Here are the grim rent numbers for landlords.

• Doorman studios: $2,415 in December; $2,383 in January
• Non-doorman studios: $1,996 in Decembers; $1,931 in January
• Doorman one-bedroom: $3,456 in December; $3,453 in January
• Non-doorman one-bedroom: $2,654 in December; $2,612 in January
• Doorman two-bedroom: $5,343 in December; $5,187 in January
• Non-doorman two-bedroom: $3,701 in December; $3,659 in January

Shortly before Christmas, some real executives spoke to The Observer about the January pick-up, when renters (and buyers) traditionally get back in the game after taking the holidays off. Most analysts, like REGNY’s COO Daniel Baum, quite presciently anticipated the malaise to continue into 2009, however. “I can’t see a large amount of demand coming in January that will create a surge in the first quarter,” Mr. Baum had said.

Across the board, rents are at their 12-month lows.

Indeed. As rental market reports heap seemingly endless piles of bad news on an already jittery industry, it’s becoming clear that the economic woes of the past several months are going to affect every segment of what was, not all that long ago, a resilient and unstoppable Manhattan rental market.

The very nature of this financial crisis, with its origins in the well-heeled corridors of Wall Street investment banks, is likely to drive down rents across the board, but particularly in the ritzy doorman palaces around Central Park and other highly sought-after neighborhoods throughout Manhattan. Suddenly, well-compensated bankers, analysts and lawyers haven’t the stomach to pay $10,000 a month or more on rent.

Let’s put the basement for rent in a high-end two-bedroom apartment at $8,000. In order to qualify for a lease in such an apartment, a tenant will have to earn approximately 40 to 50 times the monthly rent in annual income; in this case, between $320,00 and $400,000. Even if two people split the rent, it would still require salaries of $160,000 to $200,000 per person.

But what’s going to happen now that the city’s financial sector, the primary market for such high-paying jobs, could shed a mind-boggling 48,000 jobs? 

“It’s fair to say that people are nervous right now,” said Daniel Baum, chief operating officer of the Real Estate Group New York. Mr. Baum has noticed a surge in vacancies in Chelsea, the East Village and the Financial District, three popular neighborhoods that have a diverse collection of residents willing to pay the inflated rents to live there.

The gluttonous and indulgent era of the past several years, when no rent was too high, is likely finished, supplanted by a drastically more parsimonious environment. Two or three years ago, prospective renters were preoccupied with finding an apartment that offered unnecessary but nonetheless coveted add-ons like in-house gyms or rooftop decks, according to Citi Habitats’ president, Gary Malin. “People now are price-conscious rather than amenity-conscious,” Mr. Malin said. That, of course, has landlords and brokers a little bit anxious as they desperately search for a new equilibrium in a changed marketplace.

In this environment of price-sensitive demand and high vacancy rates, landlords are left with no choice but to lower their rents, even in high-priced, amenity-laden developments. “Pricing properly is everything right now; landlords need to protect their bottom line and prevent properties from languishing on the market,” said Scott Stewart, a senior vice president at Corcoran.

The process has already started in some neighborhoods. According to the November rental report from the Real Estate Group, the average rent for a two-bedroom doorman apartment in the Financial District fell nearly $400 from last November to this November. If vacancies hold at their current levels, or creep up even further, rents could start falling even more, and not just in the overstocked southern tip of Manhattan.

At the tiptop of the luxury pyramid, demand remains surprisingly steady, albeit at reduced rates. To wit: In the middle of October, Mr. Parsegian of Halstead rented a four-bedroom apartment in one of the Trump Tower’s top floors for $23,000 a month. In the past, monthly rent for that same apartment has been as high as $30,000.

Keeping pace with prior months, Mr. Stewart of Corcoran completed three luxury rental transactions in November, which varied in price from $8,500 monthly to $23,000. According to Mr. Stewart, doorman units that offer tenants unique qualities, either in reputation or amenities, will fare better. “Specialty apartments will still demand that higher price,” Mr. Stewart said, pointing specifically to One Beacon Court and the Time Warner Center as such examples.

Cookie-cutter new developments, offering dime-a-dozen amenities and uniform design packages, might have a tougher slog.

“It may take a long time before that inventory is absorbed,” said Mr. Baum of the Real Estate Group.

ohaydock@observer.com

Yes, it’s not as easy to find renters as it used to be, but brokers and other industry professionals are still confident that the Manhattan rental market will steady itself in the near future. “The fundamentals of the rental market are strong,” Citi Habitats president Gary Malin said.

But what if, like John McCain—who uttered something very similar about our national economy the very day Lehman Brothers filed for bankruptcy—Mr. Malin is wrong?

