After Sept 11, tenants left Lower Manhattan and new renters were hard to find. Grants of up to $12,000 reversed the slide.
Everyone knew that after the Sept. 11 attacks, Lower Manhattan's viability as a residential neighborhood would be tested. In particular, it was clear that the Wall Street area, which was just gaining a foothold as a residential option, could suffer a major reversal. Sure enough, residents fled from the area. New residents balked at the perceived danger of living there. By June 2002, vacancy rates in Lower Manhattan had reached 7.2%, more than triple the 1.8% rate a year earlier, according to Reis Inc.
The soaring vacancy rates — the highest Reis has recorded in New York since it started keeping score in 1991 — were startling, because it meant that it wasn't just Wall Street that was hurting. Reis defines Lower Manhattan as everything below 14th Street, which includes such popular neighborhoods as Greenwich Village, SoHo and TriBeCa. “We hadn't seen any vacancy rate in any part of Manhattan even above 4.5%,” says Andrew Wright, senior consultant for Reis.
To reverse the exodus and stem the losses of businesses dependent on downtown residents, New York responded in the same way it courts new businesses: It offered financial incentives. So in summer 2002, the Lower Manhattan Development Corp. (LMDC) began to offer cash grants of up to $12,000 to renters signing new leases. The agency, created after Sept. 11 to revive downtown, allocated a total of $280.5 million for its Residential Grant Program, using some of the $2 billion grant allocated to the LMDC by the United States Department of Housing and Urban Development (HUD).
The program, which stopped taking applications May 31, cut the downtown vacancy rate to 5.4% by March 2003, reports Reis. That's still the highest rate for any neighborhood in Manhattan, where the average vacancy rate is 3.6%.
The LMDC hails the program as a success. Over half of the applications for grants in Zone 1 (the area closest to the World Trade Center site) have been for new residents. Renters in Zone 1 could apply for grants for 30% of their rent for two years, or up to $12,000. In Zone 2, north and east of Ground Zero, the maximum award was $6,000. “They have signed two-year leases, taking advantage of this program, and bringing new life to the community,” says Amy Peterson, vice president for development programs and economics at the LMDC.
Residential brokerage Citi Habitats New York reports that Battery Park City's vacancy rate — 3% in October 2002 — has been halved. “I wasn't expecting the Battery Park City area to recover as quickly as it did,” says John Lawrence, a broker at Bellmarc Realty. But, he adds, the effect is not uniform: “Areas like TriBeCa, which you would have expected to recover at the same speed, have not.”
Although landlords do not receive any direct aid, the incentives have been a windfall, helping fill their buildings and locking tenants into two-year deals. “Before the grants I had predicted that it would take at least two years to get back to full occupancy, but by January 2003 we had effectively re-rented and cut a year of absorption,” says Richard Lebow, a landlord with World Wide Group.
Despite praise from the real estate industry, the rent subsidy program has drawn some criticism from public officials who say it hasn't finished the job. Now that the program has expired, say critics, vacancies may rise again. “This area has not yet recovered and it is not time for this program to sunset out,” says Dan Willson, director of communications for Manhattan Borough President C. Virginia Fields. “Anything that brings new people into the neighborhood is a good thing and ought to be extended.”
However, the LMDC has no plans of continuing the program. “The intention was to compensate people who lived here on Sept. 11 and to attract new people to the area,” says Peterson of the LMDC. “The program has done both of those things. So the intention right now is not to reinstate the program.”
HOW THE GRANTS WORKED
So how much money do renters really save a month with the grant? Here are the average monthly rental prices for apartments in Battery Park City (Zone 1) as of June 2003, and how much it might cost a month with the grant, given that the maximum over two years is $12,000.
|Avg. Rental Cost||With Residential Grant|
|BPC 1 BR||$2,444||$1,944|
|BPC 2 BR||$3,252||$2,752|
|BPC 3 BR||$4,276||$3,776|
|Source: Citi Habitats Inc.|