Rents Run Amok
Mind Bending Rise In Rents -- 30 T0 40 Percent Since
1993 -- Is Turning Manhattan Into Another Tokyo.
What Fresh New York Hell Is This?
By PETER HELLMAN
New York Magazine, June 16, 1996
ON WEST 70th STREET, A townhouse duplex apartment goes on the market for $5,700 -- pricey for a three-bedroom pad on the Upper West Side. But four hours later, it's rented. On East 84th Street, two bidders vie for the right to pay $2,100 for a one- bedroom in a flashy but unremarkable new condo (see below). They're told that the first one to pass a credit check gets it. On East 14th Street, three young women are told they must pay three months' security in advance if they want to rent a two- bedroom fifth-floor walk-up for $1,595 in a drab building. They pool their few resources and pay up. All of these transactions occurred on one recent weekend.
Not since the bubbly boom days before October 1987 has the Manhattan rental market been so tight. And never has it been so expensive. Prices have risen an astonishing 30 to 40 percent from their recent nadir in 1993. As of the end of 1995, reports Feathered Nest, the city's largest rental agency, prices were at all-time highs, averaging $1,830 for one-bedroom apartments, $3,001 for two-bedroom apartments, and $4,523 for three-bedroom apartments. But dry numbers fail to convey the near-lunacy of the market at all levels, from overpriced student sludge in tenement buildings near the universities right on up to a $10,000 apartment in an Upper East Side tower that has 37 windows but not a single decent view. Or the $15,000 apartment on Central Park South with great views but an awkward layout because it's been gerrymandered from three smaller units.
"I don't try to make excuses to my clients for the prices out there," says Eric Shammaa, owner of a small brokerage called Penelope & Whitman. "I tell them it's crazy. But it's what they have to deal with." Miriam Izsak, an associate broker at Douglas Elliman, simply calls the rental market "tragic."
Tragic? "Because you get so little for your money." She had just brokered the rental of a tiny -- really tiny, 434 square feet -- furnished studio apartment on the nineteenth floor of 3 Lincoln Center for $2,400 per month. Many middle-class suburbanites have bigger bathrooms.
What's driving the market so hard? As this magazine has pointed out in the past ("Out of Control," May 8, 1995), rent control and stabilization, and Byzantine eviction rules, have conspired to create a wildly unfair housing market in which bad housing stock rents for artificially inflated prices. Ironically, a halfhearted attempt to do something about these inequities is only making matters worse. A 1993 state law decontrolled stabilized apartments that rent for more than $2,000 monthly and are occupied by tenants who earn more than $250,000 a year. The law freed up a only few apartments initially, but savvy landlords are exploiting a loophole in stabilization rules -- when a tenant moves out, the landlord makes improvements, part of the cost of which he is allowed to add to the rental price. Once the price is goosed up to the $2,000-a-month mark, the landlord then demands a market rate of, say, $5,000 from the next tenant.
On the brighter side, the NYPD has helped increase demand among middle and upper-middle-class renters by cutting crime citywide by a third in the past two years. That made everyone feel better about living in New York -- just as a small influx of jobs in finance and new media is beginning to give the long-stagnant local economy some perk. Consider also the scarcity of new rental buildings -- given the low demand at the start of the decade, who would have been stupid enough (or farsighted enough) to build rental housing? "Back then, at least half the rental supply was unsold co-op and condo apartments that were being rented by developers and investors," explains Nancy Packes, president of Feathered Nest. "Now that the sales market is so hot, these units are being sold as leases expire. So you have a loss of rentals just when you need them." The most recent to go is the Mondrian, a prime building on East 54th Street that rented up after failing to sell when it opened six years ago during the recession. Last month, the Mondrian stopped renting and started selling again.
Even at stiff prices, the rare new rental building that does come to market is stampeded. The 103-unit limestone-and-brick apartment building at 300 East 64th Street opened in late May at prices ranging from $2,500 for a one-bedroom to $8,000 for a four- bedroom apartment -- nobody's idea of a bargain. Yet in just fifteen days, 40 percent of the units were rented, according to Trevor Davis, one of the owners.
Savvy renters know they have to move it or lose it. Really move it, in the case of an English couple who wanted an apartment on the thirty-fourth floor of West End Towers, the big new rental project on the Upper West Side. The elevator wasn't working when they wanted to see it. "They understood that they could lose the apartment if they didn't act at once," says their broker, Karin Rathje of the Corcoran Group. The couple did what was required: hiked up 34 flights of stairs to check out the apartment and its view south to the Statue of Liberty before returning by foot to the rental office to sign the lease. They were lucky -- another apartment hunter says she inquired after twenty different listings, ready and willing to pay those exorbitant finder's fees (usually about a month's rent), but couldn't even get a call back.
