It’s Called Market Manipulation

Matthew G. Saroff
8 min readFeb 3, 2023

Something that I have noted on numerous occasions is that the structure of commercial real estate loans create perverse incentives for landlords. (See ……… WTF? I didn’t post it here?)

Commercial real estate typically functions on short term loan with a balloon payment at the end.

For a typical 5 year loan with a 30 year amortization schedule, it means that you will have paid about 8% of the loan when a balloon payment for the remainder comes due.

This is not a problem generally, because the landlord will roll over the loan at a new rate.

However, if the bank, or any other bank, is unwilling to roll over that loan, then they owe it all back, and said bank will almost certainly foreclose.

It turns out that the biggest factor determining whether or not a bank rolls over the loan is not net profit, nor cash flow, it’s the rent charged.

So, if you have a building that is renting space at $20/sq ft/year and is 75% empty, you are more likely to have your loan rolled over than if you are renting space at $15/sq ft/year with 100% occupancy, despite the fact that the rent collections of the latter are 3 times that of the former.

You might lose money in the 2nd case, but you will not lose the whole building with nothing to show for it.

So it is to a landlord’s advantage to keep some space vacant, and it is further to a landlord’s advantage to conceal this fact from potential renters.

This is what we are seeing in New York, where rents are going up even though renters are not returning to the city:

“What started as a trickle earlier last year has become like a geyser of demand,” exclaimed one broker in early 2022. Suddenly, there were lines around the block for open houses and bidding wars over unrenovated walk-ups. The vacancy rate in Manhattan fell below 2 percent, and median rent passed $4,000 for the first time. “I’m not exaggerating when I say that I’ve never seen the rental market as crazy as it is right now,” said another broker in July, right before prices went up again.

What could explain it? Even if all of New York’s deserters had soured on country living — like the publicist profiled by the New York Times who came crying back to Harlem after beavers flooded his yard in Saugerties — that still wouldn’t account for why there seemed to be fewer apartments available than before they’d left. Real-estate experts tried to identify factors that might be aggravating the shortage. Maybe the Fed was discouraging home sales with higher interest rates, so more people were renting. Or the couples that had split up during lockdown were separating and moving into all the one-bedrooms. Or single people had gotten claustrophobic and were spreading out into all the two-bedrooms. Or remote workers from other cities were coming to New York just because they felt like it.

Whatever the cause, the crunch left renters with two options: Pay through the nose or leave. Tenants who had scored pandemic discounts got renewal letters demanding double. Those seeking new places were advised to offer above asking price (i.e., “cuck money”) on apartments they hadn’t even seen in person but that nevertheless included outlandish broker fees and abased themselves accordingly. If they didn’t, they were told, plenty of other chumps would.


There was only one problem: None of it made any sense.

In late 2021 and early 2022, when demand for apartments was supposedly accelerating from trickle to geyser, New York was still besieged with COVID-related troubles. Return-to-office plans had been quashed by the Delta variant, then Omicron. Tourism was way down, and unemployment was twice the national rate. Crime was reportedly surging — people were getting shoved onto subway tracks — and outdoor dining had emboldened rats to live freely and openly among humans. Had all of the people who had presumably moved to escape these very concerns really come flooding back?


I began to pick up faint dispatches from a distant, numbers-based reality, where a more plausible counternarrative was taking shape. “Manhattan Lost 6.9% of Its Population in 2021, the Most of Any Major U.S. County,” said a March 2022 headline. “NYC’s Population Plummeted During Peak COVID — And It’s Still Likely Shrinking,” said another from a couple months later. According to these stories, New Yorkers hadn’t come flooding back at all. In fact, they were probably still leaking out.


As you’d expect, USPS stats show that lots of New Yorkers skipped town during the pandemic. Between March 2020 and December 2021, there was a net loss of 317,107 permanent movers from across the five boroughs. In July 2020 alone, when moving companies were reportedly so busy they had to turn away customers, a net 25,439 movers left the city. Outbound migration has slowed since then, but it hasn’t changed direction. By my count, the city lost another 97,794 in 2022, ranging between about 6,000 and 11,000 per month.

But that’s not all, because New Yorkers were leaving before COVID. Change-of-address stats show there have been more departures than arrivals in every month since at least June 2017, the earliest month for which I was able to find data. Between then and December 2022, USPS data says 2,878,212 came to the city and 3,548,982 bailed, for a total net loss of 670,770.


If there had been any drastic surge in return traffic to New York in 2021 and 2022 — if all of those real-estate experts were telling the truth — it should’ve registered at least a blip in the USPS stats. After all, if so many movers had remembered to change their addresses on their way out, surely most of them would’ve remembered to change them on the way back, right? Instead, USPS data merely shows a gradual return to 2019-size losses.
The Phantom Rebound


In August 2021, the Census Bureau announced that its 2020 count had found more people living in New York (8.8 million) than in 2010 (8.2 million). A few tried to spin the results as a sign of the city’s COVID-era resilience, including Mayor de Blasio (“The Big Apple just got bigger!”), but, alas, the numbers had been tallied only a few weeks into the pandemic and all gains had come pre-2016. Then the bureau announced that New York City lost 305,000 residents between July 2020 and July 2021 (which is more than USPS stats show for the same period) and that the 2020 U.S. Census had overcounted the population of New York State by an estimated 695,000.


