Inside New York’s $150K-a-Month Rental Market

0:04Welcome to Deconstruct, a podcast from The Real Deal. I'm Lilah Burk. And I'm Hannah Kramer.

0:10Hannah Kramer: And today we will take a look at a very tough day in the life of Mayor Shatrit. We'll go through a couple of problems with dropping the property tax burden in Florida, which is on the table. And we will talk about the future of Elliot Spitzer's real estate plans. And we'll be joined by top broker Peter Zaitsev to talk about the skyrocketing luxury rental market in New York. Let's jump in. For the last year or so, we've been tracking an incredible surge in the residential market across New York City. And following a niche that we don't always track quite as closely on the real deal, that is the niche of luxury rentals.

0:52Hannah Kramer: So today we have Peter Zaitsev here from Serhant to talk to us a little bit about that market. Peter, welcome. Thank you for having me. Tell us about the boom. When did you see it start? How high is it going? Probably, honestly, three-ish years ago, you started to see a real uptick in terms of price per square foot. I remember when I first started in the business at like 150 Charles, for instance, which is like a notoriously expensive building, right? And we were renting out units there for 100, 110 bucks a square foot, right? So now you're seeing rents at$200 a square foot. So in the last 10 years at least, we've doubled the amount in terms of a price per square foot from low$100 a foot to well over$200 a square foot on the luxury side of things.

1:44And not just that, you're seeing rents that are extraordinarily expensive. Our team, for instance, is doing a lease right now for$150 ,000 in Brooklyn. We've also done a lease in Brooklyn for$120 ,000. We did 24 Leonard for$150 ,000. For a year, I think the person probably spent maybe three weeks in that apartment. We also did a lease at Belmont for$95 ,000 a month, which was$235 a square foot. And that was very recent. That was less than a year ago. So you're seeing just an extraordinary amount of wealth, obviously, a lot of wealth in New York City, and a lot of people that are just willing to rent.

2:33Because what is a rent? It allows for optionality, right? You can come and go as you please, and you don't have to be tied down here. Look at Jane Street, right? So Jane Street Capital, as we know, there's buyers all over town with those guys, right? But when they were making a lot of money in 1920, 21, 22, those guys were all renters, right? So they were renting very, very expensive apartments. Now you have Anthropic, you have Facebook, you have Google. These people move here. They want to try the city out. So they're not going to plop down$50 million right away. They will eventually once they realize that they're going to be here for more than five, 10 years.

3:17But in the meantime, they're happy to pay$50 ,000,$150 ,000,$200 ,000 a month in rent, which is insane. And what happens with that is that it honestly makes everything else less affordable for the people that are like really trying, the workers in New York City, right? Because that raises the rents for everybody else. The city is still the greatest place in the world, but it's just becoming more and more unaffordable for a lot of us. And that's a little bit about these renters, but who are these landlords and why are they renting instead of selling? So for a number of reasons, again, getting back to 150 Charles, right?

3:56There was probably five buyers there that lived on the Upper East Side. They bought apartments wanting to be downtown because downtown's cool and hip. And then once the building came online, they're like, you know what? I really still love to live in my townhouse. So I'm just going to rent this out for a while, right? And what renting allows people to do is obviously create a lot of income for themselves, Right. And then property values, as we know. So the longer that you hold on to a property that you're not using, the more wealth creation you will get out of that property long term. So that's why renting is a great option for people like that.

4:33Hannah Kramer: Yeah. Thinking about these individual deals, right? I mean, you just say did something like$150 ,000 a month in Brooklyn. Is that, do you think, the highest price you've seen? Tell us a little bit about that whenever you can. In Brooklyn, yeah. Yeah. What's the highest price you've seen overall? Overall? I mean, it's$150 ,000 at$24 ,000 Leonard. Maybe there's been something else. I feel like maybe like Kathy Franklin did something at like$175 ,000 or$200 ,000. I know there's probably that out there. But maybe they haven't been as public as I have about$24 ,000 Leonard. Give us a peek inside these apartments.

