Off-Market Deals

Inventory is LOW, so low, across the board, for both rentals and sales. Some of this is simply time of year: fewer people list apartments over the holidays, and there are fewer people leaving their homes than there are "new year new me" people moving to NYC.

We also have a more general lack of available units, as sellers try to figure out when they can get the maximum price (and buy something else with that money), and buyers try to sneak in before the expected mortgage rate increases. And as I've said before, rentals got pushed off of their normal summer lease cycle when units sat vacant until the end of 2020. Add to this a recent COVID wave that has quarantined agents (and owners) sidelined, it's unsurprising we're feeling a crunch.

Because inventory is low, buyers' agents are increasingly advertising themselves as "able to do off-market deals," but literally all of us can do that. Being at a company like Compass (or in an organization like NYRAC) may give some of us an edge, because we can see what our colleagues plan to bring to market, and but I'm not going to pretend I'm the only one who has this access.

And the most important thing to remember about off market deals: they aren't "deals." You are paying a premium to basically skip the line and buy without the unit coming onto market. Is it possible you'll get a good price from a seller you find who doesn't want to go through the effort of cleaning/listing? Perhaps. But they're going to need to do that before they move out anyway, so it may not be the motivator you think it is, especially when we're in such a strong sellers' market.

Finally, before you think that you can just reach out to owners and get something without any agent involvement, take a moment to realize you'll still need an attorney, a mortgage provider, and a deep knowledge of how to close a sale. It doesn't have to be me, but you should almost always have a broker by your side if you're buying.

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What About Off-Market Rentals?

Unfortunately the one thing I can't do is create inventory where there is none. Aside from some large, luxury buildings in "less-desirable" areas and rent-controlled/stabilized units that are being intentionally given to friends/family (more on that later), landlords aren't currently holding units vacant. We just have a TON of new transplants, and people who would normally buy aren't able to because our vacancies are overpriced new dev "luxury" and co-ops (more on these things also, later). All this to say, there aren't enough rentals for the people who want them, at prices that people can comfortably afford.

If you want to find an "off-market" rental, you're going to have to do a lot of legwork. You can walk around and see if anyone has posted "for rent" signs. You can scour Craigslist (just be sure not to get scammed), Facebook groups/marketplace, and subscribe to Listings Project. You can ask your current landlord or your friends to find out about other, upcoming inventory.

Long term, if you want to solve this issue, tell your representatives that you want more non-luxury (and not ONLY affordable/income restricted; it's a "yes and" situation) housing ASAP.

New York Values #49 - Stop Treating Subletters like Purchasers

The mix of condos and co-ops in NYC are part of the reason the market remains stable, but they’re also a giant pain in the ass when it comes to subletting/renters. The more old school, the more obnoxious they seem to be #klenksvsboomers. 

For those of you who don’t know, co-op and condo sublets make up a significant portion of the NYC rental market. Some, like 870 Pacific (representttt) or sponsor units (more on that another time), have basically no board or approval besides the individual owners, and no additional fees. Others, like many in Manhattan, have elaborate processes for accepting tenants. This can include physical board packages hundreds of pages long...for a one year rental. And unnecessary paperwork aside, and ignoring that you often can’t gauge how long the approval process will take, there are the fees, fees, FEES!

Here’s a recent example from a condo sublet:

$300 in credit check fees (because the new laws do not apply to these types of buildings)

$650 “processing fee” (for their time going over the paperwork they made us do)

$50 fee to create the board package (I paid for this because I honestly felt like I needed to do something for my clients here, however small)

$1500 elevator fee (even if you weren’t hiring movers or actually moving furniture)

Right there we have $2500 in additional board package related fees, sunk costs that my clients will never see back (and none of this goes to the agents doing the legwork).

And, on top of that, there is an additional $1000 move-in deposit

This is extremely typical. I always warn clients off the bat that they could be putting down additional thousands, so it only makes sense if you are planning to stay for more than two years.

It’s not all bad — because of the higher barrier to entry these apartments are often priced lower than comparable spots in rental buildings. So as long as you are staying over two years you actually end up saving in the long run. But that can be a negative for owners, who are often renting to cover their maintenance or common charges + real estate taxes. And it is often buildings with the highest fees that also have the highest monthly costs to owners (ok, maybe this is anecdotal, but it has been my experience). 

Really, some of the fees are ridiculous and I don’t think they should exist. A steep deposit during move in? Makes total sense. But a $1500 “elevator fee” plus another $900+ in “processing” — what are you processing here? And the thing that bothers the most about it is how excited buildings were when it came out that the Albany rent laws didn’t apply to them.

At the end of the day, if you are renting in an owner building, it maybe makes sense you need to submit to a higher level of scrutiny in the form of recommendations and application materials. But I have submitted to plenty of rental buildings that were more thorough than a board package while being significantly less stupid.  A board package in this day and age seems more like a power move than anything actually meant to protect or help owners. Colored dividers, multiple hard copies hand delivered, managing agents with egos that you need to make sure you don’t upset by asking them too many questions about the typos and/or discrepancies in said board package…

Co-ops and condos will need to have their systems overhauled drastically in the next decade, and some have already started. But all methods have their drawbacks and it leads to amusing but ridiculous idiosyncrasies like having to notarize a form or sign something “wet ink” only to upload a scanned copy. As companies like DocuSign (my fav company on earth right now) make document transmission safer, easier, and more transparent, I look forward to how this will help make things clearer and less risky for both purchasers AND renters.

