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June 12, 2008

Condos Go Rental; Development Sites Go Nowhere

rentals-06-2008.jpg
It's happening. More and more condo developers are switching horses in midstream, transforming projects that were originally going to be condos into rentals, says The Sun. The big Brooklyn examples are the Kodachrome in Bed-Stuy and Dumbo's 99 Gold (though both are ancient news). David Maundrell, the president of marketing firm aptsandlofts.com, says 95 percent of his company's projects a few years ago were condominiums, but around 60 percent are now rentals. "There's been an enormous shift in the past 12 months," the senior managing director of Beck Street Capital, Kevin Comer, said. "Lenders only want to lend on cash flow projects. They want to be certain that they have a fallback as a rental that works.' And those are the projects that are actually getting built; according to Comer, "We have seen an increase in the number of investment opportunities that we see that are fully permitted development sites where the developers are just trying to get out of them."
Credit Crunch Turns Condos Into Rentals [NY Sun]
Photo by Lisanne!.




Posted by Gabby at 10:01 AM | Comments (25)
Categories: Condos, Market, Rentals

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Comments

And for all you brokers that tried to sell me an overpriced condo last year saying they'd never go rental,

SCREW YOU.

Posted by: guest at June 12, 2008 10:25 AM

But having it as a rental that charges $3400 a month isn't going to fly off the shelf either.

Posted by: guest at June 12, 2008 11:19 AM

too much, too fast. so many condo units built- and so expensive. I think a lot of people don't want to put in that kind of money right now, but will wait to see how the economy goes. On the other hand a healthy rental market is a good thing for everyone. I'm sure to be raked over the coals on this but the market really had to change. Millions of people rent- happily- and cannot or do not want to invest in a condo for a host of reasons. foolish to ignore them as developers have for the last few years.

Posted by: bxgrl at June 12, 2008 11:28 AM

Not to be too nitpicky - but 99 Gold is in Vinegar Hill, not DUMBO. I wouldn't have said any thing if it were on the border of VH and Dumbo, but it's not even close. Clearly smack dab in the middle of Vinegar Hill. Let's give the Hill some love y'all.

Posted by: guest at June 12, 2008 12:11 PM

WHO could have foreseen this trend!?!?

Posted by: guest at June 12, 2008 12:23 PM

Probably the What did

Posted by: bxgrl at June 12, 2008 12:38 PM

11:28

You're 100% wrong. The number of housing units brought online has paled in comparison with the increase in the city's population over the past decade. There is huge demand.

The issue is they can't sell them for the price for which they purchased the land. They can't sell at a loss, so they are going to wait until inflation erases the high price they paid for the land. Then they will sell them.

As for why developers don't want to build rentals - it's simple. Rent control. The risks are too great. Millions of people are happy to rent, but they are also happy to vote for politicians who will seize their property at the drop of a hat. After WWII, developers built hundreds of fantastic apartment buildings all over the city in the 1950s and 1960s. After rent stabilization and the political radicalization of the populace - it became abundantly clear however it's just not worth it.

You want more rental product? Lobby to pass a state constitutional amendment that will forever ban government interference in the leasing of real estate. Problem solved.

Posted by: Polemicist at June 12, 2008 1:26 PM

I'm no fan of rent control + stabilization, but I'm pretty sure that new buildings aren't subject to it.

Posted by: guest at June 12, 2008 2:04 PM

P.,

How would "rent control" apply to to new buildings and why would they not be market rate?

Posted by: Bob Marvin at June 12, 2008 2:07 PM

These new units are not subject to rent control or stabilization of any kind. Polemicist, as usual, knows not of what he speaks.

Posted by: guest at June 12, 2008 2:10 PM

Some new buildings are stabalized in exchange for more square footage but the rent can still be well over $2000 a month.

Posted by: guest at June 12, 2008 2:11 PM

"You're 100% wrong. The number of housing units brought online has paled in comparison with the increase in the city's population over the past decade. There is huge demand."

I don't know about that one. What was the percent increase in population? I think it was negligible if even positive. Arguably it has dropped as many have left the city. And besides, it includes many babies born under the poverty line (birth control issues) who's families would never qualify for these obviously overpriced condos. That argument is RIP.

And rent control/stabilization is optional. Rental properties can be excellent investments if executed carefully and at "market" rent.

Posted by: guest at June 12, 2008 2:39 PM

i think that there is pent up demand on the buyer's side. if so many of these buildings go rental, it will make the properties (both building and condos) more valuable once buyers decide to get off the fence.

historically and in the future, we have more demand than supply for housing here and even several thousand new apartments will not change it.

we still have almost 100% occupancy for rentals.

Posted by: guest at June 12, 2008 2:43 PM

I said: "The risks are too great"

If new buildings were subject to rent control, there would be no risk. The application of such laws would be a certainty. Sorry if that wasn't 100% clear, but I'm curious as to what risks these less careful readers thought I was referring.

The story is this: Rent control was implemented during WWII. The city first said it would be repealed after the war. It was not. They then said it would not apply to new construction. For 20 years, hundreds of thousands of new housing units were brought online. Then, rent stabilization was passed. New construction greatly slowed, and since that time all new rental product has either been subsidized or oriented towards the upper income brackets.

