As the economy continues to face extraordinary challenges, New York City’s multifamily market is undergoing a transformation. To understand what is driving change, Multi-Housing News reached out to a local real estate player who has been active in the market for roughly two decades.
Michael Feldman, co-founder & CEO of third-party property management services provider Choice New York Cos., talks about demand shifts and the way the city’s boroughs have been affected by the pandemic.
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What is the primary motivation for people leaving the city? Is it economic concerns, safety reasons, lifestyle preferences or a bit of all?
Feldman: Perhaps a bit of all, but less economic and more safety and lifestyle. The biggest story here is that we know that Brooklyn and Queens have been much more resilient than Manhattan. Manhattan residents have shown that they are more malleable. Why? Some of this is due to stronger financials—higher median income—as moving is expensive, but also time consuming. Some of it is lifestyle. More professionals in Brooklyn own/lease cars than in Manhattan, for example. So Brooklynites, it can be argued, may be less dependent on public transportation and ride-sharing services than Manhattanites.
I believe a significant portion of individuals who left New York City were already contemplating a move prior to the pandemic. Manhattanites also have smaller apartments on average compared to their Brooklyn and Queens counterparts. Lastly, I believe Manhattanites have a different orientation than Brooklynites, on average, and are more impatient.
Did you notice a specific direction in the out-migration trend? Are households relocating to suburbs within the same metro or are they moving to other parts of the country?
Feldman: Both. Certainly, the New York City premium suburbs are white hot. The urban flight to the suburbs has not only been fueled by the pandemic, but also by the truly historically low borrowing costs on home loans. Higher income households are less likely than middle-income households to stay in the metro area.
As demand wanes, how prevalent is the growth of concessions? What concessions are being offered and how have the negotiations with prospective tenants changed since last year?
Feldman: The market is still actively responding to the sudden change in demand. Landlords are having to be much, much more negotiable. If they are not willing to play ball, their apartment will simply remain vacant. The reality is that prospective tenants have the power.
Residential agents are having to scratch and claw and just work really, really hard to get a deal done. Our smartest clients are responding to the market, putting their heads down and just working through the challenge. They know there will be better days ahead, but for now, they just have to keep making prudent business decisions to get some revenue into the building entity.
What kind of retention rates are you seeing across properties in your portfolio? Are there any differences in the way you negotiate new leases as opposed to renewals?
Feldman: Interestingly, for the first few months of the pandemic—March 15 to June 15—we experienced little statistical difference in retention rates and no statistical difference in collection rates, reminding all of us that illiquid assets just respond slower than liquid assets to economic and marketplace changes.
However, last fall, our retention, occupancy and collection rates all experienced massive changes. In general, we are more aggressive with lease renewals because we already have proof of concept that this tenant desires the space because they already transacted previously and because moving is a meaningful cost and huge hassle. However, again the pandemic has shifted our practices as there is upward pressure on vacancy time, turnover cost and commissions/concessions, so certainly we have quickly become a lot more negotiable.
Moreover, the marketplace shift has been dramatic but also swift, so we are making adjustments to our pricing on a nearly daily basis as opposed to monthly.
Urban apartment demand over the last decade has been led by young renters and Boomers. Has the pandemic changed that?
Feldman: Well, the most pronounced shift has been the shift in the demand in general. The higher the income level of the resident or prospective resident, the more likely they can work remotely and the more likely they can move out due to not only remote working but an entire variety of socioeconomic factors.
As New Yorkers seek more space at lower rents, are there any parts of the metro that benefit from this rising trend?
Feldman: Yes. As with any major market movement, even in a broadly negative economic decimation, there are nevertheless beneficiaries. One of the biggest I anticipate is ma-and-pa retailers. Corporate retail has long been eroding the ability of the “little guy” to make it in New York City. Now with lower retail rents and a bruising on a lot of large nationals, ma-and-pa retailers with the right restaurant or the right shop in the right location can once again flourish.
How do you anticipate the multifamily market to change as NYC reopens?
Feldman: First, I think the boroughs will return to previous numbers and recover quicker than Manhattan. This outcome will be due to a confluence of components, but the biggest one is that they do not have as much ground to make up as Manhattan, which simply regressed much more than the boroughs. Manhattan’s’ office and hotel markets have been decimated in the short term. This has a direct correlation to the multifamily marketplace.
The luxury multifamily market of New York City—technically defined as the Top 10 percent—will in particular take the longest to recover. And despite the rise of Brooklyn and Queens, Manhattan still holds an effective monopoly on the luxury multifamily market. With that said, I would never ever bet against New York City.