Rental apartment agents play concession game.
Gerald Pindus, president of TedPin Realty which owns and manages apartments in Queens and Brooklyn and Westchester, said the price of the apartments has gone down and across the board, owners have vacancies because of the glut of apartments on the market.
Pindus said he and another owner were talking about anticipating how much the rent rolls will go up. "For the first time that he can remember, his rent roll is going down."
Normally, Pindus said, owners count on rent rolls going up a little less than 5 percent every year. A certain number of tenants are due for renewal and most everybody renewed because, he said, "Where could they go?"
"Now we call up the ones that have high rents and say it will cost you money to move and we won't increase your rent if you stay", Pindus said. We never had to something like this," Pindus added, "It's a whole new job."
R. Bonnie Haber president of RBH Management Corp. and a vice president of CHIP, who owns and manages 300 apartment units in Queens and Washington Heights, agreed about this negotiating. She's not increasing certain tenant's rent", she said, when they go over $700 for a one-bedroom. Above that, she said, if they are a reliable tenant, "I am better off giving them a decreased rent." She said would rather lower the rent and keep money coming in, but noted that vendors are raising their prices and owners cannot raise rents.
Haber said she has a low vacancy rate but her rents have gone down in many apartments and the rent roll is not increasing as much as it should be. "When I get a vacant apartment," she added, "I can't rent it for more than $600 or $650."
The owner is treating the vacancies as a preferential rent [see sidebar] and hoping that if the market goes up, she will be able to regain her legal rents.
John J. Gilbert, president of the Rent Stabilization Association said the city has never seen the forces of high vacancies and downward pressure on rents come together at the same time.
This is a new phenomenon, said Joseph L. Forstadt, a public member of the Rent Guidelines Board and a partner with Stroock & Lavan. There are rents at the upper levels and rents in certain neighborhoods, he said, where because of apartment turnovers, the rent under stabilization has reached a level where the market can no longer support.
"You will find negotiations as to rent levels," he said. "In the upper reaches - over $1,000 a month - it's my perception there is a substantial vacancy number out there." But he observed, the process is working and "the tenants have flexibility to shop and the owners have to negotiate."
Forstadt said it is now possible to demonstrate that vacancy numbers have reached the point where the Rent Guidelines Board should decontrol classes of apartments with rents more than $1,000. "Let the market control what those rents should be," he said. "If the rents are decontrolled it will depend solely on the market. That's what should be the real test in our economy."
Forstadt expects the RGB will have to pick a benchmark in excess of $650 a month. "We'll have the housing and vacancy survey shortly and that will tell us what the vacancy numbers are and hopefully the board will use its good judgment."
Dan Margulies, executive director of the Community Housing Improvement Program, said the number is a political number and not an economic number.
"On an economic basis there is no reason for control and the market is demonstrating a free market in recession", he said. On an economic basis, they should just end the regulations and save everyone the time and trouble."
Decontrol, Haber believes, would be very helpful for the lower end because the higher end is already going down. "Things would flow to a happy medium at an affordable price," she said. While she cannot rent some units for more than $600, she said, she also has units renting below market for $300 that are not paying what it costs to maintain the building.
The people with the low rents do not move, Pindus said, but the tenants do move where the apartments have turned over a number of times and the rents are higher. "So you're dropping the rents and the other rents are too damn low and you can't get them up", he said. "You could have a $300 spread."
Pindus said it also does not pay for him to hold out for higher rents. "Where I was taking $750, I am now taking $550 and I have to fix them up," he said. "I just put carpeting across a whole apartment because I have a particularly sensitive tenant in the apartment below. I am bending over backwards to keep the tenants happy."
Gilbert said the New York State senate is focusing on a means test which would focus on the low rents. "They would literally identify those people who are making more than 100,000." There are over 400,000 incomes that are matched against tax returns for different subsidy programs. "The technology exists," he said. The State would conduct the income check which would also be sent to the tenant while the owner would be notified that upon expiration the tenant would be leaving or allowed to negotiate a free market rent. While most owners get to see income data on new tenants, Gilbert said, on an ongoing basis the owners would not see income tax information.
Margulies said under some form of luxury decontrol, the practical effects would be felt in Manhattan with say, low rent apartments in places like Murray Hill going up. He points to people who are paying in some cases more to house their car in a Manhattan garage than they are for their apartment. "They will have to make some choices," he said.
"In the outerboroughs," Margulies said happily, "decontrol would be freedom from paperwork, the disincentives for maintenance and all the baggage that comes with it. The rent control baggage is more damaging than the rent."
Without rent regulation, Margulies noted, an owner could say, |your lease is over, goodbye.' "There are also undesirable tenants and you could not renew their leases if it weren't for rent regulations." There are also development issues, he said, such as the inability to vacate a site for more modern units. "This is the baggage that discourages investment and housing and a sense of community in the building."
Pindus said he works with a number of brokers and is now paying the rental agents fees.
Nancy Packes, president of Feathered Nest, said her company rents in all price ranges, primarily in Manhattan. For higher renting apartments, Rent stabilized owners have been paying the fees for two years, she noted. "They are paying the fee where the generic market picks up from $1,400 and above for a one bedroom. That's the number at which you find a reasonable amount of owner paid fees. Below that they don't need to pay it."
For a two-bedroom, Packes said, the fees are paid usually above a $2,000 rental. "Even in locked intercom buildings, once you reach those critical numbers there is more product and less demand."
Most of the owner managers are astute, Packes said, and are pricing the product to the market. She finds the hold outs are the individual apartment owners, who many own one or two units in a co-op or condo. A generic apartment which is priced correctly is rented within one week to two weeks, she said, while those overpriced take four weeks or more. In the free market rental there is a 5 percent to 6 percent factor of negotiation, she said, because the base is unimportant. With some rent stabilized leases, she said, the owners are giving up a month's free rent to make the deal.
Packes believes decontrol would make the market more fluid. "The system of rent stabilization is an artificial barrier to the movement of apartments," she said. "There's a segment of the population that is protected by the system of rent regulation and it skews demand and prices in the market."
Some properties are already becoming destabilized through the conversion process, she said, which affects older buildings. Some tax abatement statutes are also expiring and freeing up the rental basis. "So it is a problem correcting itself gradually over time."
Packes agrees decontrol would probably have more impact in the outer boroughs than Manhattan where the new construction consists of condominiums and free market coops. "We are functioning in a market where rent stabilization is becoming less and less important. Rents are not being geared to DHCR but to the free market. That speaks volumes."
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|Title Annotation:||to attract new tenants|
|Publication:||Real Estate Weekly|
|Date:||Apr 1, 1992|
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