I called more than a dozen New York moving companies, including tristate and national ones. They all told me they’re still moving more people out of the city than into it. And I spent a long time trying to make sense of data from the New York City Water Board, which shows that the amount of waste treated by the city’s processing plants jumped in 2021. (Maybe everybody had shit their pants when they found out how much their rent was going up?) But it turns out those plants treat not just human waste but stormwater too, and 2021 was rainier than usual. At least I think that’s the reason — the Water Board quit returning my emails after a while.

And here comes a relatively persuasive anecdote:


In 2017, I moved to a new rental tower in Downtown Brooklyn into what the leasing agent promised me was the very last available one-bedroom. But after living there a couple months, I began to get suspicious. I was the only person in the gym most mornings. And there was surprisingly little competition for washing machines in the laundry room. There were more than 500 units in my building — were all of my neighbors sedentary nudists?

One night, on my way home from work, I pushed the wrong elevator button and got out on the floor below mine without realizing it. My key wouldn’t fit the lock to what I had assumed was my door, so I turned the knob and stepped, to my astonishment, into a completely empty, totally untouched one-bedroom. I turned around and beelined to the elevator, worried that I’d get busted for trespassing, when I noticed strips of masking tape covering the door frames on all of the other (presumably empty) apartments on the floor.

This was how I became aware of “warehousing,” the practice by which landlords keep unrented apartments off the market to create artificial scarcity. Building owners have always done this, especially in new constructions with lots of virgin inventory, because why give renters the upper hand if they don’t have to?

But they really started doing it during the pandemic. On a 2022 episode of the real-estate-industry podcast Talking Manhattan, Gary Malin, COO of the Corcoran Group, made a surprising claim: “At one point during the downturn, the vacancy rate in the city was close to 25 percent,” he said. “You had owners who were sitting on hundreds if not thousands of empty apartments.”

Officially, during the peak of the COVID exodus, the vacancy rate in Manhattan was 4.3 percent, the highest in at least 14 years. But those “official” vacancy rates we hear so much about are sourced from market reports by brokerage firms like Corcoran and Douglas Elliman, and they only reflect the number of rentable apartments that landlords are advertising, not the number that actually sit empty. Given the incentives for underreporting, this is a little like calculating a city’s crime rate by asking criminals how many people they robbed and murdered last month.


“Some of these apartments had been occupied for 20 or 30 years,” says Jay Martin, executive director of the landlord group the Community Housing Improvement Program. “They need gut renovations. Some have asbestos in them, some have lead.” But Linda Rosenthal, chair of the New York State Assembly Committee on Housing, is dubious. “I went into one of those units,” she tells me. “Turns out it needs a coat of paint, maybe a new bathroom sink.” (Rosenthal has proposed the End Warehousing Act of 2021, which would impose penalties for holding apartments vacant for longer than three months.)

If you live in New York, you might want to call your state reps to support Ms. Rosenthal’s bill.


I have no proof that apartments in these towers are being warehoused and acknowledge that such a thing may seem counterintuitive in today’s allegedly red-hot market — or any market. But if demand for expensive units is softer than we’ve been led to believe, I wonder if landlords could be hiding supply to keep their rents up. Why not just list all of their vacant apartments, even if that depressed prices, since collecting some rent is better than collecting none at all? Maybe because owners take out large loans to develop these buildings, and their lender agreements often require that they charge minimum amounts. This is also the thinking behind the deliberately confusing “net effective rent” scheme whereby an apartment’s advertised price includes prorated rent-free months to soften the blow of its actual (potentially lender-mandated) asking price.

What I said about balloon payments and lending banks. ↑


But then, in October, ProPublica published what seemed like evidence of an actual conspiracy. It turns out that some landlords have been using the same software to do some very interesting things.

The app is RealPage Revenue Management Software, it’s made by the Texas-based company RealPage, and allegedly it works by collecting private pricing and inventory stats from competing building owners and then using that data to give them each recommendations for how to price their available apartments such that nobody undercuts the others.

Some argue — including the plaintiffs of over a dozen class-action lawsuits filed in the wake of ProPublica’s story — that RealPage’s software allows individual landlords to keep their hands clean while indirectly colluding to inflate prices. In 2021, a RealPage executive bragged at a conference that his company’s algorithm was responsible for rent increases nationwide. “I think it’s driving it, quite honestly,” he said, according to the article. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”

There ARE things that can be done to fix this, fines for wharehousing and the like, but they need to be made law.