Several years ago, when the apartment market suffered a downturn as home sales soared, multifamily owners and fee management companies learned a hard lesson about rental concessions.  They had freely offered rental concessions such as low or no security deposit amounts to aggressively market a unit only to find themselves poorly protected against losses due to damages or lost rent.  This trend had wreaked havoc with their company’s NOI.

Meanwhile, the marketing pressures to attract residents and fill units remained, even in the most robust of apartment markets around the country, which have characterized the multifamily marketplace during the last three years. But the state of the apartment market may also be due for a shift. According to Marcus & Millichap’s 2007 National Apartment Report, the pace of rent growth may lose a bit of steam in 2007 as the economy slows and the softening condo market increases rental competition. 

Baby boomers and active retired adults, too, have their own financial pressures, and retaining their hard earned money is a priority for these segments of the population.  Many are at the point in their lives when they are facing steep college tuition bills for their children, while others are learning to live on either smaller or fixed incomes as they have cut back on work or retired entirely. And for other pre and current retirees, the instability of their company-sponsored pension plans creates added financial worry.

Lastly, residents in this age group tend to rent apartments for the longer term (as opposed to one- to two-year leases by Gen Y’ers).  As a result, hefty security deposit amounts that can equal one month’s rent or more, that might otherwise find better uses, remain tied up in escrow accounts.  

The Associated Management Company has been offering a security deposit alternative since 2006 at eight communities that are geared toward active retirees in Michigan, where rental rates can be as high as $1,599 for a two- bedroom unit.  According to Clio Addington Hanks, senior vice president at Associated Management Company, “Initially we were skeptical of the need for a security deposit alternative because we believed money is not a big concern to our residents.  Regardless, we decided to offer our senior residents the option at lease signing between the security deposit alternative and paying the traditional security deposit. 

“We found that seniors keep their money in CDs, trusts and other non-liquid vehicles, making it difficult sometimes to come up with the total amount of the   traditional security deposit and first month’s rent, and still have cash left over for moving expenses.  As it turned out, reducing their costs upfront with the security deposit alternative was very appealing to these potential renters and has been met with overwhelming success.  They love the option and are signing up right and left.  We are so pleased with the program, we are marketing it aggressively in our collateral materials and banners in our leasing offices.  It’s part of our closing process now and has resulted in increased sales.”

In another example, Roseville, Calif. - based USA Multifamily Management, Inc., a premiere property management firm of senior communities, has 32 adult living communities that currently offer their senior residents a choice at lease signing between the traditional security deposit and a security deposit alternative.  According to Karen McCurdy, President of USA Multifamily, “We started offering our residents the security deposit alternative in 1999 as part of our lease-up initiatives.  In response to the program, nearly 95 percent of our senior residents across all 32 communities opted for the alternative over paying the traditional security deposit, which was equivalent to one month’s rent in most locations.

“Not only do our senior residents appreciate the ability to move in without tying up significant funds for the long term, the program has also has given us a real competitive advantage in a highly competitive marketplace.  Offering the alternative to our prospective residents distinguishes us from other senior communities,” explained McCurdy.  “In fact, we envision our use of security deposit alternatives as a long-range initiative by leveraging the program to enhance resident retention, especially in high rent markets to offset the pain of those rental rates.”

Find out more about security deposit alternatives in an expanded version of this article on the 50+ Housing Channel. You must be logged in as a 50+ Housing Council member or Channel subscriber to access this content.

Stuart Litwin is the CEO and a co-founder of SureDeposit. For more information, call 800-531-7873, or visit online at www.suredeposit.com.   [Return to top]