Luxury Rent Check! The Near Future of Manhattan’s Higher-End Apartment Market

Location: What’s Glenwood’s vacancy rate typically?

Mr. Jacob: Somewhere between 1 and 2 percent.


Really? When you hear various brokerages release their various vacancy rates for Manhattan, they all show it somewhere below 5 percent. Where do you think it is?

I would say that’s basically true, that, historically, the vacancy rate has been less than 5 percent. And, actually, by virtue of the rent-control laws, that if the vacancy rate ever became higher than 5 percent, then technically rent stabilization and rent control are supposed to go away.


Do you think that would ever happen?

Well, if it ever happened, [the state] would probably change the regulation.


Some people say that if you did away with stabilization and rent control, market-rate rents would come down. Do you agree?

I would agree with that—because when you have rent stabilization and rent control, you end up having a distortion of the marketplace. You have, you know, single people in a three-bedroom apartment that don’t need the three-bedroom apartment, but it doesn’t make any sense for them to move—because what they’re paying for the three-bedroom might be the same as a one-bedroom. So they end up staying there and end up distorting the marketplace. People need three-bedrooms, but there’s a shortage of them because you have the wrong people staying in those apartments. So, in a way, rent stabilization sort of props up market rents for our decontrolled units.  


Do you foresee a time soon—say, in the next 24 months—where it becomes profitable to do rental development in New York? For a long time during the boom, it was all condo and largely still is.

Rental development is still feasible, but it’s only feasible for 80/20 [government-helped affordable-housing developments] as the traditional 421a 10-year program was sort of gutted by the Bloomberg administration. The only thing holding us back now is, it’s difficult to get financing.


But, if it weren’t, do you think it would be worthwhile for a private developer to build a new rental building?

As the land prices are coming down, yes. We were in a position several years ago, where the condo market was very strong, land prices were bid up to a level that we couldn’t afford to do a rental project, so we couldn’t be competing in the better areas for land. Now that the condo developers, basically, can’t get financing or it doesn’t make sense to build, land prices have plummeted to the point where, if somebody’s willing to put a lot of equity in the project, it is feasible to do a rental project.


Where are rents trending right now for higher-end rentals?

Rents have gone down. … They went down about 10 percent in our buildings. But they have now stabilized and we’re starting to see some strength again, and we’re pushing the rents up again a little bit.


Ten percent, really? Were you surprised by that? Can you compare that to any other time?

It was very similar to 2002, 2003, after the September 11 attacks. … There was a decrease in demand.


Why are Manhattan rents always so high compared to the rest of the nation? Is it simply supply and demand?

Other than the rent-stabilization distortions, it’s really a market system. Our rents are high in Manhattan compared to other parts of the country, but when you compare them to other parts of the world, our rents are actually very affordable.


Can you give an example of the ideal Manhattan tenant financially right now? Do they still have to have, in annual income, 40 times the monthly rent?

We’re somewhat more flexible. Glenwood is still relatively stringent in our standards. … We might require someone who doesn’t have the strong credit history or doesn’t have the 40 times to pay extra security deposit in a stabilized building. …


If brokers come in with tenants, they get a commission?

They always get a commission. But, as the markets change, it changes as to who pays it. So, right now, since the market got softer and became more of a renter’s market, we’re paying the commissions and we basically pay one month’s rent. In previous markets, when it was more a landlord’s market, tenants would pay the commission; and, actually, the commissions would be higher than one month’s—typically, they would charge 15 percent of a year’s rent, which was almost two months’ rent.


I was looking at some Glenwood listings earlier and some mentioned ‘net effective rents for tenants.’ What does that mean?

That means that, at this particular time, rather than lowering our base rent—we build up the rents over the years, we like to keep it at that level—we’re giving one month’s free rent in the marketplace. So, for example, you take a 12-month lease and they had one month free, we would basically figure out what the rent would be, 12 months minus the one free month.


Generally, when’s that going to stop?

As soon as possible [laughs].


The rental season is sort of in full swing, with graduations and relocations—are we talking about maybe autumn or winter when incentives stop?

No, this is always a good season for us. We rent the most apartments during the summer; we also have the most turnover during the summer. One difference right now is new jobs are a little harder to come by than in other summers, so some of the college graduates are having a harder time getting the jobs.

But I’m seeing a little bit of a hardening in the market; rents are starting to creep up again. And, you know, it’s hard for me to judge when it’s going to be. But I’m hoping pretty soon we’re going to stop giving the free month’s rent, and, after that, the next thing is the tenants will pay the commissions again. I’ve been through many cycles.

Luxury Rent Check! The Near Future of Manhattan’s Higher-End Apartment Market