But going back to subletting: with all the press around trying to make move-in less expensive for tenants, it’s unfortunate that a significant portion of the rental market is completely exempt. And this, my friends, is why we need more dialogue between lawmakers, people in real estate, and building managers. Because the system, as is, is as stupid as it is broken.

xo

Anna

UPDATE - Blackstone Changing Its Tone

While Blackstone was sitting on its high horse and withholding apartments from the market, it came out that they had actually received $200 million in interest free loans from the government, on the condition they used the funds to renovate StuyTown/Peter Cooper Village. Their temper tantrum potentially violated the terms of this loan, so the government decided it was going to investigate. Upon hearing that, Blackstone quietly reversed policy and is now renovating and putting these units back on the market.

There are a few takeaways from this:

1. Companies like Blackstone often get benefits (interest free loans, massive development opportunities) that individuals do not. But when they don’t get their way they act like children. And I’m glad that, in this case, the company was reprimanded the same way a child would be, rather than accommodated.
   

2. This reversal was not as publicized as the news they were withholding the apartments, which points to my argument this was largely a PR move. Come on, guys, spread the word!
   

3. I’m tired of the rhetoric that landlords can “never increase rents again” that is the base of their whole complaint. Rents go up in rent stabilized apartments, the same way they do in free market apartments. The difference is that they all go up by the same amount, which for 2019/2020 is 1.5%. Yes, that’s a small increase, but it’s in keeping with plenty of free market apartments. And I have a whole lot to say about this idea of “prices always increase every year” — it’s part of why sellers have been so unrealistic since the pricing peak of 2016.

4. Just going to leave this WSJ quote here: “Growing rents and a gradual conversion of more rent-regulated units to market rates has brought the net operating income of the property up each year since 2006. With about 45% of the complex’s residents still paying the regulated rents – down from 71% in 2006 – income is above $200 million a year”
   

And the last takeaway is that I clearly had an impact here (jk jk, trust I know that no one listens to me). No, the last takeaway is that these things do matter, and people are paying attention. Which is good, because it makes me feel like I’m not just screaming into the void. 

xo

Anna

Blackstone, Stuy Town, and "we told you so" PR

I’ll keep this short (for me) and sweet. 

Blackstone, owners of Stuytown, are keeping rent stabilized apartments vacant when tenants move out rather than re-listing them and getting new tenants in their stead. They claim this is tied to their bottom line: since they cannot de-regulate these apartments, they cannot afford to put people in them who could stay at low rents long-term. It is a financial concern, of course, but I believe it’s primary goal is strategic. 20-50 rental apartments do not affect Blackstone’s bottom line, short or long term. They are the largest alternative investment firm IN THE WORLD. Even if every single apartment in StuyTown never changed hands again, they are 1. already earning money on the rents as they are, even if they have dot do occasional repairs, and 2. are a giant company. 

What holding these apartments vacant really does is back up the landlord lobby’s claim that the passage of rent reform would hurt tenants because it would deplete housing stock and do exactly this. But make no mistake: they are CHOOSING to make this a reality. It isn’t inevitable. And they are feeding it to the media to bolster their cause, hopefully making it easier to overturn these reforms and go even further the other direction. Landlords and investors fully admit their goal (overturning reform) in real estate publications, but I have a feeling that the message to the general public will be “look at how these reforms are actually hurting tenants, just like we said they would” instead of a more honest “we are choosing to withhold these apartments from the market, which is hurting tenants, just like we said the reforms would.” 

Or, to put it simply: “Some [landlords] are going to close their apartments for 10 to 15 years in hopes that things go their way.” Some landlords are basically throwing temper tantrums and yelling MNYREGA (anyone get this?). And you wonder why people don’t like real estate developers…

Again, I will be the first to admit the rent laws did some foolish things, but they didn’t in and of themselves hurt tenants. They aimed, imperfectly, to protect tenants. Tenants are being hurt by the industry’s pushback against the reforms.

Some landlords are refusing to follow the new laws, choosing to “interpret” things differently (which, Albany, is your fault for using such bizarre and unhelpful language in the bill). Others are wringing their hands — loudly, to anyone who will listen — over how they’ll just NEVER be able to renovate again. But the biggest commonality, and what I think best supports my theory, is that while historically landlords have tried to hide their shady behavior, they are putting this front and center. They are admitting the shortcuts they are taking and acting like it’s because they are just so, so poor and cannot handle the new laws. They absolutely can afford to continue to do business, despite these changes (more on that later) but again, their bad behavior furthers their cause. It’s a really, really stupid catch 22.

Again, yes, this is 100% related to the new laws. But it’s not the fault of the laws nor of tenants. This is an active choice by a company to make the housing crisis worse in order to get its way. 

I also want to point out that despite the fact that the real estate industry acts like getting someone into a rent stabilized apartments is a life sentence, MORE THAN 50 apartments have become vacant in ONE complex since June 15th. I was actually shocked by this, because I kind of believed what they were selling. But clearly there is plenty of turnover, even when the units are stabilized. You may not get your same vacancy

So while I agree that there are issues with the law, and I will include the elimination of luxury decontrol in there, do not for one second blame this on anyone but landlords. 

I see you, Blackstone. Props to your PR machine, but unfortunately for you I can smell the bullshit. 

xo

Anna