Declining Rental Income May Ease Vacancy Rates - NYC Real Estate Market Part 1
Article by Caleb Whymark
Vacancy is a nightmare to be avoided. It's a trinity of loss. Loss of income, leasing expenditures and the likelihood of releasing at a lower rent haunt property owners in this market.
Let us examine the decline in rental income, including vacancy and collection losses from the micro level then proceed to assess the broader impact of market statistics in a follow up article. An Upper Eastside apartment, in the 80's, rented at $2,525 per month. The unit was vacated July 31, 2009 and rerented as of September 1 2009 at $1,800.
Effective Tax Rate for Tax Class 2 Properties = 0.13241 x 0.45 = 0.05958 or 5.95%
For the purpose of providing an example we will assume that investors seek a return of 9.75% on this type of property. The overall capitalization rate is the sum of the investor rate and effective tax rate. The sum is 15.7%. Investment value loss due to this single apartment is $25,150 divided by 0.157 equals $160,191. Now the loss would not be applicable in a strong market. Vacancy losses are assumed in investment analysis. The underlying issue is the quantity of losses in the building and the community. The subject building had six similar apartments with losses in 2009. The building is a 5 story walk-up apartment building with twenty apartments. Approximately one third of the units were vacant for over two months and were relet at a lower rent. On the micro level this property has suffered significantly.
The broader market is similarly shocking. Data processed and analyzed daily indicates that this property is not unique. Some communities in Manhattan reflect a $10.00 per square foot drop in income since 2008. Other communities have retained reasonable apartment income yet commercial losses are impacting the operating statistics. Reports by community and property type are available by request for a modest fee. Raw data in database and spreadsheet formats may be purchased.