Posted by Leonard Steinberg on December 4th, 2011

We have read the headlines about how rents keep rising, in some areas rather dramatically, and now word that Sam Zell’s Equity is about to buy a 26,5% stake in Archstone, both two of the US’s largest owners of some 200,000 rental apartments. So why would Equity want to own more rental units?

Apartment buildings have become more attractive assets for many investors like Zell because they generate strong cash flow. More importantly with banks having tightened their lending standards dramatically, and new home buyers poorer and more scared of ownership than ever before, landlords have flourished raising rents across the board.  Job growth, a key driver of apartment demand also is continuing to improve.

Lets analyze this:  At Equity’s recently completed 500 West 23rd Street, a 750sf 1 bedroom apartment has an asking rent of about $ 5,100/month. (small 2 bedrooms are above $ 8,000/month!) Around the corner at 555 West 23rd Street, a similar sized unit sells for over $ 750k. With about $ 150k down, the monthly cost of ownership is roughly $ 4,300/month before the tax deduction for interest and real estate taxes. So the savings is well over $ 1,000/month, certainly more than your $ 150k would earn for you in a regular savings account.

These inflated rentals are of huge benefit to the insane City tax department as they assess condominiums based on their rental potential (INSANE,yes!). So the City raises assessed values on homeowners and gives big tax breaks to the rental building developers and owners…..

Landlords raise rents, depreciate buildings, get city and state tax credits….its great business for landlords. Bad for consumers.