You and I are part of revelation that is not only happening on a global level but on a local level as well. The nature of our business is changing and transparency, authenticity and integrity, I believe, are chief in the movement. Yesterday I observed the following Tweet over on Twitter;
@aptratings: Need ideas for an interview about how renters who are in a financial pinch can approach their landlord to re-negotiate rent.
My gut reaction was less than ideal and filled with expletives. It hit my value system. The first question out of my mouth was, where did accountability go? Does, honor your word carry no weight in the world? And, to have a company like aptratings.com solicit information on negotiating rent rates is just appalling to me.
Jeremy, why should owners/investors/operators renegotiate rent? Why should that burden fall on the stakeholder? What is your underlying premise? Why would you advocate such an idea? I am really trying to understand this one from your perspective.
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I think renegotiating rent should only be used as a last resort. The idea of renegotiating rent on a troubled asset could be just what the doctor ordered in todays climate.
If the site is experiencing slowing traffic (winter and economy being factors) while coupled with increasing delinquency resulting in a spike of evictions renegotiating may be the only option.
Keeping people in their apartment lowers expenses and lowering expenses is exactly what is called for in todays environment. Renegotiations could especially be effective on an asset that is made up of predominantly service class middle to low income workers who don’t qualify for public assistance. The lower end of the wage pool that still makes to much to qualify for affordable housing will more than likely be hit hardest during the down turn. Lower tips in the service industry combined with declining hours will lead to residents missing rent payments.
If the owner finds himself in this position evicting large numbers of people from the asset only to have apartments sit vacant and incur more expenses through attorneys and the inevitability of bad debt write offs could put the asset in a more gregarious financial pinch.
Renegotiated rent payments, while hitting the bottom line in the short term, could keep an asset solvent for a longer term should this downturn in the economy worsen. The last thing an owner wants is a cash call on a troubled asset while his/her other investments are already depressed. Diminished returns on an investment are far better than that investment bleeding your other capital just to stay afloat. This would be especially true if said asset had been a cash cow in the booming economy and a steady earner in a bearish economy. Times like this call for drastic measures!
Anyway that is my take Mr. Brewer.
Hey Mike, sorry if this Tweet was received the wrong way– we didn’t come up with this story. A major news org thought of it and contacted us for an interview.
Who knows if renegotiation would work for most renters. I guess if I were an owner, I’d hope that renters who are really in a bind would at least give this a try before they declare bankruptcy or miss rent and skip town.
Maybe an option for the property is to to create a “retention concession” where you abate rent for a period of time (say 10%-20% of rent), but then automatically escalate it again in 6 or 12 months. If the renter vacates before the end of the period, then they have to pay it back or deduct from their deposit (not sure if that’s legal). Just trying to think of what the renter would think of as most fair.
If you have any thoughts about “the right way to ask” those would be appreciated.
-Jeremy
Interesting thoughts here on an emotional topic. I can only add two or three things:
1) All of life is a negotiation. Lord knows the people who build and buy multifamily assets negotiate absolutely as hard as possible to get the returns they need for investors. “Re-trade” is a popular verb in our industry for a reason.
2) We’re going through a historic, (hopefully) once-in-a-lifetime economic reversal that is costing people jobs and economic security left and right. If the choice is between renegotiation and people walking out – hey, let’s take the lesser of two profit squeezes.
3) Part of what makes re-negotiation scary is wondering whether it’s a bottomless pit. How much gain-to-lease is there in my portfolio? In San Francisco when the tech bubble crashed, that number was more than 20% in some cases as the one-way U-haul trucks fled town.
Companies that use rigorous demand tracking and/or revenue management systems don’t have to stare into that abyss wondering how deep it is. They have data that takes the emotion out of pricing the next lease or that retention concession. It’s just business after all. (And as Mike has pointed out already, more information about revenue management in the apartment business is available at MultifamilyRevenue.com.)
Mike, Good Morning
This sort of reminds me of the friction between management and employees surrounding pay. It is management’s job to negotiate the best deal, which means something lower than what the employee may want. When management does that, they are just doing what management is supposed to do. I kind of see that Aptratings.com as doing the same thing here. It is naive to think there aren’t “sides” here
However, the fact that there is a conversation herein, which both “sides” are participating, is outstanding, and one in which we should all embrace. It does not and should not ever be us against them, as nothing gets resolved or moves forward that way.
I,You and the others participating here from the property management side are ready to help lead the way too productive and effective solutions to a better Resident Experience. I bet that isn’t so far off of what AptRatings.com really wants either
we are seeing this in our market. Renters are signing leases and coming back in 6 months asking for a rent reduction. Some owners are giving it to them too. Most seem to be looking at it as it is better to have a tenant that pays but pays less, than no tenant at all
Myrtle Beach Condos,
Thank you for taking the time to comment.
I can see both sides of this when I step back and think through the alternatives. I still have a hard time siding on reducing rents in the middle of a contract. It’s a fine line.
Have a great week. M
Hi Mike,
You know, as I continue to think this through, ever wonder what would happen if we blew this up and dropped the lease contract time line. Stay if you want to stay, leave when you need to. Why do we TRAP our residents? That what it is. What value does it add? What would happen if we dumped the idea?
E,
It’s counter intuitive to everything we have been taught in the industry. Front in center a predictable income stream.
That said, dropping it could actually increase positive perceptions which could lead to a longer average stay. It could further promote the evangelistic theory of brand promotion.
One thing is for sure, it’s radical – and, I can’t think of a better person to kick it off.
Thank you for the continued explosion of remarkable thoughts and ideas.
M