New York - Here is good news for the plutocrat who wants to try out Manhattan’s ritziest neighbourhoods before taking the multi-million-dollar plunge. The market for super high-end rentals is booming, with plenty of enticing options for tenants of every taste.
There’s a four-storey townhouse on the Upper East Side for $35 000 a month that Marilyn Monroe once called her “sanctuary”, according to the listing, and a four-bedroom duplex in Midtown for $70 000 that Oscar winner Anne Hathaway used to rent. There are rentals in iconic new buildings and in grand old hotels. For $42 500 a month, you can live in the Chelsea condominium designed by Pritzker-winning architect Jean Nouvel. For a cool quarter million, there’s the Jewel Suite at the New York Palace, decorated with glass-encased rings and necklaces by the designer Martin Katz. (Management will gladly add the baubles to your bill, said Margaret Bay, an agent at Brown Harris Stevens, who has the listing.)
In all, there were 82 apartments renting for at least $50 000 a month listed on StreetEasy during the first three months of the year, more than triple the number listed in the first quarter of 2008. At lower thresholds, luxury listings are also on the rise. Apartments renting for more than $25 000 a month made up 0.95 percent of total inventory in the first quarter of 2015, up from 0.46 percent in the first quarter of 2008. Real estate agents and wealth managers say the increase in expensive rentals is partly an outgrowth of the luxury building boom sweeping through New York City, and partly due to the shifting whims of a global elite that wants luxury digs without the hassle of a long-term commitment.
“Wherever there’s a growing urban metropolis with a lot of capital, this is happening in a big way,” said Thorne Perkin, president of Papamarkou Wellner Asset Management, which manages money for about 150 family offices. “There’s an antiquated mentality that a primary residence has to be an investment property. That’s changing.”
The real estate website Zillow currently has 84 rental listings in Los Angeles for more than $25 000 a month. In London, there are 667 listed for more than 16 000 pounds ($24 900), according to Rightmove. That's more than twice as many as in New York.
The hot market for super-luxury apartments has spurred new high-end projects. Spending on residential construction increased 73 percent in 2014 from the year before, according to the New York Building Congress, but the number of new units increased only by 11 percent. That means fewer resources for more-affordable housing. “The existence of a greater share of pricey buildings implies that the lower end isn’t growing as quickly,” said Alan Lightfeldt, data scientist at StreetEasy.
So, if you have the money, why rent? People who spend more modest amounts on housing have been told that in today’s market it makes more sense to buy. In the New York metro area, the monthly cost of buying a home during the third quarter of 2014 was 24 percent less than that of renting, according to a report from Trulia. Beyond that, it seems logical that a person spending hundreds of thousands of dollars a year on housing would want some equity for their money.
At these stratospheric rents, though, the ordinary logic doesn’t always apply, said Richard Steinberg, a broker at Douglas Elliman. Some high-end renters take temporary digs as they try out life in a particular neighbourhood. Corporate executives, whose employers sometimes pay, or movie stars might rent a fancy apartment knowing they’re going to be in town for a short stint. Another prime candidate: “Someone who just bought a $50 million apartment and doesn’t have a place to go while the renovation is going on,” Steinberg said.
The financial considerations are different at the upper end of the rental market. A two-bedroom apartment at One57, the posh tower south of Central Park, that’s listed for $13.5 million is also available for rent for $32 500 a month. With a 20-percent down payment and a 30-year mortgage at prevailing rates, the monthly carrying costs for a purchase come in at more than $50 000. Renting, meanwhile, frees up the down payment for investing, an option that’s particularly enticing if you think condo prices have grown too high to keep climbing.
“If you feel like things have gotten frothy, you might decide to rent now and buy when the market takes a dip,” Perkin said.
In some cases, it's the very demand for luxury real estate that’s providing supply to the rental market. As the global elite hit on Manhattan condos as a store of wealth, buyers are more likely to become landlords. Last year, condo buyers were twice as likely to rent their apartments out within 60 days of buying them as they were in 2010, according to a Bloomberg story in February.
In others, the market may be fuelled by irrational exuberance. Debra Stotts, a broker with Town Residential, is showing a 4 500-square-foot townhouse whose selling points include proximity to United Nations headquarters, access to a private garden, and ritzy neighbours like Mary-Kate Olsen and Stephen Sondheim. At an asking price of $21 900 a month, the tenants will need to gross at least $500 000 a year, Stotts said, meaning they would be spending more than 50 percent of their income on rent.
“The question might not be how rich do you have to be - it might be how foolish,” said Michael Goodman, chief executive of Wealthstream Advisors. “It's like, why do you buy a $250 000 car? Not because it gets good gas mileage, but because you want to, and you can.”
During these high times, more players are getting into the game. Twenty years ago, the Waldorf Astoria was the place to go among hotels offering mid- and long-term rentals, said Bay of Brown Harris Stevens, who once held the exclusive listing for the Waldorf. These days, Bay said, she’s hearing from other hotels on how they should price their suites. (During slower seasons, monthly rates are typically priced at a 25 percent discount to daily fares.) Among new competitors are the Hotel Plaza Athenee and the Pierre, which made headlines in December when it rented a six-bedroom suite on the 39th floor for $500 000.
Commercial landlords are also thinking about ways to tap the market for gilded rentals, said Dennis Hughes, a Corcoran agent who specialises in high-end rentals. Lately, he’s been consulting with a landlord who wants to combine existing apartments to create the kind of spaces that can command sky-high rents. The landlord is “looking at turning two two-bedrooms into a four-bedroom with maybe a maid’s room”, Hughes said. “Because he’s aware of the trend.”