The Upper West Side, long a comfort zone for strapped tenants, is now as stress-inducing as a Saturday morning at Fairway. The new order was signaled just over a year ago with the opening of the Millennium tower on 67th Street. While attention focused on the fast sales of the project's 83 condominium units, the building's 100 rental apartments, reached by way of a separate lobby, filled up even more quickly, at prices averaging $3,600 for two bedrooms and $6,300 for a three-bedroom. The West Side had never seen prices like that. But they looked like bargains when, around the corner, Millennium Partners' next rental tower, One Lincoln Square, opened late last summer.
Apartments there were snapped up despite prices averaging $5,700 for two-bedroom units and $7,400 for three bedrooms. True, the best apartments face Lincoln Center, but from a high floor you mostly get to look down on mechanical systems. No matter. One Lincoln Square is fully rented, and Millennium Partners is beaver- busy erecting another rental tower across the street.
Amid such a typically New Yorkish feeding frenzy -- this is why people move to Seattle -- landlords can go too far. At the handsome old Apthorp, commanding a full Broadway block at 79th Street, an eight-room apartment was offered earlier this winter at $12,000 a month. The apartment ended up going for $9,000, still the highest rental price ever fetched there.
At these prices, who can blame members of the rentier class for considering once anarcho-syndicalist-only enclaves like the East Village (especially with those plucky squatters looking like they just took their last curtain call at Rent). Over at No. 9 Avenue A, a few steps north of Houston Street, the newly renovated building still has a grim, crackhouse-style front door. But the last apartment available here -- a top-floor unit -- has just been snapped up for $2,500 a month. Its two bedrooms are eight-by- nine-foot cubbyholes that only a hunger artist could find appealing. Then there's the way-beyond-industrial black metal, sharp-edged stairway leading to the roof.
It cuts diagonally across the living area from floor to ceiling, posing a genuine hazard to mad-dashing children. It's not often that a human being gets to experience what a gorilla in a small traveling cage feels. But stepping onto either of the two heavily barred "terraces" in the so-called penthouse at the Golden Palace Condo at 306 Mott Street comes close enough. In order to prevent intrusion from the adjacent rooftop, the owner has completely enclosed these terraces with vertical bars, topping them off with rough-hewn cement slabs. This two-bedroom apartment is also notable for sloppy details -- a cockeyed radiator cover, for example, and the tiny knobs on the accordion doors in the bedroom that cause your fingers to be squeezed from behind as you try to tug the doors open. Happily, the knobs already show signs of coming off. The place was rented for $2,600 a month.
On the high end, things are little better. Expect to fight for the right to pay in the range of $15,000 for a well-located three- bedroom pre-war apartment. When two "classic nines" came available last month at 944 Park Avenue, near 82nd Street, they were snapped up -- one of them in a bidding war that ended with the winner paying well over the $15,000 asking price.
In a recent struggle for a full-floor apartment in a Fifth Avenue building in the sixties the owner demanded that the $16,000 per month rent be paid a year in advance -- along with a three-month security deposit. That's an up-front bundle of $240,000. The owner also wanted a five-year lease, undermining a key reason for renting rather than owning in the first place: flexibility. When one bidder rejected this last demand and dropped out, so did the other two. No problem. Last month, the apartment was rented, without most of its big-buck riders, for $20,000 per month.
Will anything short of another Black Friday loosen up this tight rental market? Only more supply, new apartments. Yet there's just a handful of rental buildings under construction in Manhattan, mainly because lenders are setting far tougher terms for construction loans these days. "There hasn't been a grown-up construction loan in this town since God was a boy," says developer Jack Heller just a touch hyperbolically. The most promising prospect is the financial district, where generous tax benefits await developers who convert empty office buildings into apartments. At least 7,000 new units are already projected for the Wall Street area -- but it will be the century's end before the TriBeCa effect really kicks in. And zoning changes in and around the flower district in the West Twenties could lead to a building-and-conversion boom there.
In the meantime, Manhattan remains Absurdity Central. Broker Valerie Delson is rapidly clearing out 260 newly converted apartments at the grim old former YMCA at 360 West 34th Street. One-bedrooms are going for "only $1,300 to $1,700," she says. "Quite reasonable." She breaks into laughter. "I've been in this business for 21 years," she says. "I remember when $600 for a studio seemed crazy Now I can't believe what I'm calling reasonable."
