As Manhattan’s luxury condo market settles into an extended slump, more developers are coming around to the idea of renting out their unsold units, both as a marketing tactic and a way to wait out the crunch. But it’s not for everyone.
Because condo developments are generally funded with debt that is meant to be paid off quickly as units sell, the amount of rent a developer would need to charge to cover debt obligations can easily reach tens of thousands of dollars a month — a pretty rarified market in itself.
“You’re going to see this selectively, because not every condo can be a good rental,” Extell Development’s Gary Barnett told Crain’s. “There are a lot of projects where the development costs were so high, you can’t do a rental. To even make a 2 percent return, you’d need a tremendous rent, and how deep is that market? I don’t know.”
In September, Extell announced that it was launching a “rent-to-buy” program to spur deals at One Manhattan Square. This came shortly after an offer to waive up 10 years of free common charges, which was seen as one of the most extreme incentives to emerge in this cycle.
Magnum Real Estate Group has taken a similar approach at 156-unit 100 Barclay Street, where it is marketing 31 unsold units through a rent-to-own program. Renters have the option to credit 75 percent of their rent towards a purchase after six months, or 50 percent after a year.
The Related Companies is also quietly offering units at both the Zaha Hadid-designed 520 West 28th Street and, more recently, the 285-unit 15 Hudson Yards. Asking rent is as high as $30,000 a month for a penthouse at 15HY.
“There’s two different ways of looking at it,” Magnum managing partner Jordan Brill said. “There’s ‘Oh my God, you can’t sell and now you have to rent.’ And the other is that, look, the market is in a state of paralysis, and if you have a good product that can hold its value long term, you can take the risk and do this.” [Crain’s] — Kevin Sun