Exec. Vice President
By MOTOKO RICH
AVERAGE sales prices for apartments in parts of Manhattan now breach $1 million. Bidding wars are erupting over even the most modest of them. So what are would-be buyers doing? They have decided to throw in the towel and forgo a mortgage for a landlord.
For Larry Wiesler and Randy Federgreen, it was a one-bedroom condo for sale in the Flatiron district that finally made them snap.
Though the condo was in a modern building with a gym, it was small, with very little closet space. More to the point, the price did not make sense to them. After putting in a $675,000 bid, they chose to rent instead and withdrew their offer. Though they had sold an apartment in Greenwich Village for $1.5 million, they decided to pull out of the frenzied sales market.
"It felt like there was a lot of psychological hype around the `you've got to buy it now' mentality," Mr. Wiesler said. "We found ourselves caught up in the same momentum as everyone else."
Last month, they moved into a one-bedroom penthouse on West 55th Street, with 14-foot ceilings, great light and a Hudson River view. Instead of a contract, they signed a lease, with a monthly payment of just under $3,000.
"A lot of buyers at any price range are having frustrations finding product available at the price they want to pay, so they're turning to the rental market," said Stephen Kotler, a broker with Douglas Elliman, the Manhattan real estate firm.
Mr. Kotler said that between 15 and 20 percent of his clients have abandoned the idea of buying an apartment for now and have decided to rent. That compares with about 10 percent of his clients a year ago.
According to Andrew Heiberger, president of Citi Habitats, a Manhattan brokerage firm, 15 percent of the apartments his firm rented in the first quarter went to what he describes as "frustrated buyers." That is up from just 5 percent a year ago.
The increased demand is, in turn, fueling modest price increases in the rental market, where monthly rates are creeping up and vacancy rates are slipping, slowly reversing a nearly three-year trend.
Though still far below the peaks of early 2001, the average rent on a one-bedroom apartment below 100th Street in Manhattan has increased 3 percent to $2,333 from $2,268 in April of last year, Mr. Heiberger said. A three-bedroom apartment averages $4,795, up from $4,605 last April. Vacancy rates have meanwhile slipped from 2.35 percent last April to 1.76 percent now.
In some neighborhoods, would-be renters are starting to have trouble finding what they want. Scott Stewart, a rental specialist with the Corcoran Group, has a list of families eager to rent three bedrooms on the Upper East or Upper West Side. In some cases they have sold apartments, figuring the market has peaked.
But, Mr. Stewart said, there are only six or seven apartments in these markets with rents of $10,000 to $15,000, compared with 25 or more just a year ago. As more high-end buyers have entered the rental market, the inventory of available apartments has started to shrink.
Even at the lower end, landlords are trying to push through rent increases and to withdraw sweeteners for tenants.
Lee Ryback, controller of the Kibel Companies, which owns five buildings in Manhattan, said his company planned to require tenants to pay broker commissions again. Kibel covered the fees after 9/11, but with vacancies down, he said, "we're going to see if we can go back to the old days."
David Wine, vice chairman of the Related Companies, which owns more than 6,500 apartments in Manhattan, said his company was being "much more selective about offering concessions than six months ago or a year ago."
The rise in rents does not yet compare to the pace of increases in the sales market. According to the Douglas Elliman Manhattan Market Overview, a quarterly report, first-quarter average sales prices in Manhattan below 112th Street on the West Side and below 96th Street on the East Side have risen more than 28 percent over the same period last year.
In Brooklyn Heights, where price increases have been nearly as extreme, rents can still appear fairly attractive. A $600,000 two-bedroom apartment in Brooklyn Heights, for example, could run a buyer about $3,000 to $4,000 a month, including maintenance payments, even assuming low interest rates and a hefty down payment, noted Christopher Thomas, president of William B. May Brooklyn. An equivalent rental in the neighborhood, he said, now runs about $2,500.
Those who have rent-stabilized apartments have even less motivation to buy. "At the end of the day, people think, I have to give up this amazing view of the park or this great three bedroom that I pay a nickel for and jump into the sales market and get less for a lot of money," said Brian Lewis, a broker with Halstead, who helped Mr. Wiesler and Mr. Federgreen sell their Greenwich Village apartment.
In addition to skyrocketing prices, the contraction in the number of apartments available for sale has been so severe that prospective owners feel they would have to make too many compromises in location and amenities simply to get into the market. "Even people for whom money is not the only issue are becoming incredibly frustrated by the fact that you can't find what you want," said Frederick W. Peters, president of Warburg Realty in New York.
Indeed, Kathryn Steinberg, a broker at Edward Lee Cave in Manhattan, said that she is suddenly finding herself helping some of her wealthiest clients to rent. "This is a brand new way of thinking for them," she said. In one case, she helped a couple with two children sell an apartment in an Upper East Side town house for $3 million. They had hoped to buy a larger apartment or a town house, but quickly discovered that in their price range — $4 million — "the good ones don't exist anymore," Ms. Steinberg said. So they ended up signing a two-year lease — for around $20,000 a month.
"The prices for anything nice are inflated, and it just doesn't make sense to buy," she said.
What does make sense is to sell. Property owners with seller's lust "want to sell at today's prices," said Louise Phillips Forbes, a broker with Halstead. She helped one couple sell a two-bedroom apartment on Park Avenue South for $1.6 million, $100,000 above their asking price. Now they want to rent.
Buyers of much more modest means are caught in the same currents. Avi Shalem, 38 and recently divorced, wants to sell his two-bedroom house in Forest Hills, Queens, and buy a one-bedroom bachelor pad in Manhattan. At first, he thought $500,000 would get him something decent. His broker, Bill Billitzer of Douglas Elliman, showed him nearly 20 apartments from Washington Heights down to the East Village. "I just wasn't finding what I wanted," Mr. Shalem said. "I was dismayed that there's no room for downward negotiation in Manhattan."
So now he is competing for a decent rental — at a time when rental prices are also ticking up.
Mr. Shalem said he was no longer surprised by the vagaries of the Manhattan real estate scene. After only a brief foray, he said, "I'm jaded."
Thursday, April 22, 2004