5:12Hannah Kramer: What does the$150 ,000 a month rental get you? I always tell people, if you want everything in your home or your house, move to Texas. Because New York City, regardless of the size and the amount that you're going to pay, will not have everything, no matter what. So are these apartments nice? Yes, they're great. They're very nice. They're often in the best locations, right? Whether it's Tribeca, West Village, Flatiron, I would even say. You also obviously have Billionaires Row. That's a different type of demographic, though. West Village, Tribeca are people that live and work in the city, while 57th Street is more transient and or safe deposit box for foreign investment.

5:56So getting back to sort of who are the landlords that rent these out, landlords that are not living here, right? They take their money out of Asia or South America, right? And they put it here as a sort of safe deposit box if anything happens in whatever line of work they're in or a country that they're in. And you mentioned Tribeca and the West Village, but you also mentioned Brooklyn before. Are those in Williamsburg, I'm assuming? No, like Cobble Hill, Brooklyn Heights. Yeah.

6:25Hannah Kramer: And those are townhouses mostly that people are renting out, I would assume. Yeah, those would be townhouses. Got it. So, I don't know what else you're renting in Brooklyn Heights. I mean, I guess there's a couple apartment buildings. There are some people doing new development in Brooklyn Heights as well, which is interesting. You also have like, you know, buildings like Domino and Williamsburg Wharf that are new. And, you know, those are achieving really crazy numbers for Brooklyn on a price per square foot as well. You know, the standard now is over$120,$130 a foot. Like, this is sort of standard across the board.

6:56Hannah Kramer: I want to kind of talk about the change, right? I mean, this market's taken off in the last 36 months, like you said. What is different about, you know, these super luxury rental deals that you're doing now compared to, let's say, five years ago or even pre-COVID? And then, I mean, it sounds like the buyer or I should say renter type is shifting to more tech. Finance has always been here, right? But you have a huge influx of tech that is helping to push, you know, prices up both on the buying and the renting, right? I think the biggest driving factor, why we've seen such an uptick in the last three years is because of inventory.

7:36Inventory, as we know, is at historically low levels. So if you were renting in 16, 17, you had the pick of the litter. There was, what, 10 ,000, 12 ,000 units in inventory at that time. Right now, there's less than 4 ,000 with only another 1 ,900 units planned between now and the end of 2027. And then the market absorbs 600 to 625 units per quarter. So if you do the math, by the time 2027 rolls around, there's going to be even less inventory. And what does that do? That's artificially going to make prices a lot higher both to rent and to buy. And there's been kind of a discussion of this Momdani effect, the idea that wealthy people are fleeing New York.

8:23I mean, is that something that you're seeing in the market? It's nowhere near valid, right? Because if you look historically, I was here for September 11th, oh, a crash, COVID, right? Nobody flees the city. Yeah, some people will want to move out to the suburbs. Like most of my friends that were in the city, they have kids and they decide to go to Westchester or Greenwich. And that's always the case and or New Jersey or Long Island. So that always happens. But nobody that really wants to be in the city ever leaves the city, regardless of who the mayor is, who the governor is, what the political climate is.

9:01This city is the social capital of the world, financial capital of the world, and the real estate capital of the world. And that will never change, no matter who's in office or what happens here.

9:14Hannah Kramer: Something that we have heard at least a lot of, you know, complaints or concerns about from both luxury homeowners and brokers is the pied-a-terre tax. And I'm wondering if that is playing into the market for luxury rentals in particular. I mean, does that increase the price that people want to ask if they're going to rent out their apartment to make up for it? 120%. You saw that when commission structure went into effect, right? So now buyers or renters, brokers have to pay their broker and landlords have to pay their broker. So what did landlords do? Normal percentage is 15 % of the annual rent for the commission that used to get split to both ways between the landlord's broker and the tenant's broker.

