Luxury rental condos growing in popularity in U.S., made attractive by fact that people 'don't have to commit to a mortgage and a large dollar amount' to live, developer says
May 31, 2011
– The Rental Class has never had it so good.
Due to a glut of glitzy condo towers and the need to appease skittish lenders some developers have found a new use for the gilded, clubby preserves once meant for buyers who could afford the seven-figure price tags. They're renting them out and offering all of the perks normally reserved for the elite. The hand-watered grass roofs and outdoor movie theaters. The heated, valet-attended porte-cocheres. The pet spas offering canine cardio and play dates for your puppy.
And developers have found that renters --reluctant to buy in a still-unsteady market-- are embracing them. One marketing banner flapping against a ritzy, new rental building in New York says it best: "Repent. Rent. Repeat."
Frank Gehry's crumpled, stainless-steel skyscraper in Manhattan--the tallest residential tower in the world--was originally supposed to include 200 sprawling condos along with 700 rentals. Now all of the critically-acclaimed building's apartments are for rent. The units, whose rents start at $2,630 for a 600-square-foot studio, are even rent-stabilized --meaning rents are regulated so tenants will only see small annual increases. There's even an option to pay extra for decor hand-picked by Gehry, including Capellini's Rive Droite armchair, Jonathan Adler's Claude Drawers and Blu Dot's Swept Sofa.
"People are liking the fact that they don't have to commit to a mortgage and a large dollar amount to live here," says MaryAnne Gilmartin, executive vice president of Forest City Ratner, the building's developer.
The upgrades aren't limited to New York buildings. In Chicago, a 547-square foot studio in the Jeanne Gang-designed Aqua, with its liquid, undulating glass skin and curving balconies, can be had for $1,571. In late April at Silicon Valley's Three Sixty Residences, the sales office re-opened as a rental office. Since 2007, not one of the building's sleek condos, with their Bosch appliances and Del Tango cabinetry, had made it out of escrow and into a final sale, despite the fact that the plush residence sits in the middle of Silicon Valley, one of the U.S.'s top 10 millionaire hotspots.
During the credit bubble, the 651 units in New York's MiMA might have easily gone into bidding wars, as similar properties had. Instead the developer put 500 of the apartments on the market as rentals. Since rentals in the Hell's Kitchen building became available in mid-March, 70 percent of the rentals have been leased. For $3,390 a month you will get quartz countertops, Italian cabinetry and 44,000-square-feet of "hand-crafted" party space. There's also a subsidized, residents-only, 24-hour Equinox gym.
Among the new residents: New York writer Mark Simpson, 47, who looked at an apartment at MiMA because of the buzz the development had generated. Simpson took one look at the brushed-oak floors and floor-to-ceiling windows and filled out an application. In May, he moved into a 1,200-square-foot two bedroom. He pays $6,400 a month for an apartment he says he could never afford to buy -- and wouldn't want to if he could.
"I have so many friends who are losing their shirts, I just don't think real estate would be a good way to spend money at all" says Simpson.
That's a departure from the attitude of the housing boom years. Renting used to be declasse among young, executive-class strivers, a sure sign that you couldn't come up with the money for a down payment. Now, even among the moneyed, luxury leasing--and being untethered-- is chic. "There's definitely a decoupling of home ownership and the concept of prosperity in the American cultural vernacular," saysTara-Nicholle Nelson, head of consumer research at real-estate website Trulia.com.
Brian Moynihan, the CEO of Bank of America, says that would-be homeowners in some parts of the U.S. should look elsewhere for long-term investment returns. "It's sobering to think, but some people shouldn't be thinking of (their home) as an asset," Moynihan told a gathering of attorneys general at their 2011 conference in April.
Conflicting signals about the market have only added to the allure of renting for those who might otherwise buy. Prices and interest rates are low. But lending standards are strict. Supply is abundant. But so are the forecasts that the U.S. could be in for a lost decade of sideways house prices. It's led to a resurgence in people taking advantage of the "renter's subsidy," the idea that while real estate prices are stuck or moving lower, it's better --and cheaper -- to rent premium real estate than it is to buy.
"There's a lot of people who can afford to buy, but who won't buy," says Nelson.
The statistics on renting and owning reflect that sentiment. One-third of U.S. homeowners now owe more on their homes than they are worth. Since the financial crash, nearly 3 million households have gone from owning to renting. Another 3 million are expected to do the same by 2015, according to Harvard University's Joint Center for Housing Studies. That has led to higher rents; the average price of a two bedroom residence is nearly $1,000, a 50 percent increase since 2001. Still, in nearly three quarters of cities, it is cheaper to rent than to own, according to Moody's Analytics.
These factors have helped push home ownership rates to a 10-year low; 66.4 percent of Americans own their homes, down from a record 69.2 percent in 2004.
"We realize now that owning is a risky business," says Karl Case, a Wellesley economics professor who is also co-founder of the Case Schiller housing index. "Prices can and do fall."
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