NYC Real Estate - Unique, but Not Always in a Good Way

New York City real estate is not normal. The benefits of owning NYC real estate are huge - there are massive demand drivers since it is the best city in the world to work, explore, learn, dine and live. While real estate is a highly illiquid asset class, NYC real estate is almost always easy to sell.

by Ben Haghani

Oct 6, 2022

But it’s not necessarily an easy place to buy and operate an apartment building.  It starts with finding and underwriting properties to buy. An investment sales broker will prepare an Offering Memorandum that provides details on income and expenses. What should be a simple, straightforward underwriting process is just the opposite. Anyone active in this market knows that while the income is usually correct, the expenses are an entirely different story.

The broker will share what the expenses should be for the main 5-8 expense items, instead of the actuals. To add insult to injury, they completely leave out the "smaller" items, such as Local Law compliance, repairs and maintenance, legal costs and accounting fees – all necessary costs that can quickly add up to real dollars. In other words, you’re on your own to estimate true expenses. What if you ask for historicals? Good luck! Most mid-market deals don’t ever provide that!

After you buy the building, you’ll execute a business plan to get the highest rent possible, which for some means adding bedrooms where you can and reconfiguring 100-year old units to maximize every inch. Luxury renovations of apartments will sometimes put washer/dryers under the kitchen counter to offer an in-unit amenity, even if it means leaving the kitchen with less or little cabinet space.

Office owners also have a unique take on how to maximize their revenues. They creatively re-measure to increase their leasable space, in some cases, growing the rentable square footage more than 25% over the actual measurable space. The argument is that the tenants enjoy the common areas, such as hallways, elevators and atriums, so why shouldn’t that tenant be responsible to pay for it?

Does any other market operate in this way? Definitely not. NYC landlords have a reputation for fighting for every penny and every inch in almost every regard. The exception is with residential leasing.

Breaking conventional norms

While fighting for pennies is the norm, NYC residential landlords give up big dollars when they accept paying huge leasing commissions as just "the way it is". Some owners get defensive here and say that the tenant is paying the broker fee, so why should they care? While the owner isn’t cutting the commission check when the tenant pays, it is obvious that higher fees paid by a tenant get baked into the overall cost by a tenant, and all else being equal, a tenant will pay less in rent if they’re obligated to pay a big fee.

While underwriting deals, the offering memorandum rarely, if ever, will mention the rental broker’s commission…But it’s there. The commission is one of the last remaining places where an owner can make a big impact on their bottom line. And block.a is the only residential leasing platform that offers a massive discount compared to traditional brokerages.

How to boost your bottom line

As discussed in blog post, we broke down the math that illustrates how, at the end of the year, a landlord (with a standard mortgage) is going to net maybe 1 month of rent. But in the current NYC commission structure, a broker takes home nearly 2 months of rent. How does that make sense for the landlord (and even the tenant)?

But the tenant pays the broker fee - why should I care?

Imagine a renter searching for a 2-bedroom apartment on the UES.

The rent is $3,500 per month. A standard commission paid by a tenant is 15% of a year’s rent, or $6,300. Block.a charges ½ month, or $1,750 - saving $4,550 in transaction costs. If you amortize this cost over 2 years, the tenant would be willing to pay $190 more per month.

  •  Example: $190/month x 12 months = $2,280

 Then, apply a 5% cap rate = $45,600…

That is $45,600 in value created just by using block.a. If this is a 20-unit building, using block.a’s platform could create $900,000 in value for your building. A 200-unit portfolio would create $9 million in value by working with us.


When the Landlord pays the commission

Now let’s explore if you, the landlord, pays the broker’s commission (or “OP”). This scenario is much more straightforward. Take the same 20-unit building mentioned above. Since we’re charging a 0.5-month fee instead of the market standard 1-month fee, we’re saving an owner $1,750 per unit, or over $10,000 per year. When going to refinance, a block.a client would be able to pull out $160,000 more in debt because of this cost reduction.

Big fees are chewing away at your bottom line and having a big impact on your building’s value. You may not be a seller, but when your lender assesses your DSCR using historical numbers, you’ll benefit by getting more proceeds or better terms for having a better DSCR/LTV.


Ok, so the fees are lower, but is block.a-powered leasing better than a traditional broker?

Clearly, block.a can provide massive value in reducing costs, but how are we better at renting apartments?

Assuming an agent hosts two open houses per week, for 1 hour each, that’s two hours per week. While agents will tell owners that they accommodate showings at any time, they’re going to make it work around their schedule, which is still limited in a major way. Let’s double the number of hours and make it four hours per week that an agent shows a unit. 

 With block.a, a vacant unit is self-tourable, subject to the owner’s approval of visiting hours. That means a prospect has 15 hours per day, providing for 105 hours of available time per week, and it’s self-served. This is over 26x a broker’s availability. The benefits for the landlord are again, obvious.

While the above is just one of numerous examples, it illustrates how removing friction results in more potential interest and applications.

Better results at a fraction of the cost. That’s what the future of leasing is all about. And it’s here now.

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