25 March 2010

Rent City

NY Daily News

Rentals are the backbone of the NYC real estate market

Call it hustle, or preparation, but Citi Habitats rented over 12,900 apartments last year, more than ever before and a record for any New York City rental company. Almost 2,400 more than they rented in 2008, this increase represents what Citi Habitat’s president, Gary Malin, thought all along.

“The backbone of New York City’s real estate market is rentals,” says Malin. “Seventy-five percent of the apartment stock in New York City are rentals. Of those, 75% are studios and one-bedrooms. That’s a lot of apartments where people are moving in and out on a constant basis. It’s why rental agents love to work. If you’re good, you can make fast cash.”

Currently averaging over 850 rentals a month in what is a traditionally slow period for rentals, the company is on pace to beat last year’s mark. While industry revenue is lower than past years because sales prices are down, ­Malin points to his company’s positioning and business model as a reason for the success.

“I’ve always thought that if there was a company situated and strong enough to weather any economic time and remain the dominant rental company in the city, it was us,” he says. “Over the past few years, we proved it, and we did it by renting and selling apartments. Before any agent hits the streets, they go through a week of training. From that moment on, they are geared toward renting and selling, or doing whatever they want to be their own success.”

Some stay with rentals

“Do the math,” Malin says. “If you rent a $25,000-per-month apartment and get a month fee, standard in the industry, that’s $25,000 for not nearly the amount of work you’d have to do earn that sales commission. After closing costs and who knows how much time sitting on the market marketing the apartment, you’d have to sell a $600,000 apartment to make that.”

Malin also estimates a good 40% of renters in Manhattan are new to the city. New York’s constant draw almost makes it recession-proof, although the market crash after the fall of Lehman Brothers impacted the rental market first. Immediately, prices dropped slightly. Fast to react to avoid vacancies and decreased profits, landlords started offering concessions like one or two months free rent. What the industry refers to as “owner paid fees,” or “OP,” also became an incentive, meaning building owners paid broker fees, not the would-be tenant.

“Make no mistake about it,” says Malin. “Even though prices were slightly lower, those costs are built into the rents. Landlords also asked for longer-term leases because they were giving away free months.”

When the market didn’t stabilize in 2009, Citi Habitats still saw an increase. Malin and other real-estate leaders watched as midsize sales and rental companies such as Coldwell Banker Hunt Kennedy and J.C. DeNiro shut down. Malin closed two offices, one downtown in the ­Financial District and another on W. 57th St. He watched as 10% of around 740 agents left the firm.

“We had to trim on the office side,” he says. “Everyone did.”

Chris Shiamili, founding president and CEO of Ardor Realty Corp., which at one time had 120 agents, also saw a drop in personnel over the past year. At the same time, he saw an increase in per-agent sales volume.

“If something doesn’t kill you, it makes you stronger,” he says. “The people who stuck it out were of higher quality. This crisis was like a war for us in real estate. Everything was a struggle. Rentals are directly related to unemployment, so until the ­labor market picks up, it will stay tough. At the end of 2009, we saw a nice increase in sales.”

That increase in sales recently ended. At the same time, rentals picked up again. Shiamili, who is pursuing a doctorate in economics at New York University in his spare time, doesn’t see competition as a problem in the New York rental and sales market.
“The market is flooded with inventory on the sales and rental side,” he says, despite low vacanies. “There is no competition in the New York real estate market right now. There is more than enough business to go around.”

So why then is there still a slowdown, or more importantly, who is doing business? According to Shiamili, it’s those organizations generating the most qualified leads, and those with the best customer service and agent training programs.

Of all the companies in the rental industry, Citi Habitats says it’s as good, if not better, as anyone else. Their 12,900 rentals last year was by far the top in the industry, likely nationwide. They also sought to legitimize rentals as a bona fide business. Before Citi Habitats was founded in 1994, the rental business was dominated by local companies who developed relationships with building owners. They opened doors and collected commissions. When other companies entered the fray in the late 1980s, the business became quick and dirty, with agents falsely advertising a price of an apartment and presenting would-be renters with more expensive units when showing apartments.

The same shenanigans occur now, mostly in the Financial District where new firms pop up every day advertising on Craigslist.org. Citi Habitats vowed to stop all that. Their size and business model — rentals and sales together — keep them honest as customer service is the hallmark of their strategy. Agents who mislead clients are simply asked to leave.

“The perception on the rental side was one of basement brokerages,” says Malin. “Little places that you can’t even tell if they’re a legit business or not. Look at our offices. From the beginning we understood the importance of perception, and the reality of doing good business.”

The organization also developed a new development team strictly devoted to new-construction rentals. Led by Clifford Finn, they represent Larry Silverstein's Silver Towers, Forest City Ratner’s 80 DeKalb, and Dwell95 by Philippe Starck, three of the city’s top rental projects.

Now with 12 offices dedicated to rental and sales, the company also allows agents to develop personalities and brands. Developing “hybrid agents,” or agents who can both rent and sell apartments, Citi Habitats can be many things at once. A client can go from renting a small one-bedroom to buying a $3 million loft working with the same real estate broker.

Andreas Metzger, a top Citi agent, rented more than 160 apartments last year, grossing more than any agent in the company’s history. He has exclusives on some of the upper East Side’s top buildings. Caroline Bass focuses on customer service. At 27 years old, she has become a force from her referral business.

“Being a rental agent offers someone a chance to build a career in real estate quickly,” says Malin. “New York is made for rentals. People need, want and crave living here. In your first year, you can do 30 to 40 deals. Sales takes longer.”

Malin, who believes 2009 was the “year of the rental,” is optimistic about 2010. If his organization does near the same numbers, his firm will dominate. Shiamili, a realist, hopes to survive and grow.

“A good chunk of our customers are current tenants who at the same time negotiate with their current landlords for price reduction,” he says. “It’s all about weak consumer demand and a glut of inventory in both sales and rentals.”

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