9:59What did landlords do? They just added 7.5 % to the asking price. And so same thing is going to happen here. And it's going to try prices even further up. As we know, this city has always been a very tough, difficult place to live. And we live here not because it's not tough, because we're all tough and we love this city. But it's going to make it even harder in an already really difficult place to make it and survive. So what does the dealmaking process look like here? Is it different for the lower end rental market? And are some of these sellers reluctant to become landlords? What is being a landlord like if you're renting out for$150K?

10:45I mean, if they're getting their money, then it's easy peasy. And generally, the people that are renting these types of apartments are well-to-do. And you can Google them and they have a great track record, etc. And the bigger deals are often easier, which is unfortunate. the smaller deals are ones that are hard, you know, because you really have to vet who you're renting to. But there is a lot of competition. And I've seen competition for rentals go through the roof. I know a lot of the brokers and the brokers on the landlord side sometimes won't want to work with other brokers, right? Because they're just going to want to get the directs, especially at the lower end, which is unethical and not right.

11:29And if you looked at my email every day, I probably have 10 or 15 requests, hey, do you have anything off market for rent in Tribeca or the West Village? And I'm like, I CC my team. I'm like, not right now, but I'll keep you posted, right? The good brokers too will start to reach out very early on because they'll look at the old rental history. Say you wanted to be at 565 Broom, right? And you just want to be in that building. They'll look at the old rental history and they'll see when the annual rent is coming up. And so they'll reach out first and be like, I have a client. He's dead set on being at this building.

12:09Let me know the price and I'll get you an offer if the tenant is moving out.

12:13Hannah Kramer: I have to say, as we're talking about this, you know, these luxury rental deals, as you're saying, they can be pretty smooth deals. People want to rent. There's been an incredible surge in the price. So it seems like as a broker, in a lot of ways, it can be a good deal for you to do, right, for your personal economics. But you don't seem that enthused about the overall economics of what this kind of represents, like, for the city big picture. So how do you see this surge in luxury rentals playing out in, you know, the overall sort of residential market in the city? Like, you seem kind of skeptical of whether or not this is good for New York.

12:51It's not great for New York because it makes New York less and less affordable. but it's not the increase that is the problem. The problem is that there's been no construction since 2020 and the lack of building. We used to have 1031 exchanges that incentivized developers to build more, right? And they were building a ton of buildings. That's all dried up. And so there's a lack of incentive to build in New York right now because of all of these headwinds and taxes on everybody. In order to make this city more affordable, we need to build more. Give those developers tax incentives to do that and make them build affordable housing so people can actually live here.

13:37Hannah Kramer: We have had a lot of experts and economists talk about that this sort of super luxury side of the market just operates in a different sphere, that it's not influenced by the same market factors that, you know, market rate or affordable rentals, housing, multifamily housing in the city are. You're kind of arguing the opposite, right? That these things play together. Is that fair to say? Do you think that's true? That like what's happening in the luxury sector mirrors what's happening in the rest of the market? 100%. How could they not be? It would be impossible. Okay. So you own a$1 million apartment in the city, right?

14:14And then you're thinking about renting it out. And then you read the Wall Street Journal or you read the real deal. And then you see a rental that went for$150 ,000 a month. What does that do to you as the$1 million potential landlord?

14:28Hannah Kramer: Maybe I can get a pretty good price if I rent it instead of selling it. Exactly. And you can get probably a higher price. And they're going to be more willing to raise the price given the overall market. Overall market trends go together. How closely are you watching sort of like the lock-in effect, right, of mortgage rates being higher? Exactly. And this negatively sort of compounds with that? Yeah, 120%. 120%. And it compounds with the inventory shortage. And the inventory shortage affects rents, right? And competition and then pushing rents up. Because you have so many people that locked in 2 % and 3 % interest rates.

