Patio furniture, a trip to the Caribbean, a flat screen TV. Wedding presents? Housewarming? Hardly. Welcome to apartment leasing 2005. These are marketing tactics offered by multifamily owners and management companies whose applicant pool is no longer persuaded by "free" rent. It represents a new turn for apartment firms as they learn to become better marketers and observers of local demographics. Concessions have historically been a lure, but in a market environment where even four months' "free" rent still produces only a negligible number of leases, multifamily owners and operators must better understand the demands of their prospective residents.
"You've got to differentiate yourself from competitors, and that goes beyond free rent," says Mark Fogelman, president of Memphis, Tenn.-based Fogelman Properties, whose management division oversees 16,000 units in the Midwest and Southeast.
Fogelman has certainly used the concession approach himself—right now, he's offering as much as three months' free rent spread over the lease term—but he's also trying some new tactics. Fogelman began giving away Apple iPods, bought in bulk by the company for $100 each, to anyone who leases an apartment. Why an iPod? It was modestly priced and the packaging was upscale, he says. It worked, too, boosting the number of applicants at one property.
"We focus on luxury items that prospective customers wouldn't buy out of discretionary income, like a flat-screen TV, DVD [player], or a $500 gift certificate to Home Depot. The idea is that prospective residents would be willing to pay a higher rent to receive a gift or promotion that they wouldn't buy until Christmas," Fogelman explains. "As markets are stabilizing, we're trying to wean customers off large monetary concessions and gradually replace them with lower concessions on rent or a gift."
Last summer, he says, new renters were presented with two season tickets to a minor-league baseball team. The total cost was $400. "We offered two months' free rent or one month and two tickets, and most residents picked the tickets. They didn't mind paying the extra rent because the tickets allowed them to treat themselves to something they wouldn't expect to get." Fogelman figures that combining a month's free rent with a gift that costs as much as $300, in some markets, is a savings to him.
At apartments managed by Boston-based Corcoran Jennison Management Co., Lisa Knab Baum, the company's director of marketing operations, offers a reduced security deposit, as low as $99, depending on the applicant's credit scoring, as well as a "look and lease special"—a reduced security deposit if the applicant leases on their first visit to the property. "You lure them in based on excellent references, like good credit. If it's not so good, they pay half a month's rent. This doesn't affect my net operating income, and it's still an incentive," says Knab Baum.
Like other companies, the kind of concessions Corcoran Jennison offers are driven by the market—a reduced security deposit works in Georgia, North Carolina, and Maryland, but not in other locations. "Free rent they forget about or lose sight of its value in some markets, but they don't forget a gift certificate for something tangible, like a TV/DVD unit or a gift card to WalMart," Knab Baum says. "That's got greater value for them." Corcoran Jennison also offers a drawing for a high-definition flat-screen television if tenants move in by a designated date.
In Texas and elsewhere, Corcoran Jennison recently introduced a rewards program that offers residents coupons that they can use once monthly to reduce their rent. It's an effective effort, particularly for leasing units that are otherwise hard to rent, the company says.
Concessions are up to four months' free rent in weak markets for Lane Management Corp., which manages 30,000 units mainly in the Southeast, but gift certificates and a painted accent wall in a unit has been a successful draw, according to Angela Smith, a senior vice president at Lane. While a free microwave may work in some markets, a free stacked washer and dryer (which the company buys in bulk), wrought iron or PVC patio furniture works in another. "At the end of the day, price is an issue today," Smith says. "People are smarter and more educated than 10 years ago, and they're price-conscious, too."
—Barbara Kreisler is a freelance writer in Manassas, Va.