As Empty Luxury Rental Apartments Pile Up, So Do Offers That May Be Too Good to Be True

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These are discount days for renters, as landlords roll out an onslaught of concessions: promos, discounts, and deals to help lure prospective tenants during the slower cold months and lock down leases. But often, the bargain rates that appear on the ads aren’t what they seem.

A building boom in high-end rental developments over the past few years has yielded an oversupply of new luxury rental units in the nation’s biggest cities. With more units up for grabs, landlords have been offering a slew of freebies, markdowns, and giveaways to beat out the competition and persuade prospective renters to sign on the dotted line. Landlords or leasing agents will often factor these concessions into the advertised rent, making apartments appear cheaper than they really are.

Most landlords would rather give out a free month or two of rent on a lease rather than lower the overall rental rate. That’s because cheaper rents can mess with their bottom line and violate any agreement they may have made with the bank to obtain financing.

So they’ll often offer a free month at the end of a 12- or 13-month lease—and then factor that into the advertised “net monthly rent.” So a $2,500-a-month unit on a 13-month lease would be listed at $2,300 a month, even though tenants would be on the hook for the original rent each month until that free month kicks in.

In real estate lingo, the “net rent” is the amount folks shell out after the concession is applied, while the “gross rent” or “market-rate rent” is the amount they’re actually forking over each month.

Concession confusion

“These concessions can be great, but they can also be deceiving,” says Nicole Durosko, a New York City–based real estate agent at Warburg Realty. “In New York, we tend to see concessions like one, two, or sometimes even three months free [on longer leases]. But what renters don’t always realize is how much they’ll actually be expected to pay per month.”

That’s why they need to ask the right questions.

“Clarify the start and end date of your lease, understand how much you’ll actually be paying per month,” she says. “When it comes to any sort of concession on a rental, you should never sign anything unless all points have been clarified. You don’t want there to be any questions.”

Why builders ended up overdeveloping

Construction pretty much ground to a halt during the housing bust and recession of 2008–09, but it ramped up with a vengeance as the economy has improved. The past three years have been the strongest growth period for new apartment construction nationally since the 1980s, according to Yardi Matrix, a commercial real estate research and data platform.

Financing and legal issues make it easier to develop rental properties than condos, and new buildings tend to skew more high-end than the existing, older rentals.

“We still have thousands of units coming in that are skewed to the higher end of the market,” says national real estate appraiser Jonathan Miller. “The concessions on these new buildings are usually double that of existing buildings.”

These concessions are typically offered by big developers on newer properties—smaller landlords can be hampered by rent control and rent stabilization issues, and may fear legal liability. Plus, they may not be able to afford to hand out fancy freebies, which in some cases go beyond free rent.

In Los Angeles, for example, “you’ll see things like $500 AmEx gift cards, free Wi-Fi, buildings with elaborate Starbucks machines in the foyer where you can get free coffee,” says local real estate agent Kerry Marsico of The Agency. “They’re throwing in things like free parking as well.”

That’s because by 2018, there were more than 7,100 apartments under construction in Los Angeles’s downtown area alone, according to the city’s Downtown Center Business Improvement District. The estimated downtown population is also projected to grow from the current 74,558 to 87,655, according to the group.

“There are now thousands and thousands of units that have to be filled, and buildings have to compete to get people in the door,” Marsico says.

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Source: Housing Trends Feed