half of the company’s units in the region are in Manhattan. During its fourth quarter earnings call, Equity Residential management expressed concerns about the job losses in New York and its impact on the company, noting that results were flat in the New York market for the year. Last year, the company recorded funds from operation of $2.18 per share on revenues of $2.1 billion, flat from the previous year. Analysts estimate funds from operation will slide to $2.13 per share this year. “If rents go down, income goes down,” said Peter Von Der Ahe, vice president of investments at Marcus & Millichap. “In New York, building expenses are also up. For REITs, less income and higher expenses mean less cash flow.” AvalonBay Communities, an Alexandria, Va.-based apartment REIT, is also heavily exposed to the New York market, according to Mr. Levy. Similar to Equity Residential, AvalonBay has properties in New York and other metropolitan areas with a higher concentration of financial-industry tenants than its peers. [less]