The game: Let’s Make a Deal. The prize: a two-bedroom apartment, plus a free car. The teams: leasing agents vs. renters.
Except that it’s not a TV show. It’s reality. In the multifamily sector, concessions have reached creative (or drastic, depending on who you talk to) new heights.
The reason is the marketplace. According to a REIS second-quarter report, apartment vacancy rates nationwide have risen to 7.6 percent. The New York-based real estate analysis firm says it has not recorded such high levels since 1987. And to add more gloom to the market, both asking and effective rents have declined 0.6 percent and 0.9 percent, respectively. These depressing realities have caused some property managers to either slash rents or offer massive concessions—sometimes as much as three months of free rent— to lure new residents.
“Long gone are the days when property managers could pick who moved into their properties. Now, they are scrambling for residents,” says Dallas-based real estate consultant and certified property manager John P. Lee. “It has truly become a renter’s market. It doesn’t matter what kind of property it is—conventional or affordable. We’re all hurting.”
Toni Portmann, CEO of Dallas-based CAS Partners, agrees. “Most owners are finding it necessary to offer concessions,” says Portmann, whose firm manages more than 180,000 units across 31 states.
Right Deal, Right Place
Still, concessions vary by market. Despite softening rental fundamentals, some metros have been able to remain stable, even slightly increase rents. According to RealFacts, a Novato, Calif.-based apartment data firm, Tampa, Fla., Kansas City, Mo., and San Antonio all saw modest increases in average rents this year, ranging from 0.6 percent to 1.2 percent. Although rents have not increased in upstate New York, president of Latham, N.Y.-based Sunrise Management and Consulting Jesse Holland says the region has been able to remain stable.
“The market changes weekly, but we have not seen more than a month of free rent. It just depends on the market,” he says.
Other regional standouts include the Washington, D.C., metro area. McLean, Va.-based Kettler Management says the D.C. metro has been pretty steady with lease-ups. “It varies by submarket,” says Karen Kossow, Kettler’s vice president of sales and marketing. “We are offering concessions on some of our properties to remain competitive, [but] we have not taken the more drastic approach of offering two months of free rent and a year of free parking. We’ve had success offering promotions such as up to $5,000 in gift cards.”
Portmann disagrees. “People only care about how much they have to write in their checkbooks. There is only one thing that has been working, and that’s real money,” she says. “We have done research, and gimmick concessions don’t work. If you offer someone two months of free rent spread across a 12-month lease or a free laptop, more than likely, he or she will take the free rent.”
And real money seems to be where many communities are trending. Winn Residential’s Mystic Place Apartments in Medford, Mass., currently offers qualifying rental applicants a package that includes no security deposit, all utilities included, and one month of free rent. Axiom at Capitol Yards, a luxury apartment property in Washington, D.C., offers renters up to three months of free rent.
Going Too Far
What worries most property managers, however, is the extent of the deal. Concessions are great for luring in new renters, but what about lease renewals? Portmann says that it is important for property owners and managers to stay consistent and offer the same deals to new and existing renters.
“You have to remain stable. You don’t want to run the risk of your residents saying, ‘Hey, I got two months of free rent. What did you get?’ or ‘I only had my security deposit waived; that’s not fair.’ You don’t want them comparing notes,” Portmann explains.
In some cases, existing residents have called the leasing office in disguise to negotiate new leases and snag the same deals as new residents. Despite this, Kossow says Kettler has been able to scale back on concessions successfully. “It’s about looking at our supply and demand and seeing how much we can scale back,” Kossow adds.
Whether or not this concession trend continues, most property managers remain optimistic. “When the economy improves, then concessions will lessen and ultimately go away,” Kossow says.
Portmann’s not so sure: “We have to accept that concessions are a fact of life. It is now an expected business practice, [and] it won’t be changing any time soon.”
Amber V. Smith is a freelance writer living in Washington, D.C.