171 EAST 84th STREET
This is the sort of personality-free, Upper East Side one-bedroom in which young post-grads tend to wind up. Only, at about $2,100 per month, it takes two to afford it. That's because landlords often require a tenant to be earning a salary of at least 40 times the monthly rent, or about $84,000 in this case. (With sky- high rents, clearing this bar gets progressively more problematic. In the East Village, a public-school teacher had to ask his principal to write a letter, inflating his salary to $40,000, so he could rent a one-bedroom.) A fun game for our new roomies: Flip to see who gets to have privacy.
3 LINCOLN CENTER
In the optimistic eighties, speculators built or converted thousands of usually undistinguished condos, counting on boom times and big Wall Street money to provide a steady influx of buyers. But as the market rapidly weakened at decade's end, many of the so-called generic apartments proved unsalable. When this 40-story condominium on the back side of Lincoln Center opened in 1987, for example, nearly all of its 263 apartments went unsold and had to be rented. Now the rentals have all been sold off. "Demand was so strong during the sales campaign," says Adrienne Albert, who spearheaded the building's recent marketing drive, "that we raised prices seventeen times over three years." Owners, meanwhile, are turning around and renting the apartments for epic prices: A thirty-fifth floor two-bedroom that rented for $3,500 in 1993, for example, recently went for $4,700. So has the two- bedroom pictured above, which is on the fifty-fourth floor. There's apparently a steady market even at these levels: Wealthy parents of Juilliard students like to put their kids up here so they can scoot between school and home without ever hitting the street.
1009 FIFTH AVENUE
Is there a limit to the insanity? It may be reached shortly at this richly detailed seven-story Beaux-Arts mansion near 82nd Street, across from the Metropolitan Museum. The owners, descendants of tobacco magnates Benjamin and James B. Duke, resolutely refused to sell it in the seventies when the adjoining townhouses were demolished. With the family's backing, the house was landmarked in 1971 even as the family's personal use of the building diminished. The original billiards room, facing the Met, was last used by museum auditors. Now the house is being converted into three rental units and a pied-a-terre for the family. The smallest rental, on the fifth floor, is already taken. The second apartment, a Parisian-seeming penthouse duplex with a 46-foot-long living room and a cantilevered glass roof, is being shopped for $15,000 a month. Not sufficiently luxe? The third and ne plus ultra pad will be an 8,600-square-foot quadruplux. First listed at $50,000 per month, the apartment is now offered at a mere $40,000. Interest in the duplex is high, says broker Beatrice Ducrot of Stribling Associates. The quadruplux is a bit more ticklish. "At this price level," explains Ducrot, you have to vet credit references rigorously. "It can attract people who have la folie des grandeurs."
42-46 AVENUE A
Not every new downtown apartment is a rip-off, but it is surely a sign of the times that this one-bedroom in the Information Building, around the comer from one of Loisada's most notorious drug blocks, is way beyond the reach of most people who would actually want to pop over to Robots at 4 A.M. for some jungle beats. But this building, newly constructed on the cite of a former parking lot at the corner of 3rd Street, is not without its very of-the-moment charms. Bright-blue cable dedicated to carrying the ultrafast T-1 line gives all 28 apartments Internet access at 80 times the current 14,400-bps standard -- this is the first residential building in the world to offer such a built-in amenity. All but two of the apartments are already gone, including a four-bedroom with two terraces that went for a stiff $4,400 a month.
This studio in the century-old Archives Building in the far-West Village, has fourteen-foot ceilings and windows cut out of Romanesque Revival arches. But there's not exactly an efflorescence of sunlight. Still, these apartments -- virtually all studios and one-bedrooms (they are billed as "loftlike") -- are snapped up as fast as they become available.
100 ALLEN STREET
On the Lower East Side, renters have to accept a few design quirks as part of that super-authentic bohemian way of life. Consider the doorless bedrooms in this newly renovated tenement But even the addition of a tasteful screen from Pier 1 wouldn't help, because bedrooms have rectangular "pass-throughs" cut into the walls, a less-than-Metropolitan Home-worthy way to let in a smidgen of light from Allen Street. At a mere 275 square feet, the "one-bedroom" pictured above is more than just a roof over your head -- it's an in situ crash course in what life was like for your immigrant ancestors.
Copyright 1996 The New York Times Company