Straight or Nay? The Economics of Studios

Laura Tomasko, a 24-year-old nonprofit employee, spent her first year out of college living in a bedroom with no windows. Ms. Tomasko and her roommate lived in a home office studio in the Financial District, and in order to create two separate living quarters, certain sacrifices had to be made.

First, they erected a temporary wall bisecting the spacious living area and creating the second bedroom. What they were left with were two bedrooms of about equal size (roughly 10 by 11 feet) that each lacked amenities most New Yorkers take for granted. The walled-off bedroom siphoned the apartment’s only window, but had no closet and was only separated from the noisy living room and kitchen area by a thin fake wall. Ms. Tomasko’s bedroom (or, more to the point, home office) had the luxury of privacy, four solid walls and its own closet but had no window for natural light or ventilation.

Although “a window is probably a nicer thing to have in your bedroom than a closet,” she said, Ms. Tomasko and her roommate decided to evenly share the rent after taking other considerations into account.

Expect to see more of these odd living arrangements as the cost of living in New York City, measured by the square foot, continues its endless upward march. In 1998, the average price per square foot for a Manhattan apartment was $397, according to a report by appraisal firm Miller Samuel. By July 2008, that figure stood at $1,263.

Such jumps have turned the Manhattan residential square foot into a premium, nowhere more so than in studios. Renters and buyers of these apartments of last resort before the boroughs or Jersey face a stark financial choice in tougher economic times: How much is a few extra feet really worth to me?

Manhattan studios have long been stratified, a sort of pecking order among the nerds of real estate high school. There are the traditional studios, known to real estate professionals as straight studios, with their simple and familiar open rectangular spaces. And there are the newer flex studios, which in addition to the ample open living quarters of straight studios also have either home offices (with four solid walls) or alcoves (with three) secluded in the back or front corners.

For landlords and developers, adding ersatz bedrooms and slapping on marketing-friendly names is part of a larger strategy that both maximizes inventory and creates premiums that buyers will pay for. According to Daniel Baum, COO at the Real Estate Group New York, the term “home office” is nothing more than “a marketing concept; it is a way for property owners to say ‘bedroom’ without actually having a bedroom.”

And a successful marketing concept it has been.

Jonathan Miller, Miller Samuel’s chief executive, compiled for The Observer the sales data for Manhattan studios and alcove studios for July. The average price for traditional studios sold last month was $537,502, compared to an average price of $553,997 for alcove studios—a price difference of $16,495. Despite the higher price, alcove studios are actually cheaper per square foot compared to straight studios. Alcove studios in July averaged $993 a foot, 10.1 percent less than the $1,105 for a straight studio in the same time frame.

The statistical alchemy works for renters, too.

Fritz Frigan, the executive sales and leasing director in Halstead’s midtown office, examined the July leasing data for straight and flex studios in doorman buildings in the Upper East Side, finding the average monthly rent of $2,522 for flex studios to be only 4 percent more than the $2,424 rent on straight studios.

Split the flex studio’s rent, and each roommate will save around $1,200 a month. “It is certainly a good option,” Mr. Frigan said, “especially if you are on a tight budget.”

ohaydock@observer.com

Straight or Nay? The Economics of Studios