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October 2008

RealFacts Newsletter #201: What’s Happened To Concessions? Posted Thursday, October 9, 2008 by realfacts
September 22, 2008

RealFacts Newsletter #201

What’s Happened To Concessions?

As we work on our third quarter 2008 survey, we have taken time out to do a study of concessions at a client’s request. In the past, many users of RealFacts data have asked about concessions and tried hard to monetize the value of concessions in the market. The difference between asking and effective rents has been an issue important to investors, lenders, and property managers. Current trends in the marketplace, however, suggest that there is less of a gap between asking and effective rents.

It used to be that management would set a rent and not change it until market conditions were so altered that they were forced to change. Concessions or “specials” were the way management adjusted asking rents to reflect current market conditions, but in today’s current market, management uses the latest in marketed intelligence and computer technology to adjust rents in immediate response to changes in the market. We find many property managers are using yield management software—for example YieldStar – which suggests changing rents weekly or even daily in accordance to demand and traffic. This type of software was introduced nearly a decade ago, but it was slow to be adopted because many managers feared the result of residents comparing notes around the pool at the rent they pay. However, today pricing according to when and where you buy something is accepted in almost every market.

It is become a point of pride with some owner/managers to set their rents accurately and reject the notion of “specials.” For example, the largest owner of 100+ units, Equity Residential, never offers concessions. Instead, they have sharp research department that uses all the latest market intelligence to set rents every month for each unit type for each apartment complex. Some smaller companies are following suit by making their asking rents very sensitive to the market.

Thus the days where effective rents were much lower than asking rents seem to be gone. This is the result of a market that is staying well informed and setting asking rents pro-actively.


If you have any comments or suggestions regarding this newsletter please e-mail: denisec@realfacts.com or call 415.884.2480