With Increase in Demand and Supply, Apartment Industry Going Strong
Much has been written about the real estate downturn and what it means for homeowners — but what do all the changes mean for the rental industry and for tenants? It all depends on whom you talk to, but for the most part rental life if thriving because of a large supply of apartments coupled with a constant demand from tenants.
For many apartment dwellers, renting is a stable alternative to the daunting world of unsteady mortgage rates and resale values. That’s partly because back in early 2007 — when a flurry of developments throughout the Washington area had turned a condo frenzy into a condo glut — a number of investors and developers decided to convert their once-promising condominium projects into apartments. The idea was to cover costs with tenants while waiting for the surplus to whittle down.
Now that the supply has whittled, several factors are keeping a full recuperation of the condo market at bay — for a while, at least. The main reason: Many would-be homebuyers have decided to sit tight in the face of an unsteady economy, job insecurities and turmoil in the mortgage industry.
A recent study from Delta Associates shows that hesitant renters may have another important reason to wait out the housing market. An explosion in rental units, many of them a direct result of condo conversions, has kept monthly rents from getting too high. The vacancy rate at area rental properties is 4.5 percent, compared with 2.9 percent at the end of 2006. Meanwhile, rental rates have increased just 1.8 percent on an annual basis, the smallest increase in five years.
“Demand for apartment residences is holding up relatively well despite the weakening job market and sluggish economy,” said Mark Obrinsky, chief economist at the National Multi Housing Council, an apartment trade association.
And although the foreclosure crisis means many former homeowners are joining the ranks of renters for the first time in years, the apartment sector has not been negatively affected by a flood of dispossessed homeowners with poor credit, as some had feared would happen. In a national study released by the National Multi Housing Council in July, less than 6 percent of rental applicants had a record of being 90 days past due on their home loans or in default on their mortgages.
In fact, the only thing outpacing demand these days is the number of available units. The area’s rental supply is the largest in years, and some 20,000 additional units throughout the region are on the way.
“On the one hand, it’s a great time to buy because interest rates are so low and prices are fabulously competitive,” said Jamie Gorski, chief marketing officer and senior vice president for Kettler, one of the area’s largest developers of apartments and condominiums. “But many people are still concerned about what will happen.”
For these folks, Gorski says, a record number of rental properties on the market means tenants can find a number of deals in prime locations that didn’t exist a few years ago.
“Many people are worried about the economy and their jobs and are choosing the rental route because of that,” Gorski said. “It’s certainly a place to go now. There are specials and concessions in the rental market that didn’t exist before.”
Indeed, the bloated supply of rental properties means bargains for brand-new tenants. In many cases, investment owners who couldn’t sell at a profit have become first-time landlords and are willing to lower prices or offer incentives to get their units occupied. Even the area’s largest management companies are offering special deals to lower vacancy rates and attract good tenants.
Kettler is offering a number of promotions to bring new residents to its properties throughout the area (also see related sidebar). At the Metropolitan at Largo Station in Maryland, for instance, new renters can choose between a free flat-screen television or two months’ free rent. At the Lofts at Park Crest in Virginia, another Kettler property, one optional incentive is a ,500 Williams-Sonoma gift card.
In recent postings to Craigslist, a popular online classified site, a number of landlords are offering as much as two months’ free rent if tenants sign a one-year lease. Some are also throwing in incentives such as free gym memberships, parking spaces and gas cards.
There are some gloomy spots amid all these incentives though. Thousands of unsuspecting tenants who thought they were safeguarded from mortgage woes are being plagued by faltering home loans through no fault of their own.
That’s because their landlords were individual real estate investors who bought before the condo boom went bust. When it became clear that flipping investment properties wouldn’t be profitable, they rented them out. When they couldn’t keep up with the mortgage payments, they foreclosed. And when they foreclosed, lease agreements often became void. For many tenants, this meant unexpected eviction notices and security deposits that were never returned.
So if you’re wavering between renting or buying — or if you’ve already made the decision to wait out the market a while longer — try these tips to make sure you avoid hassles and get the best deal:
Find out about protections before you rent. Safeguards against upheaval caused by foreclosure evictions vary from state to state. D.C. law, for instance, allows renters to stay put and pay rent to the bank after a house is foreclosed on. The only way they can be evicted is if the unit is sold and the new owner decides to move in. But in Virginia, new owners of foreclosed properties have more leeway in how and when they can force tenants to leave.
Consider lease-to-buy programs. Although the specifics vary, this option allows renters to lease a property that they can buy later. “In the market today, there are some really good advantages to lease-to-buy programs,” said Kettler’s Gorski. “This is a fabulous option for someone who’s unsure but would really like to buy. You can go ahead and lease and then a portion of your rent will be applied to the purchase price.”
Decide ahead of time if you’d prefer to rent from a management company or an individual owner. Both have their strengths in today’s market. An individual owner is more likely to take pride in the property as an investment and pay more attention to problems. On the other hand, larger management companies typically have in-house maintenance staff and policies to ensure timely repairs in a manner that many individual owners can’t provide. Dealing with a large corporation can also be more reliable than an individual landlord, though the opposite can also be true in some cases.
Plan ahead for moves. The surplus of rentals in today’s market means that companies like Verizon and Comcast are flooded with setup requests. As a result, many new tenants are spending their first month in a new apartment without Internet service. Make phone calls as soon as you know you’re moving — even if it’s weeks down the road — to minimize delays. On the bright side, given the competitive market, phone companies and Internet providers are constantly trying to one-up each other with deals and promotions.
An oversupply in the local rental market means that a number of properties are offering concessions and incentives to attract prospective tenants. Here are some of the area’s top apartment deals:
Kettler, one of the area’s largest housing and land developers, is offering a variety of incentives at its properties in Maryland, Virginia and the District, such as two years of free Metro passes at the Monarch in Alexandria, Va., and a free iPod, iTv and iPhone at the Gramercy at Metropolitan Park in Arlington, Va. “We always try to do interesting promotions, and then it’s up to the individual to decide what works best for them,” said Jamie Gorski, the company’s chief marketing officer and senior vice president. www.kettler.com
Archstone is waiving fees and, in some cases, offering freebies at a number of apartment complexes throughout the region. At Archstone Fairchase in Fairfax, Va., new tenants who sign up in September can have all application and administrative fees waived and receive a portable DVD player or GPS navigation system, depending on the unit leased. www.archstoneapartments.com
JPI apartment communities has posted online coupons in recent months for discounted rental rates and special offers. Tenants who moved into Jefferson at Inigo’s Crossing in North Bethesda, Md., in June and July, for instance, were offered two months’ free rent and free parking. www.jpiliving.com
Riverstone Residential Group, which has apartments in D.C., Maryland and Virginia, is promoting offers such as the first month of rent free and 12 months of free utilities. For a recent special at the Amberleigh in Fairfax, Va., the company offered the first month free plus another month’s rent prorated over a 12-month lease, plus a full year of free electricity, water, gas, trash and sewer that it set up before move-in. www.riverstoneres.com
Fenestra Apartments in the newly built Rockville Town Square community in Maryland is offering two months’ free rent on all available units. www.fenestraapts.com
The Bozzuto Group, which owns dozens of properties from Frederick County, Md., to downtown D.C., has been offering specials in recent months, such as 0 off the Arbors at Broadlands in Virginia and free parking at Strathmore Court in North Bethesda. www.bozzuto.com
About the Author
Heather Mueller is a contributing writer for The Washington Diplomat.