15:08So they don't need to sell. And they don't even need to rent if they don't want to. But if they're going to rent, they're going to get a huge number. and they're also going to ask an astronomical number to buy as well, right? Because why? What are you going to do? You're going to give up your mortgage for 2 % and then buy a smaller apartment for more money? Not a good plan. It's not a good financial plan. We talked a little about the pied-a-terre tax and I have clients calling me about it and they got that letter, right? They sent me that letter and they were like, Pete, what can we do about this?

15:40And they were like, can you put me in touch with the best real estate attorney in town? Can you put me in touch with the best tax accountant in town or the financial planner. They're all very smart and they have the means and they have the ability to do whatever it takes to sort of try to fight the tax or fight the evaluation. Do you think this trend will continue? Do you think we'll see higher and higher rental prices on the very high luxury end? Or is there something that would maybe put a pause to this? I think we will. Again, getting back to inventory and like inventory being zero by the end of 2027, I think there's no way to go but up, unfortunately.

16:18Hannah Kramer: Peter, thank you so much. Thank you.

16:24Hannah Kramer: Lila, tell me about a story you've been obsessing over this week. Sure. So we have some new depositions from Mayer and Joseph Chatreet, big time real estate developers in New York, and they paint a very bleak picture of the goings on at the Chatreet group, their development company, and also in the brothers' personal lives. Walk it back for us. You and I cover the Chitreats all the time, but for folks in the audience who may not be as familiar, who are the Chitreats? What is the Chitreat group? And then what are they kind of dealing with right now that's brought them to this deposition? Okay, so backing way up, the Chitreats are the patriarchs of this development family.

17:07They have this real estate empire in New York and in other places. They own offices, they own multifamily, they own hotels. And there was a schism a few years ago, so some of the brothers went off and formed their own organization. But Joseph and Mayer Chatreit are the ones that we're talking about here. They're Moroccan Jewish immigrants. They came from Morocco in the 1970s, and they pivoted from textiles to real estate. Now, the Chatreits built this real estate empire, but things lately have been going not so well. They have a lot of foreclosure filings, which is okay if you're in the real estate business.

17:45You can survive that. You can roll with it. But they're also being pursued for a lot of these personal judgments that they have against them. Together, Mayer and Joseph are facing more than$160 million in personal judgments that lenders Mac and Maverick are trying to collect on. That is why the brothers are being deposed.

18:05Hannah Kramer: Reading through a deposition like this gives us a really sort of powerful insight into what's going on, you know, in this court case, of course, but also at the Chitri group and in Mayer in particular's life. Give us a little bit of a preview of what's in the transcript. What was interesting to you? What was particularly revealing here? I mean, the big newsworthy thing here is that Mayer goes on for pages and pages to say that they have run out of money, that the Chitrick group has run out of money, that he personally has run out of money. So with the Chitrick group, they're not paying their employees.

18:42They're not paying their lawyers. They're not paying people to work out loans on their behalf. They're relying on friends and associates and people who are willing to do some work up front and maybe get paid later. And then in Mayer's personal life, he's also saying that he has borrowed money from his brother to pay for his daily expenses. His son is paying the payments on his Lincoln Navigator. He has borrowed money from men at synagogue to pay for daily things, and he owes them, you know, a couple of hundred thousand dollars. Now, there's also a little bit of doubt here, you know, if you're reading these about how true all of this is, you know, it's possible that this is a legal strategy.

19:26Hannah Kramer: I want to read a little bit from one of these transcripts to give you guys some insights into, you know, not only literally what's happening here with the Chatreit group, but also sort of the tone that Mayer takes in these depositions, which was particularly interesting to me. Yeah, I mean, these depositions, you know, for us, there's a lot of news here. These are pretty juicy. They're also, you know, unfortunately, like, very funny. Um, Mayor is sort of a comedian and makes a lot of jokes. It's very sarcastic. It's very wry. And so it's kind of a fun read if you're a reporter. So this is from our deposition here.

