Rent Increases & Concessions Part Four


Before we delve further into the issue of concessions, I want you to keep in mind that offering concessions is a form of rental rate based leasing—and I don’t mean in the positive scenario we discussed a short while ago in which your rental rate can be used as a competitive advantage when framed within all of outstanding, overall lifestyle opportunities and values it includes—but rather in the negative sense of lowballing your rental rate to undercut the competition and close a lease. Concessions are the diametric opposite of value-based leasing.

Here’s the bottom line: when a Leasing Professional offers a concession on an apartment, it takes the focus off of the value of the community and the apartment and places it right on the rental rate. There is no way to escape that. To maintain higher rental rates, the Leasing Professional must be skilled in leasing based on value; and concessions erode the ability to do that.

Not only does a reduction in rental rate mean—in simplest terms—less NOI, but it also does damage to your apartments and community by harming your reputation and, in essence, undoing your marketing efforts, as well. It also has a strong negative effect on the leasing process because using a concession to turn a prospective resident into a resident means that resident is very likely to stay focused on the rental rate as the primary factor in in the buying decision; and getting that same resident to stop thinking about rental rates and re-focus on value when renewal time comes, can prove to be very difficult. Not only that—studies show that concessions often actually reduce the length of time a resident will live in an apartment. Basically, concessions are the opposite of your primary goal to increase NOI.

To concede or not to concede … that is the question.


Given what I just said, you’re probably wondering why I’d even ask the question of whether or not to offer concessions; but the truth is that I’ve had to, and you may, too. You’ll certainly have to function in situations where competitors are offering them; and that’s just one reason why a better understanding of the issues surrounding concessions is important to any Leasing Professional who wants to lease and renew more effectively and at higher rents.

I wrote an article a while ago that railed against the evil of offering concessions. Actually, it was more of a rant than an article, but you can believe that I meant every single word of it. The truth is that at the time, I was face to face with a tough decision to toss my convictions aside and offer concessions at McNeil House (the first apartment community I built, 193 units in Austin Texas), or continue receiving only three or four new leases per week, while around twenty new apartments per week were completing construction and ready to lease.

Anyone who knows me, personally or professionally, can attest that “concessions” is practically an expletive in my vocabulary. Choosing whether or not to offer them in my very own community was probably the toughest decision I’ve had to make as a developer—well, the second toughest. The toughest was whether or not to build in the first place!

The fact that I had to approach the issue from all angles, or even approach the issue at all instead of dismissing it without a second thought, opened my eyes a quite bit to the many factors involved. Now, don’t get me wrong—I’m still up on my same old soapbox. Concessions are NOT the answer to your occupancy problems. The whole reason why communities and communities offer concessions or incentives is to gain a competitive advantage, right? So, let me ask you this… if everyone in the market is offering concessions, then where’s the advantage?

It only puts us all right back where we started, on a level playing field. We all end up giving away the farm rather than educating our prospective residents and residents, and playing the never-ending game of one-upsmanship that some of us have been trapped in since time immemorial. Concessions are one of those things that works well in theory, but actually creates a world of, well, concessions (I was going to use a four-letter word there, but the one I used is worse).

Hey, I understand that there’s something to be said for a level playing field, but remember when Mom used to ask, “If all of your friends jumped off of a cliff, would you do it too?” Mom was giving you some amazingly valuable marketing advice there, and you didn’t even know it. My experience with McNeil House has given me a much clearer understanding of the facts that have to be carefully considered where the concessions issue is concerned. If you find yourself in a similar situation, I hope you’ll take the time to consider these factors with an eye for the “big picture”.

I had to think, and rethink the issue before making my final decision, and I’ll let you in on all the factors that I considered and the steps that I took to sensibly approach the issue of offering concessions. Would I do it all over again? What would I change? What did Lori (the community manager) have to say? What kind of concession did we finally settle on?

The Community Manager’s last words were “I have learned a lot!” When asked if she would do it all over again, her response was “People can’t believe that we leased all those first apartments without concessions, but I would give the concessions the next time around instead of waiting until we had vacancy loss.” When reading her response, understand that we were in a lease-up situation.


As for our decision, we first decided to offer the market standard one-month free on a one-year lease, and 2 weeks on a 6-month lease. We quickly adjusted that to $500 on a 6-month lease and $1000.00 on a one-year lease (which was less than a half a month’s rent and a month’s rent, respectively).


We only offered concessions only on floor plans with the highest availability. In addition—and this is key—we continued to adjust our rents upward as we leased apartments. We actually charged more for a one bedroom floor plan then we did for a two bedroom floor plan.



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