We are often asked the question as to why landlords “play the game” of free months rent or covering amenities fees. “Why not just lower the rent?” There are good reasons why this is not always possible, the most material of which is bank-related. Most rental buildings are financed by one or more banks that lent them money to be built and to operate. Banks require that these buildings maintain a minimum rent roll, which was the foundation for the project’s valuation to begin with.
Traditionally, concessions such as free months haven’t been taken into account by lenders, so long as the official rents met their standards. Further, the broker or amenity fee usually comes from a separate budget that is distinct from rental income, making it easy for landlords to maintain high rents on their books while lowering the net effective cost of tenants living in their buildings.
In this environment, however, lenders are slowly beginning to look at the entire equation and are slowly coming to grips with the new reality of decreased market rents. This shift will likely give struggling landlords yet another tool with which to attract prospective tenants.
{ 2 comments… read them below or add one }
I really like how you have shifted most of your blog is towards purely residential. It is very helpful and more interesting this way. I wish more local real estate professionals would comment on your blog to even better help and educate all the consumers in our area. I have sent the link to all of my contacts and friends so they can read and enjoy it also. Keep up the awesome job!
lenders had BETTER loosen their standards — wake up and smell the falling rents!