NYC rent-to-own condo programs gain momentum in the Covid era
A three-bedroom apartment at Corte in Long Island City rents for $6,700 a month. The listing says it is part of a rent-to-own program.
If you’re a New York City renter who has fantasized about putting your monthly payments toward a place to own—this may be your moment. Rent-to-own programs for condos—which have never really taken off in a big way in NYC in the past—appear to be gaining momentum, now that the pandemic has caused a plunge in sales.
There are at least five rent-to-own programs at rental buildings in NYC (and possibly more)—some are new and a couple launched late last year, and there are more likely to come in the future. You can find rent-to-own apartments at 100 Barclay Street, One Manhattan Square, 196 Orchard, 298 East Second Street (Houston House) and 21-30 44th Dr. in Long Island City (Corte), which The New York Times highlighted in a recent article about developers’ strategies in response to the coronavirus pandemic. Rent to own, the article said, “is a tactic more commonly seen during the last recession.”
To be sure, this path to ownership is not a major trend—it’s not available in many buildings and it isn’t something that many New Yorkers can afford to take advantage of—these programs are typically aimed at luxury condos that developers are struggling to sell. For renters who can afford it, it’s a way to test drive a place and make the overall commitment to buy less daunting. It also may be a fit for renters who want to buy but need time to shore up their credit, or are concerned about job stability in this economy—and want the option to walk away if necessary.
[Editor's note: An earlier version of this post was published in July 2020. We are presenting it again here as part of our holiday Best of Brick week.]
How rent to own works
It’s also not a one-size-fits-all approach—the plan depends on the building’s developer. For example, Magnum Real Estate Group, developer of 196 Orchard and 100 Barclay Street, recently launched a rent-to-own program that allows renters to apply a portion of their rent toward the purchase price—the amount corresponds with how long they live in the building before deciding to buy.
During the first six months of living in the apartment, 75 percent of the rent paid is credited towards the purchase price. After six months, 50 percent of the rent can be credited towards the purchase price. Only a limited number of sales apartments are available at 196 Orchard and they start at $1,600,000. Apartments currently on the market at 100 Barclay start at $4,485,000.
Ryan Serhant, broker at Nest Seekers and Bravo television star, represents 196 Orchard. He says the rent-to-own program gives renters who love the building the opportunity to buy. It’s a way to “own a beautiful condo at a later date, but move in now, take occupancy now, and when you’re ready, make the purchase,” he says.
The program started about three months ago in response to changes in the market, Serhant says.
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The shutdown—which banned in-person showings—had a devastating impact on the NYC market: Sales of Manhattan condos in the second quarter of 2020 fell 58.2 percent, according to the Elliman Report.
Serhant stresses rent-to-own is merely an option that renters can choose to exercise. Developers can still sell the apartment to someone else—in which case, a renter would be offered a right of first refusal, he says.
Making ownership ‘less intimidating’
A glut in luxury condos was already pushing developers to come up with some creative measures to get buyers to sign on the dotted line. The massive 815-unit One Manhattan Square on the Lower East Side started its rent-to-own program last fall. It’s too early to see whether the program has resulted in any sales, says Christina Medina, director of sales for One Manhattan Square. She says there’s been a high number of renters opting into the program, and she expects to convert a number of renters to buyers.
There are currently 11 units available for rent at One Manhattan Square that offer the option to buy. Rent starts at $4,126 a month for a one bedroom.
This program allows renters to apply 100 percent of a full year’s rent toward the purchase price. At six months, renters need to decide whether they intend to purchase, Medina says. First-time buyer workshops at the Extell project help renters understand the buying process and “make it less intimidating,” she says.
At this point, One Manhattan Square is the only Extell building offering rent-to-own, but the program may be rolled out to their other buildings in the future. Extell is also the developer behind luxury buildings like The Kent in Carnegie Hill and Brooklyn Point in Downtown Brooklyn.
Rent-to-own "works for people who have a blemish on their credit and may want to spend time cleaning up their credit,” Medina says. In the meantime, she says, “they are not losing any of their money,” a key consideration in NYC where renters pay high rents.
Which renters are a good fit?
Brokers say renters are clamoring for assistance to get onto the path to ownership.
“Every conversation I have with renters right now inevitably swings towards the prospect of buying,” says Molly Franklin, an agent at Corcoran. “The option of rent-to-own definitely appeals to buyers who have great income but not much saved yet, or my clients that are expecting family money to come their way in the next year or two,” Franklin says.
“People who are buying today clearly are passionate about the city, and I think enabling home ownership on a broader and more accessible level can retain the talent we will need to rebuild post-pandemic,” she says.
What to watch out for
In general, you will find this type of program in very large buildings, where there are plenty of apartments to buy or rent—“large buildings with a number of years of absorption” or sales ahead of them, says Stephen Kliegerman, president of Brown Harris Stevens Development Marketing.
He points out that rent to own doesn’t typically produce many purchasers (BHSDM is not offering this program). But it’s a good strategy for buyers who have less money for a down payment, he says. It’s also a “good way to get people into the building and show them the value of the property,” he says.
He sees this as a more of a “stop gap” move from developers who need to reduce their operating expenses. “We typically see rent-to-own in buildings where there are lackluster sales.” And he says that renters who are considering this route need to keep an eye out for certain unique situations.
For starters, renters need to consider that a developer may opt to make the building a rental property—which would eliminate the option to buy.
His advice also includes making sure the terms of the rent credit are spelled out clearly and to speak to your lender to make sure your bank will credit you dollar for dollar, he says.
“Banks are always making changes to their lending requirements, especially in terms of post-closing liquidity,” he says.
“If you are renting an apartment for $5,000 and have a credit of 50 percent—does the bank see that $30,000 as a dollar for dollar credit toward your purchase price or do they see it as a concession?” he asks.
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