Residential Amenities Arms Race Ignites
Developers throw all sorts of goodies out there to lure tenants in a crowded market.
Developer Joseph Moinian has not yet volunteered to personally serve tenants breakfast in bed at his 60-story apartment tower at 605 W. 42nd St. But he does want to assure them that his staff will indeed be serving croissants, coffee, fresh juice and more in a common room every weekday morning from 6 to 10.
While offering the most important meal of the day on the house might seem like an odd, perhaps even superfluous perk, these days it is anything but. Such freebies are part of a no-expense-spared amenities arms race by developers seeking to make their new construction projects stand out in a crowded marketplace that is about to get more so. This year, 3,500 apartments are scheduled to open in Manhattan, and that number is expected to more than double, to 8,000, in 2016, according to data from Citi Habitats, a Manhattan-based brokerage.
“Owners are shooting for high rents and always looking to be bigger, badder and better than the last building that came out,” said Gary Malin, president of the firm. “[These developers] pay a heavy price to bring buildings to market on the rental side in terms of land acquisition, construction and then marketing costs.”
To recoup those costs, landlords have only one choice: to hike their asking rates. That’s something the bells and whistles simply make more palatable. As more rental towers rise in out-of-the-way corners of the city, the importance of such tenant lures becomes even more crucial. Mr. Moinian’s tower at the western end of 42nd Street is an example, as is a twin-tower project that JDS Development Group is building near the East River at 35th Street.
“With that project, we are taking this arms race to a new level,” vowed Michael Stern, managing partner at JDS.
Among other things, Mr. Stern will consolidate all the mechanicals that typically litter rooftops—like water towers and air conditioners—onto the lid of just one building, leaving the other wide open for a roof deck, which will include an infinity pool. And then there’s the project’s most striking feature, a glass-walled, three-story sky bridge that will link the two buildings at the 30th floor. Inside, tenants will find a lap pool, a sauna and a gym, as well as lounges for enjoying the view of the river and Brooklyn.
Catering to renters
Historically, eye-catching extras like Mr. Stern’s sky bridge, or a 1,300-square-foot, canine-centric facility called Dog City at the Related Cos.’ 1 MiMA Tower, would have been found only in the toniest of condominiums. But when a series of mixed condo/rental buildings like Extell’s Aldyn were built about five years ago, and other condos went through last-minute conversions after the market crash, renters loved what they saw.
“[These converted projects] were built with larger apartments and more programmed-amenity spaces,” said Jodi Ann Stasse, managing director of new developments at Citi Habitats. “And they started to set the tone for rentals after we found out how popular they became.”
The price of meeting tenants’ lofty expectations is high, however. Communal lounges, test kitchens, gyms, etc., all take up space that could otherwise be used for income-producing rentals or even sold off as retail condominiums. So how does a developer decide how much amenity space is too much, or where exactly it should go?
“It’s more of an art than a science,” said Benjamin Joseph, senior vice president at the Related Cos.
At Related’s 312-unit Abington House on the High Line at West 30th Street, some of the amenity space worked best on the ground floor, Mr. Joseph said. Putting it there instead of using the space for retail meant kissing off as much as hundreds of thousands of dollars in rents, according to retail experts, or a lump sum if the space were sold off as a condo. But for Related, the trade-off made sense.
“Renters’ demands have evolved, and we’ve been increasing the amount and the quality of the amenities over the course of our experience,” Mr. Joseph said.
About 20 blocks farther north, Gotham Organization President David Picket made a similar decision at the base of the firm’s 1,238-unit rental building, called Gotham West. Instead of going for standard retail space, he wanted to offer residents the opportunity to hang out at Gotham West Market, a hip collection of small restaurants in an open-floor setting that are also open to the public. The eateries pay enough rent to cover Gotham’s cost, but far less than the market rate. To make the financials work for the space, Mr. Picket calculated he needed to charge just $1 more per square foot for the units above.
In addition, the firm offered a bike shop some rent-free space in the building in exchange for operating a complimentary bike valet and tune-up service for residents.
“[Developers] are constantly thinking of how to reinvent the amenity package to make it different and more appealing,” Mr. Picket said, noting that not only do residents like these communal spaces, but “behind the door of an apartment, there’s only so much you can do, especially since they have become smaller over the years.”
These same developers are paying more for another element in the amenities arms race: marketing. To drive tenants to their door and away from someone else’s, condo-style amenities require condo-caliber marketing pitches. In years past, full-color print ads might have done the trick. But today’s landlords pay for flashy websites with high-definition photos, as well as spend on a less glamorous form of advertising.
With more apartment seekers doing their searching online, development and marketing firms have kept pace by paying ever-higher fees to place their ads above their competitors’ when, for example, someone searches for “luxury apartment in Chelsea.”
“Although you can do a good job with graphics, it’s more about being out there and in front of people,” Mr. Picket said.
Despite the high costs, the arms race rolls onward, fueled largely by the dramatic rise in the numbers of properties coming to market. Land prices, which have jumped by 48% in Manhattan in the past four years, are playing a role as well. And as long as sky-high land prices keep rental projects on the periphery of Manhattan and in the boroughs, developers will have to keep including services that the surrounding neighborhoods lack, while trying to best the competition in the process.
“You are selling a lifestyle,” Mr. Stern said. “You are not just renting the bricks and mortar. Having a community and social scene in the building is every bit as important as how many square feet a unit is.”
By Joe Anuta, Crain’s New York
Original Article: Click Here
Print: Click Here