The fact that new apartment buildings are not subject to rent stabilization is irrelevant. The risk that may change in the future is very, very real. It is a risk no major developer is willing to take - especially when there is no reason to! Just sell the units as condos.

Posted by: Polemicist at June 12, 2008 2:46 PM

I think this is a boomerang. Rentals temporarily finance their denial about the turning market. When fear sets in, if carrying costs don't turn carnivorous first, they'll be dumping these apartments right back on the sales market. There's no way rents will compensate for a lack of sales. That's the problem: sales have been way ahead of fundamentals like rent. And rents will follow employment.

"Woooo wooooo woooooo wooooo woooooo..." [boomerang_sound/off]. Anybody see The Road Warrior? Remember that little kid? These developers will not have the catching ability of that little kid. Slice!

Posted by: guest at June 12, 2008 2:51 PM

demand not/= pre-approved/pre-committed

Posted by: guest at June 12, 2008 2:53 PM

"foolish to ignore them as developers have for the last few years."

The big money was (and still is) in condos, NOT rentals, so it's not hard to imagine why developers "ignored" renters. Where have you been? In the last few years, we've heard several NYC developers claim they can't make money building rental units.

Posted by: guest at June 12, 2008 2:54 PM

2:39

I'm not want to rip into posters, especially as ignorance really is so common on this site, but sheesh.

How lazy can you be? It takes like 30 seconds to find out population demographics for a huge city like this. Ever here of the US Census Bureau? Wikipedia? Yes, ignorance really is laziness.

For the record, the population of NYC has increased by over 1,000,000 residents since 1990. Assuming an average household size of 3 persons, does anyone really think 350,000 housing units have been constructed since that time?

Posted by: Polemicist at June 12, 2008 2:59 PM

The population did increase from 1990 to now.

But there are still fewer people in NYC than there were in 1970.

Posted by: guest at June 12, 2008 3:27 PM

3:27

Yeah, you're lazy too. The US Census Bureau estimates there are about 800,000 more people here than there were in 1970. The city is more populace by a very significant margin than it ever has been before.


Posted by: Polemicist at June 12, 2008 3:53 PM

Actually they don't. Look at the historical stats.

You. Are. Simply. Wrong.

Posted by: guest at June 12, 2008 4:06 PM

Polenarcissist,

Give me pop change since birth of housing boom (circa 1997 or the more parabolic phase, 2001). Yes I am very lazy and very ignorant. US Census Bureau??? Never heard of 'em.

350K units need not be constructed. Do you remember (or have you heard about) all the abandoned buildings in now hot nabes like Clinton Hill during the 80's/90's? Let alone 'Stuy and E.N.Y. Conversions, my friend. Conversions. Even still, that 1,000,000 pop figure does not break down to a lot of qualified buyers today in this financial climate.

Poplulation is still roughly 8M (8,214,426) since 1997 or 2001. RIP population argument.

Posted by: guest at June 12, 2008 4:19 PM

In general I enjoy Polemicist's arguments since he brings a very different perspective to the table here. But, I'm sorry mister P - no major developer will build rental housing in the City because of the risk that they may be subject to rent control in the future? Easily one of the worst arguments ever made on this site (and that's saying alot). Tell that to Avalon Bay, Archstone, Post Properties, Dermot, Rose Properties, and Rockrose - All major developers who have made huge investments over the past 10 years in rental housing in the City.

Posted by: guest at June 12, 2008 6:13 PM

Polemicist- so what was that? 100% wrong?

Posted by: bxgrl at June 12, 2008 11:29 PM

6:13

Thanks for the props, but you apparently missed a sentence in my post:

"New construction greatly slowed, and since that time all new rental product has either been subsidized or oriented towards the upper income brackets."

All the developers you mentioned build their projects under both the conditions I mentioned. They all built their projects using subsidized financing, most typically the 80/20 program although some have done the newer 50/30/20 program. For the market rate units, they are priced exclusively towards the upper income bracket.

I'm not going to waste too much time getting into the finer details of these programs - feel free to check out the HDC website, which has the term sheets.

4:19

Yeah, buildings that have been abandoned for decades are ideal housing for a growing city. Let's not try and get new, modern housing for our citizens.

Have you ever been to Bed Stuy or East New York? Do you see any rentals constructed there that don't use some kind of subsidy? Nope. East New York in particular is a hotbed for housing partnership development - all for-sale product.

That said, conversions are fairly rare. Most involve the repositioning of industrial properties to residential use.

As for the population arguments - the city had 7,322,564 residents in 1990. The 2000 census indicates there were 8,008,288 residents. They estimate that in 2006 there were the 8,214,426 residents. That is nearly a million more people. I'm really not sure I understand how or why you think that is insignificant or that conversions of burned out buildings in East New York would mitigate that growth.

11:29

Yeah, you are. And like a few of these other posts, you are ignorant of the topics about which you write.

Posted by: Polemicist at June 13, 2008 9:56 AM

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