Landlords Go All Out
To Woo New Business

Apartment landlords are pulling out the stops on perks.

Faced with ever-higher vacancy rates as more people purchase homes or seek out better rental deals in overbuilt apartment markets, landlords are going to greater lengths to get and retain tenants. Many already had been offering one to two months free rent or discounts. Now, they're retrofitting apartments to accommodate washers and dryers, installing ceiling fans and responding to residents' requests like never before. Free DVD players abound. Some landlords are throwing pool parties and barbecues to foster a sense of community.

One apartment owner, Summit Properties Inc., is even delivering donuts, bagels and balloons to tenants at their jobs to thank them for not moving out. "It's our way to thank them for allowing us to provide housing to them," says Steven R. LeBlanc, chief executive of the Charlotte, N.C.-based apartment company.

Tenant retention is the name of the game in the apartment-building sector these days as vacancies have grown over the past two years across many U.S. markets. The apartment vacancy rate was 5.7% in the first quarter, up from 3.2% a year earlier, according to Reis Inc., a New York-based real-estate research firm. For the year, Reis is predicting a 6.4% vacancy rate, up from 4.8% in 2001.

The renewed emphasis on ways to keep tenants happy represents a marked shift from the 1990s, when landlords were perceived as slow to respond -- or just plain unresponsive. Customer service, some tenants complained, mattered little during the economic boom, when landlords dictated terms. And tenants could easily and quickly be replaced by someone willing to pay even more. But now the shoe is on the other foot.

According to Axiometrics Inc., a Dallas-based research firm, 68% of two million units surveyed nationwide were offering at least one month of free rent to new tenants in the first quarter, up from 32% in 1.8 million units a year earlier.

Getting Creative

To be sure, most tenant-retention efforts can eat away at apartment companies' bottom lines. But company executives maintain that turnover costs -- the cost of sprucing up and advertising a vacant apartment plus the lost rent -- would have an even graver impact on their bottom lines.

And the gimmicks by apartment companies are getting creative. Last month, Houston-based Camden Property Trust launched a contest in which tenants can win free rent for a year. It's called "Live Free ... Just Add Furniture."

Earlier this year, Apartment Investment & Management Co., of Denver, launched a concierge service. Each tenant is assigned their own office employee and maintenance employee to cater to their needs. "It makes you feel safe and appreciated," says Jeanne Ann Farrell, who lives in one of Aimco's complexes in Bradenton, Fla.

Archstone-Smith Trust has a seal of service in which it promises to respond to service requests within 24 hours. The company also is trying to move toward contacting tenants 60 to 90 days before their leases expire, as opposed to 30 to 60 days in the past. "The changing economy heightens the need to accelerate that process," says Dana Hamilton, executive vice president of national operations at the Englewood, Colo.-based company. United Dominion Realty Trust Inc., Richmond, Va., is moving that contact to 90 to 120 days from 30 to 60.

The landlord services don't end there. In the event a renter wants to take advantage of historically low interest rates to purchase a home, some landlords promise to help. Equity Residential, the nation's third-largest apartment owner, is test marketing a program that prequalifies for mortgages renters who want to buy a house. "You're a resident with us, you're interested in buying a house, we can qualify you on a home mortgage," says Douglas Crocker II, chief executive of the Chicago-based company. He says the goal of the program is to "make life easy for our residents. We hope they will [advertise] that they are living with us. That they'll refer their friends to us. This shows that we're providing things other than a roof over their head."

Mr. Crocker maintains the mortgage program isn't in reaction to the strong home sales market. In fact, the company tried a similar program four years ago with a different partner. "You have to face the fact that you're going to have a certain amount of people move out, even if you said free rent," he says. "If a person's going to buy a house, you think, how do I turn the negative into a positive?"

The company also is planning to test a program that offers tenants renters' insurance.

'Differentiate Yourself'

Equity Residential's mortgage program extends a concept that it and a few other companies -- including AMLI Residential Properties Trust of Chicago, BRE Properties Inc. of San Francisco and Atlanta-based Trammell Crow Residential -- have employed in some form or another for years. The concept is commonly known as rent-to-own. They are customer-loyalty theme programs in which renters earn credits on their monthly rent toward the purchase of a home. With any luck, the landlords hope, tenants will be motivated to rent longer in order to gain "points."

"Apartments are a commodity," says Mr. Crocker. "You have to figure out how to differentiate yourself."

But analysts aren't convinced all the bells and whistles on their own are enough. "Every little bit probably helps in this environment but at the end of the day, the key determinants are location, size, price and newness," says Robert Stevenson, analyst at Morgan Stanley in New York.

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