Nearly every real estate brokerage has its own vacancy rates, whether internal or for public consumption, and a quick poll shows a range of vacancy rates from 1.46 percent of Manhattan apartments on the low side to 3.8 percent on the high side. According to yearly rates compiled by Citi Habitats, the Manhattan vacancy rate hit 2.62 percent in 2002, before bottoming out at 0.76 percent in 2006 and rising to 1.71 percent this October.

But Marc Lewis, president of Century 21 NY Metro and a 30-year industry veteran, puts the current vacancy rate closer to 5 percent. Considering that the local economy has imploded, and that everyone from politicians to art auctioneers are bracing for a major economic slump, it’s not heretical to suggest that the worst is yet to come.

Is there anything that can stop the vacancy rate from pushing beyond 5 percent, as Mr. Lewis speculates, to something closer to 9 or 10 percent? Aside from a steep reduction in rents, which for landlords is as appealing as downing a shot of hemlock, the only great hope for property owners to move their product is a swift recovery in the local job market.

In other words, let’s get used to these high vacancy rates.

Analysts take as an article of faith that the rental and sales markets are inextricably linked: The theory goes that if the sales market slows, the rental market will pick up. After all, people have to live somewhere, and if they are not buying, they must be renting. The financial crisis appears to have severed the relationship, as a slumping sales market has yet to manifest itself in the form of a more robust rental market.

And that’s because the rental market’s also closely linked to the city’s economic health, particularly its employment picture. The city’s unemployment rate, however, now stands at 5.7 percent, up from 5 percent last September and expected to rise into 2009. A slumping sales market—Manhattan apartment sales were down 24.1 percent annually in the third quarter, according to appraisal firm Miller Samuel—may not be enough this time to buoy rental landlords.

“Traditionally, that has been the case,” Mr. Malin said, “but with the amount of layoffs taking place, there is a question mark about how much the vacancy rate will rise.”

It’s easy to forget that these are more than abstract numbers, but rather indicators with immense financial ramifications for landlords with slim balance sheets. At a 5 percent vacancy rate, a landlord with 1,000 units would have 50 unoccupied residences; now, if the vacancy rate jumped to 10 percent, the landlord would have another 50 vacant apartments. If the landlord’s apartments averaged $2,500 in monthly rent, the owner would be losing an extra $125,000 a month in income, and $1.5 million annually.

If such economic twists impact enough landlords, the effects will reverberate not only throughout the apartment market, to tenants and to brokers, but will be felt in varied real estate branches like investment sales and commercial brokerage (who wants to buy apartment buildings that aren’t garnering an appreciating return?).

The effects would also fell one of Manhattan real estate’s more cherished conventional truths: that the borough has the nation’s tightest apartment market. It does, for now, according to various reports.

While large-scale real estate rental shops, with portfolios in the thousands of units, like Rose Associates, Rockrose and the Related Companies, could weather such a deflationary storm, small-time outfits and heavily leveraged new developments might end up on the rocks.

“The little guy, with one or two little projects and little track record, is going to be in bad shape,” said Daniel Baum, COO of the Real Estate Group New York. “He will find himself in a very, very precarious situation.”

Brokers are emptying their bag of tricks to try to forestall any significant rent reductions. For the first time ever, Mr. Lewis of Century 21 NY Metro noticed property owners offering tenants incentive packages during the summer, traditionally a busy season of high tenant demand.

Other landlords are freezing rents, offering 18-month leases, and even warehousing some units to create some scarcity and a greater sense of urgency among prospective tenants. While their efforts have prevented large-scale price chops, tenants can already take advantage of falling rents in outlying neighborhoods like Upper Manhattan and even the ever-popular Upper East Side.

The hope is that landlords will be able to survive until next spring or summer, when the seasonal market will drive up business, but even that isn’t a sure thing.

“Next year is where the big question is going to be,” Mr. Baum said.

Two major investment houses, Bear Stearns and Lehman Brothers, no longer exist, and there are doubts that financial firms and other higher-paying industries will have an abundance of job openings to lure those transient young professionals fresh out of college or graduate school. Not even cheap rents can entice apartment hunters if there aren’t any employment opportunities, especially in a city as expensive as New York.

“It’s all going to depend on the hiring for next summer,” Mr. Lewis said.

ohaydock@observer.com

Mr. Baum: No, Craigslist doesn’t scare me; in fact, I think that Craigslist is fantastic, if used properly. The problem with Craigslist is that it lends itself to ridicule because there are many posts that are either false or absolutely untrue, and there are scams where people have lost thousands of dollars because they think they are renting something when they are not. So Craigslist has its flaws in that respect, but at the same time, the opening up of information I personally think is a great thing.

