Beyond free rent: Innovative ways to cure occupancy woes, responsibly

According to NAHB data, approximately one million multifamily units are currently under construction, the highest level since 1973. With a record number of units coming online this year, many multifamily owner-operators across the country are exceeding their budgets with rent concessions in an effort to boost occupancy. TheGuarantors’ own Christy Metz, VP of Strategic Accounts, believes there’s a more sustainable way to achieve the same goal, while creating more diverse communities in the process. 

The nationwide rental oversupply

Multifamily veteran Metz gave an overview of how oversupply is affecting the rental landscape around the country. From new construction to office-to-residential conversions, this rise in rentals is creating a renter’s market in many urban areas. “It’s basic economics,” she explained. “Whenever there’s an uptick in supply, rent growth slows or becomes nonexistent.” She pointed to Austin, Charlotte, Miami, Phoenix, and Jacksonville as places where the growth in supply is putting downward pressure on rents. “For example, Austin is going to add 16,000 new units in less than a year. With all these new choices, many are struggling to even get to 94% occupancy in this market.”

Austin is a good example because the influx of new rental units is a leading indicator of overall growth; as more companies move to the city, slowly but surely, workers follow. “This will correct itself,” predicts Metz, “so for owner-operators, it’s about surviving until that correction happens.”

The speed with which new rental units can be delivered fluctuates by geography, meaning that these oversupplies are more common in the Sun Belt states and the South, where construction can take place year round. On the other side of the coin, Metz describes rental unit growth on the West Coast as “notoriously slow,” with delivery times stretching well past the two year mark. 

Owner-operators turn to rent concessions as a quick fix

Owner-operators staring down a regional oversupply, however temporary, face a series of challenges that many are struggling to effectively grapple with. “It really comes down to understanding what part of the leasing journey you need to impact with your actions,” explains Metz. “You need to know what’s happening in your backyard.”

Metz laid out a series of questions that owner-operators should be asking themselves when attempting to increase their occupancy. “At the highest level, you need to know the math of how many leads you need to convert each month,” she says. "And subsequently, what do you do if you’re getting the leads but they aren’t converting?”

In a renter’s market, it becomes the owner-operators’ job to set themselves apart from one another. The rise of rent concessions in the last year shows that many owner-operators are taking this approach to attracting renters. While she isn’t opposed to concessions as one option, Metz sees the downside to using them as a first choice. 

“There’s a lot of pain because, toward the end of 2023, many owner-operators’ budgets got used up, and they had to reach into their pockets to support those concessions, because the lift in demand did not come,” says Metz. “Although concessions per unit have stayed stable, the percentage of units offering concessions has continued to rise since early 2023. I think owner-operators need to look at ways to offset these costs, because they’re basically reducing your effective rent.” 

It all comes back to understanding the leasing journey and finding the pain points outside of mere cost. That’s where TheGuarantors can begin to help.

An alternative to concessions

TheGuarantors offers a variety of products aimed at streamlining the leasing journey for both parties, with the end goal of turning “no” into “yes” for as many rental applicants as possible, while minimizing risk for owner-operators. Their team’s solutions provide  a range of options that bolster not only the bottom line but the health and diversity of a given community. 

“It starts with the simple concept of demand,” says Metz. “You want to make the leasing journey easy and desirable for all renters, not just those who have easy-to-qualify W2s.” 

For example, one major barrier to hitting occupancy goals are potential renters whose applications are rejected based on their credit history or income, despite them actually being able to afford the unit. 

“The fact is that only about 20% of consumers have a prime credit score,” explains Metz. “Multifamily needs to take a closer look at how to remove the friction caused by nearly 35% of consumers who want and need to rent, but are turned away by the need for extra deposits, not meeting owner-operators’ application criteria, or having to ask a family member to be a guarantor.”

Two examples of potentially risky renter subsets that Metz gives are freelance workers and international students. TheGuarantors’ lease insurance products mitigate the financial risks of these renters by providing a surety bond that insures the owner-operator, giving them the ability to accept these renters into their communities without taking on a potentially disastrous loss of revenue.

“Case in point, Equity Residential uses TheGuarantors as their commercial guarantor for renters that come back from screening with subprime credit,” says Metz. “We insure all the renters that would otherwise be conditionally approved or denied, allowing them to quickly collect on their bad debt, simply by filing claims with us. As a result, they have been able to recoup 76% of their bad debt.” 

Not only does TheGuarantors help turn a “no” into a “yes” at the application step, they also offer owner-operators services that help differentiate themselves from the competition without the hit to their bottom line that comes along with rent concessions. 

“For owner-operators, success in a renters market comes down to making smart choices to responsibly keep your costs down,” says Metz. “We provide products that allow for sustainable, long-lasting protection, no matter the market conditions.” 

The end result is not only increased accessibility for a wider pool of renters and higher occupancy for owner-operators at lower costs, but more diverse and robust communities. ”We’re promoting diversity while creating an environment of protection and de-risking operations for owner-operators,” says Metz. “It’s a way of being able to open doors while making sure that the bottom line isn’t being chipped away at by things that are coming out of left field.”

To learn more about how TheGuarantors can help you navigate this rental market, email moreinfo@theguarantors.com.