Manhattan’s Market Maker
Evelyn M. Rusli, 10.25.07, 6:00 PM ET
Rent for a one-bedroom apartment in Manhattan runs $2,600 a month. That’s serious cash, but it’s not enough to get a New York landlord’s attention. To get a lease on a Manhattan apartment, the consumer needs the talents of a well-connected broker who will charge a renter at least $5,200 for what amounts to an introduction.
New York City Mayor Mike Bloomberg has famously shrugged that living in the city is a "luxury good," so the non-billionaires out there can’t look to Mayor Mike for help. Instead, they’ve got Michael Jacobs, a 25-year-old who owns a Web site called Urbansherpany.com that he hopes will turn into the city’s first comprehensive database of apartments for rent. Ironically, Jacobs is also a real estate broker–he is the founder and president of City Wide Apartments. But this agent believes the brokers have too much power.
Jacobs has set Urbansherpany up to be the Great Web Hope against Manhattan’s powerful and influential brokers. Using tools from City Wide–including a three-year-old database with information on every available Manhattan apartment building below 96th Street–Urbansherpany aims to turn the user into a broker–at no cost (Urbansherpany is free and relies on online advertising for revenue).
A prospective tenant can go on the Web site, find apartment listings and unearth information on every building in the city. Beyond an address or phone number, a user will be able to see how much a unit rented for last year, how much the landlord has raised the rent each year, how much the other apartments in the building are renting for, the average rental prices for the neighborhood and what kind of paperwork the landlord requires.
Jacobs’ novel experiment will show whether or not transparency can bring some fairness to an overregulated market dominated by entrenched landlords and brokers who see no reason for things to change.
"So many individuals have established a pre-Web system, which they haven’t changed, because they think, if it’s not broke, don’t fix it," says Jacobs.
Gary Malin, the chief financial officer of Citihabitats, a brokerage firm, shrugs off Jacobs’ dream. "You need an advocate in this market," he says.
Naturally. And in fact, nearly no normal renter could be expected to deal with the scarce supply and damaging regulations that have distorted New York’s real estate market into a textbook problem from Economics 101.
As the world’s center of finance (and a whole lot of other things–ask any New Yorker and they’ll list them for you), New York draws a steady stream of would-be tenants every day. However, there are very few units to go around. The vacancy rate hovers at 0.9%, according to 2007 research by CitiHabitats. (By way of comparison, the national average is over 5%.) With that kind of demand, landlords can pick and choose their tenants. These landlords rely on brokers to screen applicants for them. Brokers with good reputations can convince a reluctant landlord to sign a lease even if they’re leery. No Web site can do that.
In part, New York City brought the apartment scarcity on itself when, during World War II, it instituted the "War Emergency Tenant Protection Act," meant to keep workers and soldiers from being priced out of the city during the conflict. The law has, of course, far outlasted the emergency it was meant to address.
People fortunate enough to live in a rent-controlled apartment will cling to it for life. So long as they keep up their rental payments, they can’t be evicted. Anyplace they’d move to would be five times more expensive than where they are. Urban tales abound of landlords letting rent-controlled apartments age and decay to drive tenants out, with tenants retaliating with lawsuits and perseverance. When people do move, they tend to keep their leases while passing the apartments on to friends and family. Legend has it that New Yorkers use obituaries to find out when these units become vacant.
New apartment buildings aren’t subject to rent control, but the fact of rent control has two effects: First, it’s discouraged people from building new apartments because they (quite rationally) fear that the city will eventually impose controls. Second, when new buildings are built, the rental prices are driven immediately to the sky since the rent-controlled apartments are essentially off the market. That means new buildings are built solely with the wealthy in mind.
The city’s post-Sept. 11 economic recovery has stoked competition for apartments, but even when the economy is slow, Manhattan’s high population density keeps the market tight. The island may only encompass 23 square miles, but there are 17,000 apartment buildings below 96th Street alone.
The would-be renter might try to avoid brokers by using the Internet, but there are brokers lurking on those Web sites. Craigslist allows users to post apartment listings, but the site has been corrupted by manipulative brokers who post hundreds of "no-fee rentals" that magically become unavailable once a customer calls. In this typical bait-and-switch, the brokers then push the renter into meeting fee-generating landlords. Exasperated renters finally give into the extortion and pay two months of rent to the brokers, perpetuating the diseased system.
Jacobs believes that his Web site will be an equalizing factor. At least the brokers can’t hide out on Urbansherpany. Now Jacobs has to convince the landlords, and he’s using his staff to do so. But even so, it might be an uphill battle. After all, should landlords bother with a flood of prospective tenants when a broker could do all the work for them? And a broker doesn’t cost the landlord anything–would-be renters pay all the fees–and in New York’s scarce market, no apartment stays empty for long, fee or not.