20:08Hannah Kramer: Lila, you be the attorneys. I will be Mayor and briefly his representation, Leo Jacobs. Where is the money coming from on a day-to-day basis to meet basic life necessities, paying the bills, etc.? I don't pay bills. You are not paying any bills? No. No lawyer, no mortgage, no nothing. Do you have electric right now at your house? Yes. Do you have running water? Yes. How are you paying for these utilities without any money? This one my brother paid last month. Which brother? The younger brother. What's the name? Judah. Is Judah supporting you and your wife right now? No. Who is? Nobody. God. Attorney Leo Jacobs says that's a good answer.

20:48Hannah Kramer: All right, let's do another one. And here the attorneys are asking about the Chitrit Group itself. Lila, you want to start? I think you testified last time that you were not receiving any distributions from the Chitrit Group. Is that correct? Nothing. It's zero. Closed. The Chitrit Group is closed. Yes. What's that mean? No money, no nothing. What's it going to be open for? For what? You testified that you go to the office there on a regular basis. I go to the office every day. Why do you go to the office if there is no business going on? What do I do at home? That's another question you are asking me.

21:20I am asking you the questions. You are saying that Chitrick Group has no business going on right now? Nothing. But you go to the office every day? Yes. For what purpose? To waste time. To waste time?

21:30Hannah Kramer: Yes. Leo Jacobs cuts in. Counsel culturally, my client will answer as a question is all I wanted to let you know. They ask a little bit about their families and then jump down. The attorney asks about his kids and then asks. They're all dependents? They try to be. It is funny to see, you know, these big real estate developers taking this kind of funny attitude. It's hard from the transcript to tell whether he's being flip, whether this is just his natural tone, whether he's totally, you know, despondent over the happenings here. But either way, it gives us, you know, really a lot of insights into just how kind of grim things have gotten at Chatreak Group.

22:09Well, that's the thing is in some ways we don't know. There's a little bit of doubt here about how grim it really is for the chatreits. I mean, yes, they're saying this all in a sworn deposition, but there's also some questions about whether they're exaggerating here to maybe get some leniency. They owe these judgments. It's possible that they're sort of pleading poverty here, playing the pauper before the court and before the opposing attorneys to maybe try to get out of some of this. So that's something that we're really interested in and we'll continue to look at. All right, so we'll continue tracking the retreats over the next couple of months.

22:43Hannah Kramer: Now I want to go down to Florida where there is a big amendment on the table about one of real estate's favorite topics, of course, property taxes. Yes, fill me in on this. So the amendment we're talking about here specifically is called Amendment 3. And before we get into the specifics of the amendment, I want to remind you guys that in Florida, they have something called a homestead exemption. The homestead exemption means if you are in a home, if it's your primary residence or if one of your dependents is using a home as their primary residence, you can take basically a$50 ,000 deduction in your property tax liability, which is a meaningful amount of money.

23:25Hannah Kramer: Obviously, folks in real estate, and I think many folks generally, don't love paying taxes. Taxes are a big burden. And one of the things that, you know, a lot of folks have talked about, particularly in red states, but across the whole country, is that the unpredictability of property tax bills can make it very hard both, you know, for homeowners to anticipate what their costs are going to be. And, of course, we track this with commercial property owners as well. So the idea behind Amendment 3 is that in 2027, that homestead exemption would increase from a$50 ,000 property tax liability deduction to a$150 ,000 property tax liability reduction.

24:03Hannah Kramer: And then in 2028, it would increase to$250 ,000. And then over time, Florida's government would basically increase that deduction until property taxes on homesteads go to zero. Okay, so they're essentially quintupling the deduction and then phasing out property taxes for this portion of residences entirely. Do I have that right? Yeah. And that is a huge chunk of money that we're talking about. Right. And the legislators who support this have, again, cast it as something that would, you know, increase predictability in terms of what taxes you're going to have to pay as a homeowner. And that would also, of course, decrease the financial burden on homeowners.

