THE New York Times published an article in the real estate section this Sunday about city folk moving to the suburbs in light of coronavirus. That’s pretty standard fare and unlike the pandemic itself a story like this comes as zero surprise, as do the basic anecdotes and rationales of those fleeing. Nevertheless it spurred me to write down my predictions for what effect the virus will have on Long Island City real estate, a subject I’ve been mulling over since the shutdown began.
Heretofore my hesitation in doing so was because I have no insight as to what course the virus will take, and an economic recovery from the hollowing out of employment and GDP depends on the duration, severity and prospects for a recurrence of the virus. Regrettably job loss will have a much bigger impact on LIC (and NYC) real estate than people who have a choice whether to leave.
So all we can do is look to the past to garner insight into the future, and we don’t have to go too far back. The summer of 2008 is almost a perfect replica for early 2020. We were half a decade into a bull market, finance was the dominant industry in the city as the mushrooming of hedge funds at the beginning of the 21st century lifted compensation on all of Wall Street to stratospheric levels and the spending found its way into all facets of city life, none greater than real estate. Both residential and commercial square footage was being gobbled up, despite the subprime mortgage meltdown the year prior.
Fast forward to mid-February of this year and it was start-ups that had been leading the charge in NYC the prior 6-8 years, and they too were lifting all boats, including Wall Street and real estate. Young people were coming to the city, occupying new apartments and starting new businesses that required enough room for double the current employees and a ping-pong table. Concessions were being pulled on pricey new rental units, and though office space never reached the heights of hedge fund nirvana in the Plaza district during the aughts, you’d have to consume a lot of free beer, coffee and snacks for a founder to justify what she was really paying per square foot at a WeWork type space. Or just raise a Series G round.
A month later the above ended abruptly. Young people will soon be moving back home or quadrupling up, and some of those a little older may try to swap out of their higher priced city real estate into something less expensive further away. Albeit at a lower spread now.
So let’s start with rental apartments as pricing is the most responsive in the short term and it’s the predominant type of real estate in LIC. From that peak back in the summer of 20081, TF Cornerstone dropped my rent 14%2 a year later in light of the financial crisis and subsequent market weakening. Sure that’s only one anecdote, but the discount came unsolicited so others in the thousand or so units in LIC that TF owned at the time received likewise, and probably a few of them declined it in order to find what were probably even better deals. So I’ll make the bold prediction that apartment rents drop 15% in Long Island City this year. Keep that number in mind when your lease comes up for renewal.
Before we continue with the future, here’s a little history on LIC rents in order to add some context. Once again using that sole anecdote, the apartment I rented in the summer of 2008 at the height of the previous market, is currently being offered on the TF Cornerstone website at a monthly rate 47% higher than where that lease was signed almost 12 years ago. As of this writing there is no indication of concessions of any kind to mitigate recent events.3
If rents drop 15%, what kind of discount will it take for someone to opt to buy an apartment in LIC? Things get stickier there, but I think 15% is the starting point for sales discounts. Most sellers will be slow to accept the new reality so don’t expect to see many transactions over the next year. Unfortunately there will be forced sellers, so what does get inked in 2020 I predict will be down 20-25%. Will that be the low point? Once again, it all depends on how the pandemic plays out, which from everything I’ve read is completely unpredictable. On the other hand, in light of all the money being printed in Washington – and the worse it gets the more they’ll print, real estate may be one of the few ways to hedge (hold value) in a massive currency devaluation, even in a weak economy.
Commercial real estate is a whole different ball of wax, as WFH demographics, corporate belt-tightening, and the bubblesque WeWork phenomenon crush demand, probably for a long time. It’s not overly relevant for LIC as there isn’t a lot of office space here and Manhattan is the price-setter. Except I think it pushes back the Waterfront Master Plan another 3-5 years given that a 1-million square foot office tower was the linchpin and City leaders have got to be rethinking their years-long advocacy of residential densification. I hope.
//CONGRATULATIONS to Big Alice Brewing, as it won the Governor’s Cup for best beer in the state. Also, I’ve heard a rumor that Rockrose is going to be opening up their outdoor common space at 47-05 Center Boulevard sometime in May…
Coronavirus Escape: To The Suburbs – could have written an identical story post 9/11
Macy’s Looking To Slash It’s New LIC Headquarters Size By 40% – it just moved in and now it’s looking to sublease a portion
Bel Aire Diner on 21st St. Launches Drive-In Movie Nights – in their parking lot on the Astoria/LIC Border
Big Alice Brewing Wins NYS Craft Brewing Competition – it earned the Governor’s Cup for the best beer in the state for its The Many Lives of Our Lives
LIC Couple Has Triplets In Pandemic – welcome girls
Free Antibody Testing Site Opens On Queens Blvd – just book a resv’n and go
50-Story Tower Revealed In Preliminary Renderings At Top of Queens Plaza – everything’s a maybe now
- and I really top-ticked it [↩]
- 7% less a month plus a free month after 12 paid [↩]
- further context: 47% over ~12 years is around 3.2% compounded annually. That’s pretty good considering the period encompassed a financial meltdown and the greatest recession since WW2. But a good chunk of that increase was LIC-specific as awareness of the neighborhood was favorable and significantly winnowed the discount to Manhattan the past few years. [↩]