NYC Condos Are Becoming Rentals at a Record Rate

NEW YORK (Bloomberg) -

At a new luxury-condo building in Brooklyn, one buyer told broker Ryan Serhant that she’d like three apartments — one for herself to live in, and two as investments to rent out.

She wasn’t the only one. The tower, 550 Vanderbilt, had more buyers become landlords in 2017 than any other condo project in the city, according to data from listings website StreetEasy. For New York as a whole, a record 10.7 percent of all condos that sold last year were listed by their owners as rentals within months.

Investors, undeterred by the city’s flagging rents, are adding residential real estate to their portfolios on a bet that the properties’ underlying value has nowhere to go but up. And it’s an opportune time to jump in, with developers cutting prices to move units before another competitor’s project opens. All told, there were 1,313 condos purchased in New York last year as investments rather than residences, also a record in StreetEasy data going back to 2006.

“Not only has this trend been popular, it’s more popular than ever,” said Grant Long, senior economist at the website. “New York City real estate has become a global asset class and people are seeking exposure.”

The trend wasn’t concentrated in Manhattan’s ritziest skyscrapers. In fact, the three buildings with the biggest share of investor deals last year were in Brooklyn and Queens. At 550 Vanderbilt, the first condo tower to open at the 22-acre Pacific Park project near the Barclays Center arena, 41 percent of the units sold last year were listed as rentals within 180 days of closing.

In Williamsburg, the 216-unit Oosten development had a 40 percent share, tying for second place with The Harrison in Long Island City, Queens, where 31 of the 78 condos that sold last year were offered for lease.

“When was the last time in New York history that you could buy one of the first new condos in a new neighborhood?” said Serhant, a broker at Nest Seekers International and the sales agent for 550 Vanderbilt, a 278-unit project that includes communal gardens and a pet-grooming station. “You want to buy real estate the same way you buy into IPOs. Then you sit and watch it grow. “

Strong rental income is no guarantee these days. The condo owners are competing with landlords of the many luxury rental towers that are popping up in hip neighborhoods throughout the city. In Manhattan alone, about 5,630 newly built apartments will be listed for rent this year, on top of the 4,270 units that were added in 2017.

The soft apartment market may not be much of a deterrent for condo investors, according to StreetEasy’s Long. “People are really looking to make their profit off the price appreciation, not the rental income,” he said.