24:49Hannah Kramer: Lots of people are feeling very tight on cash right now. And because of that, they want to decrease, you know, their cost burden. But the devil is in the details here. So folks in real estate are actually not quite as enthusiastic about this as you might expect, because right now, the way the bills are written, it's not clear how the state and local municipalities are expected to make up the money that they would be losing in property taxes. Right. Property taxes are obviously, you know, the basis for a lot of our public services. And while you might not like paying property taxes, and I don't either, I do like having roads, schools, police departments, fire departments.

25:31Hannah Kramer: And the police union, the fire union, they're pretty strongly against this. And even folks in real estate are saying that because of the way that the amendment is written, you know, it might not create this increased stability that it's supposed to. And how's that? First of all, it would impact different municipalities differently, right? So there are some townships, cities in Florida that would see only something like a 1 % reduction in their property tax income. And there are others who would see a vast majority of their property tax income disappear if these increased reductions were to go into place.

26:08Hannah Kramer: And there's no clear plan for how the localities are supposed to make up the money. Do they just cut the services? Do they increase taxes elsewhere to make up the difference? And that's where this new factor of unpredictability starts to come in, right? I mean, localities can increase their millage rates, the rates at which they tax properties to make up the difference. And then you might get non-homestead properties and places like multifamily buildings, hotels, shopping centers, seeing really big increases to the property taxes they're expected to pay. So do you think this will pass? Well, Governor Ron DeSantis said that he'll sign it if it comes to his desk, but he hasn't been promoting it really openly in the way that, you know, he often would for something that he really wants to see come across his desk.

27:01So it's not clear to me right now that this, you know,

27:05Hannah Kramer: definitely has or definitely doesn't have the support. Obviously, we'll see whether or not it gets voted through in November. But I'm curious to hear from our readers if you live in Florida and you are going to vote in the election in November, whether you're going to vote for or against Amendment 3 and why. So you can write to us at news at therealdeal.com and let us know. Yeah, looking forward to hearing from folks. All right, and then let's get into our last story for the day. Lila, tell us what is going on with Eliot Spitzer. All right, so we have a sort of interesting case here where Eliot Spitzer, yes, that Eliot Spitzer, the former governor of New York, has sued the state that he used to run over this real estate dispute application.

27:48And it seems like he has gotten what he wanted. And this is about his Upper East Side project, right? Remind us about that. So this is 985 Fifth Avenue. It's a rental building in a very nice neighborhood. It is across the street from the Met. It is across the street from Central Park. It is on Fifth Avenue. And it's a rental building. And so Eliot Spitzer wants to demolish it and construct a condo building. Now, the issue here is that some of the rental apartments are rent stabilized, which means that he needs to apply with the state to demolish the building. And there's a lot of hoops to jump through here.

28:27You need to have a certain amount of financing. You need to have certain agreements. And he says that he did all that. And then he applied two years ago and heard really nothing back. Then he sued the state and he got his approval in a month

28:42Hannah Kramer: What does this sort of suggest to you about, you know, what's going on at the state level with the bureaucracy that it's taking so long to get something like this through? Especially where, you know, it does seem like he understands the political process, obviously, and he's jumped through all the hoops Right. So there's a few things going on here. One, I mean, bureaucracy is just slow. Sometimes you need to sue to get what you want. There's a lot of red tape But there's also this thing going on here where DHCR, the state's Department of Homes and Community Renewal, really doesn't want to demolish any rent-stabilized apartments for political reasons to try to preserve affordability.

29:21And so we're seeing some of that play out. And our columnist, Eric Enquist, has really been following this and will hopefully be joining us on the podcast in a few weeks to talk a little bit more about this. Yeah. So stay tuned for that. And until then, thanks for listening.

29:35Hannah Kramer: Have a great week. Our script today was written by Lila Burke and Hannah Kramer, edited by Kara Eisenpress, and our in-room producers were Mary Deduc and Ushisukai. Our sound engineer and host producer is Mila Miller.