If you want to rent an apartment in Austin, Texas, you'll find a lot of options. There are 40,000 apartments under construction in the city, which is 14% of the existing inventory in the city.
Austin is not the only city seeing a multifamily surge. Across the US, 416,500 new apartments were delivered in 2023, the highest level recorded since 1996. This year, among 900,000 under construction nationwide, 440,000 multifamily units are expected to complete.
This dirge of new apartments has impacted owners’ ability to sign new residents. Lease-up activity has slowed from an average of 15.3 leases a month in 2022 to 11.7 in 2023. For this whitepaper, Jesse Schmidt, Senior Vice President of Sales at TheGuarantors, and Angela Ferrara, Executive Vice President of Sales and Leasing at The Marketing Directors, shared their views on 2024’s multifamily lease-up challenges and some of the solutions that can help owners and operators nationwide.
“In some markets, everywhere you look there’s a crane,” Angela Ferrara said, who advises multifamily developers operating as on-site leasing and sales specialists. “New buildings bringing thousands of apartments are saturating these markets and we have seen occupancy levels for stabilized properties drop, from the high nineties to the low nineties.”
Alongside elevated interest rates and a significant wave of loan maturities over the next three years, this is creating a challenging environment for many multifamily owners, Jesse Schmidt said. Rents have begun to dip in some markets while construction and operating costs remain high.
“Competition for renters is starting to heat up,” Schmidt said. “Given the level of supply, renters have the ability to be more selective as they approach renewal, especially since rents are no longer rising as they have been.”
Although the flood of new supply is set to ease later in 2024, what can a property owner or operator do right now to improve their chances of securing renters and protecting their bottom line? Let’s dive into how you can accelerate lease-up velocity and stabilize your new property faster.
Research market conditions
Owners should research how their property fits within their individual market, especially if they own a luxury building, which is particularly oversupplied. In Philadelphia, for example, of the 11,400 new apartments delivered between Nov. 2022 and Nov. 2023, nearly 80% were in the four- or five-star category.
But while some cities undoubtedly have too much supply, that doesn’t take away people’s appetite to rent, Schmidt said. High interest rates for mortgages mean that renting is still more affordable than buying for young people and they enjoy the flexibility it provides.
Ferrara said that despite the increase of people working from home, desire to be in cities such as New York hasn’t dimmed. This gives multifamily developers opportunities to market properties to a wide pool of people.
“In the past, a renter would want to live in a certain area and would likely stay there,” she said. “Now we’re seeing people move around to get the newest property at the best price, probably fueled in part by residents working from home some of the time and the fact that the attraction to new construction outweighs the desire for a particular neighborhood. They will go from Brooklyn to Queens or other areas of Manhattan.”
Look out for fraud
Today, estimates suggest that one in eight rental applications contains some kind of fraud, such as falsified bank statements or paychecks. As the rental process has been digitized, it has become easier for fraudsters to exploit the system.
“Unfortunately, multifamily is increasingly targeted by fraud,” Ferrara said. “Thankfully, there are technology platforms that can screen more effectively than relying on someone’s ability to detect a fraudulent document. For most of these platforms, documents need to be uploaded directly from a bank or payroll portal so if documents are manipulated, it will be detected.”
TheGuarantors’ Rent Coverage is an additional layer of screening for property owners and operators. The solution’s risk model looks at thousands of variables to predict renter default with 89% accuracy. If fraud does happen, TheGuarantors covers losses from rent defaults and vacancy to lease breaks and unpaid utilities.
Have the right amenity package
The operators who are ahead right now are those with the highest quality product and top-level service and amenity packages, Ferrara said. Given the level of competitiveness, if a property has a substantial amenity package and offers concierge services and community events to bring people together, that’s what many renters are choosing.
“Events programming has taken a step up,” she said. “Before, a property might organize a wine and cheese night but now it might be a trip somewhere, sponsoring a sports event or working closely with influencers and local chefs to create a meal in the demonstration kitchen. We’re thinking outside the box to attract a diverse range of residents and create a persona for the building.”
Operators increasingly rely on gathering good property reviews, Schmidt said, and these types of programs can help spur them.
Amenities offering easy financial solutions, such TheGuarantors’ Deposit Coverage, are also in high demand. Allowing renters to pay a fee in lieu of a traditional security deposit improves their move-in experience while protecting the operator against damages. It also broadens the pool of potential renters as they no longer need a substantial cash deposit.
Both Rent Coverage and Deposit Coverage from TheGuarantors come at no cost to the owner or operator; the renter pays a fee and the property is insured against default, damages, and more.
Work with the right tools and partners
Many operators are implementing technology to differentiate their properties, such as software to engage with the community, Schmidt said. There has also been a big push for centralization to boost operational efficiency. An owner might use AI tools to drive down the time it takes to book a potential renter in for a viewing or create a more seamless maintenance process.
One example is TheGuarantors’ Zero Gap Renters Insurance. Once a resident is in place, this tool streamlines and automates renters insurance compliance, which takes a resource-intensive job away from the operator and ensures residents meet requirements with a compliant renters insurance policy.
“Finally, technology can help with operators’ finances,” Schmidt said. “As rents have plateaued and costs have risen, it is even more important to mitigate bad debt and improve efficiency.”
Developers that The Marketing Directors works with use TheGuarantors instead of accepting personal guarantors for renters, which not only removes a time-consuming vetting process but minimizes losses from issues such as rent default, holdover, vacancy and damages.
“TheGuarantors is getting wider interest from clients who see we’re a one-stop-shop for insurance-related matters,” Schmidt said. “Vendor consolidation is a strong trend, as it takes time to onboard a new vendor, integrate and set up training for on-site teams.”
Schmidt gave the example of TheGuarantors’ partnership with RXR, a New York multifamily operator. The company’s products helped them accelerate the lease-up of The Willoughby, a luxury property in Brooklyn, reaching stabilization in 12 months, six months ahead of schedule.
Be open to new renters
Despite the high competition for tenants, many property owners still use traditional screening methods to approve a potential renter. This is limiting their options.
“In many cases, the people looking to rent apartments might not qualify in the traditional sense but would be excellent residents,” Schmidt said. “They may be self-employed and though they have money in the bank, it doesn’t yet show on their tax return. Or they could be freelancers, students, recent graduates or non-U.S. citizens. This is particularly the case in the luxury multifamily market.”
TheGuarantors allows an operator to accept a wider pool of renters by using detailed algorithms to analyze the risk posed by a renter and protecting the operator from rental income loss.
”A significant segment of the market that our developers have struggled with in the past is the foreign student market,” Ferrara said. “TheGuarantors has filled that gap by providing coverage. As a result, our developers feel protected and the student market which was once highly concentrated in certain areas has expanded across numerous markets.”