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Tucson Home Buyers Playing It Safe by Renting, for Now A FEW months ago, with a Harvard M.B.A. fresh in hand and a new job waiting for him, Jared Simon was eager to buy a condominium in a luxury complex offering the kind of amenities, like concierge services and workout rooms, that appeal to successful young professionals.
RENT TO OWN Ten condos at Trump Plaza are offered to tenants who rent for a year and then can apply the payments toward purchase.
But given the current state of the housing market, he has decided instead to rent. “In this economy, I wasn’t comfortable taking on a lot of debt,” said Mr. Simon, 28, a brand manager for Kraft Foods.
Next month, he will move into a one-bedroom apartment at Hudson Park, a luxury rental complex on the Hudson River in Yonkers, 20 minutes by train from his job in Tarrytown.
With the for-sale housing market slow, credit increasingly difficult to obtain and no indication of a rebound in sight, more and more potential buyers are, like Mr. Simon, opting for rentals instead of condos, several real estate developers reported last week.
“It makes sense,” said Philip M. Wharton, vice president for development of AvalonBay Communities, which has apartment complexes in New Rochelle, White Plains, Bronxville, Elmsford and New Rochelle. “People are nervous about buying. They don’t know if we’ve hit bottom yet, and they’re worried about getting financing.”
But contrary to what some owners of rental housing would expect in a poor for-sale housing market, occupancy rates in multifamily dwellings — even rentals — are not soaring.
As Steven Marks, a managing director for Fitch Ratings, a bond rating agency, explained it, slow job growth nationally has discouraged the formation of new households and resulted in increased vacancy numbers. Nationally, the vacancy rate for apartments at the end of March was 6.1 percent, up from 5.7 percent a year ago.
“There are a lot of tire kickers out there, in sales as well as rentals,” said Arthur Collins, a principal in Collins Enterprises, the Stamford, Conn., development and management company that is building Hudson Park, the Yonkers complex where Mr. Simon will be renting.
“A lot of people don’t know what to do in the current market,” Mr. Collins added. “Some are worried about their jobs, and they want to see how things go. I think a lot of them are just staying put and not making any moves to rent or to buy.”
Still, on the theory that in a shaky market, renting comes easier than buying, Cappelli Enterprises is offering a “rent now, buy later” deal at its 39-story Trump Plaza in New Rochelle, a luxury condo complex built in partnership with Donald J. Trump.
In two years, only 70 percent of the 181 units in the building have sold. In the last six months, the pace of buying has been especially slow, said Jessica Rohm, managing director of Cappelli Sales and Marketing. “There’s lots of traffic coming through the building, with everyone saying they want to buy,” Ms. Rohm said, “but then they end up deciding to wait.”
So Cappelli has offered 10 units to potential buyers who can rent for a year and then, if they decide to buy, apply the year’s rent toward the purchase price. For a one-bedroom unit with a bathroom and powder room, the rent is $2,550 a month. The total of $30,600 could, after the year, help to buy one of the units, which are priced from the mid-$500,000s for a one-bedroom to $1.7 million for a three-bedroom penthouse. (If the tenants change their minds at the end of the allotted time, the arrangement ends.)
It was a deal that Robert Munro, a hedge fund manager who is starting his own business, couldn’t resist. “Any extra capital I have at this point needs to go into the business, not into real estate,” said Mr. Munro, 41, who has rented a two-bedroom unit at Trump Plaza. “That’s a better investment, considering the way the market is now. If I’m going to tie up capital, I prefer to do it with something I have some control over.”
In Yonkers, the first phase of Hudson Park, with 266 units, is 95 percent occupied, Mr. Collins said. The second part, opening now, has 294 units; leases are being signed, but not in huge numbers, he acknowledged.
In New Rochelle, at Avalon on the Sound East, 588 new rentals — ranging in price from $1,288 a month for a studio, to $3,407 for a three-bedroom — came on the market a year ago. The building is about 80 percent occupied, Mr. Wharton said, describing the leasing activity as adequate. In White Plains, the company has just opened a rental complex with 493 units.
That city has a lot of residential rental space — including a 260-unit complex built in 2004 and originally named Clayton Park. Leasing was slow back then because the building opened during the same two-year period that about 2,000 other rental units came on the market in White Plains. In 2006, as the for-sale housing market continued to boom, Clayton Park was acquired by BlackRock Realty and Haveland Estates, with the idea of converting it to condos, said Philip Restivo, president of Haveland.
But then the winds shifted again, and “we decided the rental market was where we should be,” Mr. Restivo said. Today the complex has a new name, the Gramercy, and its rental office has reopened for business. Rents will range from about $2,000 to $3,000.
But elsewhere in White Plains, at least one developer reports that his company is taking a wait-and-see approach before breaking ground on 500 new rental units near the downtown Metro-North train station.
“First, we’re going to be students of this market,” said Peter T. Gilpatric, a senior vice president for LCOR, the developer, which is based in Berwyn, Pa.
He said the company would watch how the new Avalon complex in the city leased up, and how the Gramercy fared under its new owners.
Mr. Gilpatric added that with the stiff competition for renters, complexes near public transportation were likely to fare best, especially in the current economy.
As Mr. Simon, the Yonkers renter, put it, “the price of gas, not just the housing market itself, was part of the equation I used in deciding where to live for now.”
Send me your comments to iandwight@orovalleyrealestate.com
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