Page 6 - NY Cooperator November 2020

6 THE COOPERATOR — NOVEMBER 2020 COOPERATOR.COM Cooperator.comFrom A famous scene in a 1980s Woody Allen film features two real estate agents trudging toward each other from opposite directions in the desert. Both appear battered, their clothes frayed, their hair and beards unkempt. When they meet, one asks, “How’s business?” “Great,” replies the other. “Me too,” says the first—then they continue on their respective ways. This scene was played for absurdist comedy, of course, but it may hit uncomfortably close to home given the state of the apartment market for co-op, condo, and rental units in New York City in the wake of the ongoing COVID-19 crisis. Ask any broker today how the market is far- ing (and we did!) and they’re likely to tell you everything is fine. But is that perhaps wishful thinking? The first hard statistics on vacancies, values, and other measures of market health are beginning to sift in, primarily for rental units, and the trajectory is pretty decisively in a downward direction. The question is whether the trends we are seeing in the rental market will also hold true for co-op and condominium units. Rentals—the Canary in the Coal Mine? Jonathan J. Miller, President and CEO of Miller Samuel, a nationwide real estate appraisal and consulting firm based in New York, observes, “According to our research, Manhattan rent- als have declined 10%—the largest drop in 14 years, I believe. It also has the highest vacancy rate in 14 years, with concession market share rising and concessions rising. The declines are deeper in lower-priced units because unemployment is heavily skewed towards lower wage earners. The rental market is therefore more vulnerable than the sales market.” Miller further explains that a portion of the current rental market is positioned within the condominium market, since many individual condo units were initially purchased as invest- ment properties intended to be rented out long-term. He says that condo units that are rented out are even more subject to this trend “because individual unit owners don’t have the cash flow depth that a REIT landlord might have.” For condominium owners who lease out their units, the ultimate goal is to keep that unit occupied and generating income to cover their monthly costs. As rents drop in the general market, they are certain to drop in this submarket as well. Industrywide Stats According to industry research supplied by Mira Marcus of RealFrend.AI, “In the summer of 2019, a renter who had a monthly budget of $3,500 had to rent an apartment that was priced at $3,000, and would pay 15% extra for the broker’s fee—adding up to $3,500 in monthly pay- ments. In the summer of 2020, apartment rental asking prices have dropped 20%, and we are seeing a 70% to 80% rise in apartments available without a broker’s fee. So a renter who has a $3,500 budget can actually rent an apartment that would have been priced at $4,375 a year ago. That’s almost 50% more in value for New York City renters.” Implications for Co-op & Condo Sales The question is how this drop in rental prices—reflecting the desire of landlords both large and small to keep their rental income flowing—will affect the sales market. Frankly, the jury is still out on that. Brokers indicate that sales are happening, though they are fewer and at lower prices than at the peak of the market—which was in decline prior to the COVID-19 crisis. Where Is the Apartment Market Headed? Stepping out of Limbo BY A.J. SIDRANSKY Dealing with Construction Damage Protecting Your Property and Residents BY C. JAYE BERGER, ESQ. The Greenpoint Post reports that the walk shed rental, filing, engineering, and New York City Council passed a bill on other ‘soft’ costs. September 16 requiring the Department of Buildings (DOB) to study the safety likely mean a significant increase in those and feasibility of using aerial drones for expenses, especially for larger buildings building facade inspections. Under the city’s Local Law 11, own- ers of all buildings over six stories must have the exterior walls and appurte- nances of those buildings professionally that includes drones—are currently ille- inspected and repaired every five years. gal in New York City, their use has been Recent changes to the Facade Inspection proposed for controlled purposes (like and Safety Program (FISP) rules for the building facade and other inspections) upcoming Cycle 9 reporting and beyond as a way to improve safety and efficiency. add requirements for up-close inspec- tions, as well as probes into facades every Northeast Queens Council Member Paul 60 linear feet. For the city’s condos and co-ops, the legislature is approaching the use—and costs for these inspections have already regulation—of this new technology. put a heavy financial burden on unit own- ers and shareholders, who must pay for drones to be used in the context of build- the upkeep and maintenance of common ing inspections “is leaving New York City areas, which includes building facades. In on the ground while other cities are al- addition to the physical inspection and ready using rapidly advancing technolo- repair costs, there are also the fees and gies to support business and improve expenses associated with site safety, side- The new inspection requirements will where drops will be necessary for each up-close inspection length. Although Unmanned Aircraft Systems (UAS)—an umbrella regulatory term The recently passed bill, co-sponsored by Vallone, is an example of how the city Vallone contends that not allowing continued on page 13 COOPERATOR.COM NYC to Explore Using Drones for Facade Inspections City Council Orders DOB Study BY DARCEY GERSTEIN Now that the official ‘pause’ on construc- tion has been lifted, more and more con- struction projects stopped by the onset of the of the work area. For example, one co-op in pandemic will be starting—or finishing up. Queens had a big open area in the back of the Possibly complicating this shift is the fact that building where trucks could drive in to drop there is a new round of Local Law 11 work on off materials and scaffolding could be stored facades coming up. This can involve various for work on an adjacent building. The adjacent types of buildings, but a lot of it involves co-ops building’s use of this area was subject to nego- and condominiums. Many co-ops and condos tiation of a licensing fee. have squirreled away money over the past few months in anticipation of this, refinancing un- derlying mortgages on the building or imple- menting assessments to raise sufficient funds. the case of one of my client buildings, a neigh- Most of this work will be performed on the boring co-op wanted to carry construction exteriors of the buildings themselves, i.e., on materials through the client’s ground floor, facades, roofs, and cornices, but other renova- tion work may be bundled in as well. Some aspects of the construction and in- spection process are not open to debate; li- cense fees and appropriate permitting for ne- cessities like sidewalk sheds, for example, are the other party what our access fee would be, in place to protect the life, health, and safety of they quickly came up with a way to transport pedestrians, and are therefore not negotiable. the materials through their building, and then However, many of these projects will also re- quire access to neighboring buildings for vari- ous reasons—and that is where things can get bother to ask permission; depending on the a bit more complicated. A lot of what can be done by neighbors depends on where the two buildings are located and the configuration Along with storing materials, a neighbor- ing building may request the use of your roof or your backyard as a product staging area. In then use their service elevator to transport it all to the roof. The risk of damage to com- mon area walls, flooring, and the elevator it- self posed by equipment, lumber, and work crews is obvious. Interestingly, after we told up to the roof. Some buildings and contractors don’t continued on page 13 continued on page 13