What will happen to New York’s sky high rents?
The rent in places like New York and San Francisco is, to use a technical term, insane. The average rent for a one bedroom in New York is $4,208 according to one estimate.
Will that change?
Some folks are getting breaks on their rent. Yuri Pinter lives in a “convertible two bedroom” on the fourth floor of a walk-up in Hell’s Kitchen. That means it was built as a one bedroom, but a partial wall has been constructed to convert the living room into a second bedroom. There is no living room. This is a fairly common way of life in New York. The rent is $2,500 a month. Pinter asked for a break. “I sent them an email and I asked for 50% off actually, I asked for half price.” The landlord was accommodating. “He said, we can’t do fifty percent but we’ll do 25%.”
Yuri’s deal isn’t indefinite, but it has lasted for three months so far. Other people in this high demand area of Manhattan, particularly in luxury buildings, have been able to renegotiate their leases down, or move into new, bigger, better units for less than they were otherwise paying.
“It is more likely that more people are getting rent discounts than aren’t but not everybody is,” said Jonathan Miller, president of Miller Samuel Real Estate Appraisers.
He said the market is softest at the high end right now, and for the types of apartments that are typically in high demand — one bedrooms — in high demand areas. For people not in luxury buildings and not in hot spots?
“We haven’t seen any changes,” said Judith Goldiner, an attorney with the Legal Aid Society of New York. “Our clients are below 200% of federal poverty which, in New York, is about a family of four earning about $40,000 a year. Landlords have not been giving any concessions,” she said.
What about commercial rents? It’s a very mixed and uncertain situation right now.
About three blocks from Yuri Pinter’s walk-up, sits Turkuaz restaurant. Its customers used to include theater goers and tourists. Now it serves a handful of locals on the patio.
“We are trying to understand how much of it we can recover and in what time frame,” said Deniz Kocak, the co-owner.
She hasn’t been able to pay rent the past couple months and the future is unclear. “Well,” she said with weighty hesitation, “we haven’t come to a final agreement with our landlord.”
She said some of her friends in the business have been able to lower their rent, others haven’t. Retail and restaurant spaces are much more likely to see rents fall than other businesses, says Jonathan Woloshin, head of real estate with UBS Global Wealth Management. But as with apartment rentals, the high end tenants have more leverage.
“What has been both interesting and a little disheartening is to hear that the biggest non-payers, the ones seeking the relief, are the ones with the most resources,” he said.
Commercial rent is the focus of legal battles across the country, and what arguments prevail will influence the pressure on rent in different markets. Michael Einbinder, a partner at Einbinder and Dunn, said “some tenants are taking legal action against landlords who are sending them notices and indicating they intend legal action against tenants.” Some tenants have argued that “they entered into their leases to operate a restaurant, a theater, a retail store — which they can’t operate anymore,” and thus they are asking courts to not require payments for the period of time these businesses were closed, or even canceling the lease.”
New York has gone through trauma multiple times before, and the rents did come down.
“Rents went down in some cases 15%, in some cases 20%, in some cases 25% and by 2011 most of the pre-global financial crisis rents were achieved again,” said Steven Soutendijk, an executive managing director at Kushman and Wakefield, a real estate services firm. His company looked at what happened after the financial crisis.
But this is not the financial crisis. This is a health crisis. Jonathan Miller with Miller Samuel Real Estate appraisers has been in New York for long enough to see many waves of turmoil. “You know having been through Sandy and 9/11 and Lehman, what’s different in this crisis [is] there’s no end point.”
And some things don’t feel temporary. “There’s a rethinking of where you live in relationship to where you work,” he said. Millions of New Yorkers have been working from home for months now. Five percent of the city left between March and May, 40% of people in some wealthy neighborhoods. The question they may be asking is do they need to live here. How people answer that question will affect the demand for housing, office space, and commercial rent.
“You know if you listen to the narrative right now it sounds like there’s gonna be five people in all of New York City in September, I don’t think that’s the direction we’re going in, but there’s a rethinking of where you live in relation to where you work,” Miller said.
“It’s a bit of a mixed bag,” said Paimann Lodhi, senior vice president at the Real Estate Board of New York. “The same week that Twitter announces that their employees can work from home permanently, Tiktok announced they’re signing a lease for 300,000 square feet in the heart of Times Square.”
“It’s too early to tell” what will happen, he said.
As the city reopens over the next few months the true demand for housing and office space will become clearer.
Back in Hell’s Kitchen, Yuri Pinter is wondering if he’s going to stay.
“It’s not worth it, New York City rent is not worth it. Cause we’re paying for the lifestyle, we’re paying for the city, we’re paying for the life outside of the apartment, otherwise it makes no financial sense.”
How many Yuris are out there, that’s what’s gonna determine the rent. Because the rent is, in the end, just a measure of how much people want to be here.