To fill empty buildings, developers have been offering generous concessions, including up to five months of free rent.
Prepandemic, landlords often treated Megan McDonald like they were doing her a favor by renting her an apartment. But this spring, as Ms. McDonald, 29, began looking for her first place since Covid, new developments were essentially begging her to move in by offering some free rent.
In the end, Ms. McDonald, who works for an investment bank, leased a one-bedroom at 275 South Fifth Street in Williamsburg, a project known as the Dime, after being offered five complimentary months on a 25-month lease.
“I can’t imagine how hard it must have been for landlords to try to rent out a new building in the pandemic, because they still have to make their money back,” Ms. McDonald said. But “renters have had more leverage.”
Such is the state of the new development rental market. Typically under pressure to lease up quickly in order to please lenders and project an air of success, developers of apartment buildings that have opened in recent months have also had to contend with higher inventory and weakened demand brought on by the pandemic. As a result, for much of 2020 and 2021, it’s been a market tilted toward renters at new projects across the city.
But if the incentives offered to renters eroded profits, they may also have done the trick. After some painfully slow months, some buildings are now stabilized, developers say, and plans are being drawn up for new ones, including a massive 1,325-unit spire at the World Trade Center site.
“I didn’t think people would come back to the city so fast,” said Eran Polack, the chief executive of HAP Investments, which in a few months will begin leasing Maverick, at 225 West 28th Street, a 112-unit rental in Chelsea. It’s likely to offer just a single month of free rent, Mr. Polack said, unlike several of HAP’s new buildings in Harlem, which have been dangling three free months to get people in the door.
Some new rentals can seem to have had exquisitely bad timing. Two Blue Slip, a 421-unit tower in Greenpoint, Brooklyn, from Park Tower Group and Brookfield Properties, for example, launched in February 2020, just a few weeks before the city shuttered.
Earlier this year, the red brick 40-story project, on Newtown Creek, was offering three free months on a 15-month lease, though the developers recently dialed back that promotion to just two free months as the project’s market-rate portion, or 294 apartments, is 78 percent leased, a spokesman said. (The building also has 127 affordable units, which are leased separately.)
But larger discounts continue at other projects, like the Smile, a 233-unit offering with a curving smile-like facade at 158 East 126th Street, in a bustling part of Harlem near Lexington Avenue. If renters sign a lease at the apartment building, which is from Blumenfeld Development Group, they can get three free months on a 15-month lease or two on a 14-month version, said a spokeswoman.
The Strand, a 132-unit project from Camber Property Group at 176 Woodward Avenue in Ridgewood, Queens, is dangling five free months on an 18-month lease on some units. A spokesman said that 41 of the building’s 92 market-rate apartments have leased at the four-story rental, which arrived in December and is a block from garage-dotted Flushing Avenue.
Free rent is not always the only perk. In Brooklyn, at 834 Pacific, a 113-unit rental that was constructed in 2020 and began leasing this April, concessions of two months on a 14-month lease are currently being paired with a free storage unit, through Labor Day. The least-expensive unit, a studio, was listed in early June for $2,820 a month, or $2,417 a month with the rent concession.
At times, the efforts to lure renters have played out like a high-stakes battle. In South Williamsburg, for instance, the Dime rental, which began marketing its 177 units in May 2020, has been going head-to-head with nearby 420 Kent Avenue, a project on the East River whose second phase, with 605 apartments, began leasing in winter 2020.
“It’s been a war, really, and it’s been tough for small developers like me to weather the storm,” said Sam Charney, the founder of Charney Companies, which partnered with Tavros Capital Partners to develop the Dime, a 21-story tower with 124 market-rate and 53 affordable units, all built above a columned former bank.
Expecting to lease about 40 apartments per month — which is a standard rate for larger projects in healthy markets — the Dime instead managed just four leases a month when it started leasing last summer, Mr. Charney said.
Though he declined to say if the Dime would be profitable, Mr. Charney is happy that in early June, after being in the market for months more than he anticipated, his project had just two market-rate units left.
“I think the worst is over,” said Charles Morisi, the head of development at Spitzer Enterprises, which developed 420 Kent, a glassy three-towered complex. When Covid hit, “we had a lot of people pick up and leave town,” resulting in a 20 percent vacancy, far steeper than the typical two percent rate, Mr. Morisi said. “It was a little scary.”
But after concessions that included four free months on a 16-month lease, 420 Kent’s market-rate units are now 90 percent leased, he said, and Mr. Morisi has recently scaled back the incentives to just two months.
New rentals, which are usually considered those built within the last five years, are a somewhat small piece of the rental pie, especially in Manhattan, where they represent about eight percent of market share, though in Brooklyn that number is 20 percent, and in northwest Queens, 29 percent, according to Jonathan Miller, an appraiser.
But because they start with so many vacant units, they are perhaps the most sensitive to market shocks. And there continue to be jolts. In April, the median price of an apartment in a new development in Manhattan, $4,500, was down 10 percent from the previous year, Mr. Miller said. Median prices in Brooklyn and Queens were down too, but not by as much, according to the data.
In Manhattan, new apartments are offering about three months in concessions versus two months for older units, Mr. Miller said. He added that those bonuses are often spread out evenly across a lease, so renters don’t truly enjoy multiple rent-free months, though a free first month is possible. But when the concessions run their course, rents can snap back to the original higher rates.
Inventory climbed when many renters left the city at the beginning of the pandemic. Additional inventory is arriving now from the condos that have failed to gain traction in a tough sales climate and have reinvented themselves as rental buildings. For instance, One Boerum Place, which last September was given a green-light by state officials to begin marketing its 138 units as condos, abruptly switched gears this spring and became a rental. Rents for the tower’s 96 market-rate units start at $4,500 a month for a one-bedroom, though a one-month concession drops that price by a few hundred dollars.
“I think this decision will prove something to the market,” said Nancy Packes, the real estate analyst handling leasing. “Large family-sized homes for rent have existed in Manhattan for a long time, but not really in Brooklyn.” (Because it was built as a condo, the building has a broader mix of apartment sizes than typical rental buildings.)
Other projects on the horizon include Bankside, a seven-building, $950 million waterside project from Brookfield in Mott Haven, the Bronx, and Five World Trade. Conceived in 2019, Bankside will begin leasing its 458-unit first phase in December with 320 market-rate apartments.
Five World Trade, on the site of the former Deutsche Bank building across from the 9/11 Memorial and Museum, was originally intended as an office building, but the developers have instead decided to build a 1,325-unit mixed-use tower. The project, which would be built by Brookfield, Silverstein Properties and other developers, requires state approvals for a change in use and is not expected to break ground this year.
If approved, the building would be among the largest new rentals planned in New York, perhaps a sign of optimism despite the struggling market for new development rentals.
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New Buildings Lure Tenants With Free Rent - The New York Times
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