New York City Rentals : Free Month Incentives and Lowering Base Rents

If you’ve been in the rental market anytime recently, you’ve noticed the talk of net effective rent and the growing prevalence of a free month or two (or three) at the beginning of a lease, and perhaps other incentives like gym memberships. It’s become the reality for hundreds of buildings around the City, with landlords looking to attract renters while trying to level off rent  decreases.

Photo Credit: RaSeLaSeD

Landlords are increasingly offering free months at the beginning of leases, prompting lenders to consider lowering base rent prices

New York City Rentals: Why Offer Free Months?

Landlords dont want to lower base rent numbers, but by offering 1, 2 or even 3 months of “free” rent at the front end of a lease and then amoritizing the savings over the life of the lease, they are effectively doing the same thing. In this market, that is seeming less like an incentive and more like a necessity for doing business.

For landlords, the hope is that tenants will stay on at the base rent price after the first year lease is up in order to stabilize income. With lowering base rents, often not an option because bank lenders have historically not allowed it, landlords are moving toward incentivizing leases and touting the net effective rent rates.

The Real Deal notes, however, that banks may be coming around and realizing that market-rate rent numbers are dropping and that it could be in everyone’s interest to allow landlords to lower base rent rates.

Kevin Ellerton, CEO of Blackstone Properties, explains the situation this way:

“What’s started happening very recently is that the landlords who were dropping rents through lease riders have finally begun decreasing base rents. I take that as a sign that banks are starting to wake up to market reality.”

Net effective rent numbers look great for marketing, but they are a long-term risk for landlords and can get renters into a property they can’t afford in later years.

Lowering Base Rents

Lenders working with landlords to lower base rent rates is the most stable long-term solution for everyone involved, as it keeps cost consistent with market rates and attracts renters who can commit to actual rent prices, rather than incentivized lease terms.

The flood of new incentives will get people into apartments, but it remains to be seen whether those tenants will stay a year from now when that lease is up. The trend by lenders to work with landlords to lower base rent prices, however, has a stronger long-term chance of locking in stable, long-term tenants. Another adjustment to the real estate market after a year of tumultuous change.

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