In the past, brokers predominantly existed because they were the source of the information, and now that information is free to those that have the time to look for it; now it is much easier to find property that you don’t need brokers for. I personally think that brokers will be around for a very long time to come—they are not going anywhere. The issue is simply a matter of how many there will be. Manhattan is not one of those markets where it is so easy to navigate. Landlords have lots of different policies; they have requirements and obstacles to overcome to rent a property. When you have to go through a [co-op] board process, putting together that paperwork and navigating all of the pieces of the puzzle to make that work is somewhat daunting, especially for people who have never lived in New York before.

Do you think rental brokers will eventually drop their commission cuts, then?

Could I potentially see brokers charging less? I guess it depends. Like any other market, it depends on what the market is willing to bear. What are people willing to pay you to help them find an apartment? Fees are negotiable. I’ve never met a broker who refused to negotiate on their fee. Because we all know that there are people out there who are savvy; we are certainly not trying to pull the wool over anyone’s eyes. But most of us would rather do business and make money than hold out for the last dollar and not make money. The Internet forces us brokers to offer something to the client. You have to be able to provide your client something. Just to open doors is not enough anymore.

New York is a good place to be more a morally compromised broker. Is there a way to clean that kind of stuff up in-house?

It starts from the management of each individual broker at the organization and how well they monitor their staff and how well they look after or condone what people do. I’m sure it’s hard for people to let go of the potential money they would be making and say, ‘You know, I am going to take the high road.’ … It really comes down to the brokers themselves and making sure that people are not doing things that are unethical practices in business.

That being said, the unfortunate truth is that clients are no better. There are times when a client deliberately utilizes your service from an informational standpoint and then goes around your back and you lose your fee. I would say that the reputation of brokers is something that we can work on cleaning up.

Let’s talk about the rental market. Is there going to be a substantial cut in rents anytime soon?

I try not to hypothesize about what is going to happen in the future. Our information and our reports are about trying to understand what is happening right now. And then we look at any trends that may have happened in the past as guidance for the future. I don’t know what is going to happen with the rental market. All I know is that if I was a property owner today, I would be spending a lot of time analyzing the comparable property out there to my own, trying to get a feel from brokers about what the demand for property is, so I can understand and measure the feedback so that I could properly assess what price point I am going to get for my property. The question is, do we have a more significant drop in years past, and does that have a long-term effect going into the market next year? I guess we will find out. 

Looking at what happened on Wall Street with the credit-rating agencies, is it hard to be an honest broker of information in the real estate industry? Is there ever pushback from people?

Yeah, there is a lot of it. The intention is not to be a bear, or a doomsayer. If you look at what happened with us … in the credit market, it wasn’t just that there were wrongdoings done, it’s that it was taken to such an extreme. People by their inherent nature want to take advantage of good opportunities, and unfortunately, take it to extremes. And it is the extremes that end up causing all the damage.

So it’s important that there are people trying to understand trends and telling the public to look at things from different perspectives. When you only get one perspective, you get blindsided awfully quickly. Our intention, if not anything else, is to give people perspective and to use us as one more bit of information.

How would you define the relationship between Wall Street and the real estate market? Are they inextricably linked?

I don’t think so, and I would say that specifically because of what just happened. I mean, why did Manhattan real estate do so well while the rest of the country fell apart? This city is unlike any other city in this country because there is no other city in America where the world comes to live. There is this aura around Manhattan about coming here and being a part of this city. …

Certainly, you can look at the dollar being weak, and that the euro and pound were strong. That is another factor to add to the equation. If the markets, the economy, and the financial market [are] not doing well, the likelihood is that Manhattan is going to suffer to an extent, because so many of the people who live here are in those industries, and so much wealth from those industries played out in the real estate market of New York. But that’s where New York stops being like other cities, because those other people that have always wanted to come here are going to want to come here, and they are still going to live here.

Sales seem to be down and rental vacancy rates have stayed relatively flat. Shouldn’t there be a drop in vacancy rates?

Here is the problem. First and foremost, vacancy rates pose a very big problem. To quote a vacancy rate is extremely difficult because there is no single entity in all of New York that has the market in a database. By the very nature of the Manhattan [rental] market, no one has all that data. So to give actual numbers for vacancy rates, I don’t know how you do that. I have never gone by vacancy rates, because I can only know them by feel and an increase or decrease in data points. That’s why we have never put out vacancy rates. I don’t believe I have the data points across the markets to make that assessment.

So what are your vacancy rates these days?

They have certainly gone up. They have been going up; they went up in July. In theory, that would make sense, but that also assumes that those same people who are not buying are renting in Manhattan and totally takes out of the equation the people who go to Brooklyn, or Long Island City, or Jersey City. I can’t speak to how many people who would have rented in Manhattan are going to Brooklyn, but they are definitely going. There are more people going to Brooklyn who might have stayed in Manhattan previously. You have to take things like this into the equation before you make an assessment. If you live in a fishbowl, you would have to assume that the rental market would be up, because it’s just logic; but you can’t make that assessment in this market.  

ohaydock@observer.com