Lease Renewal Negotiation Strategy Assistance

I JUST renegotitated my lease ending 9/30 - and was able to get 25%+ off vs. the 2% reduction which I was originally offered. The strategy I took was being armed w/ as much information as possible - both w/r/t what effective rate comparable buildings in the neighborhood were currently asking (made appts, negotiated w/ them & asked friends), as well as finding out what kinds of deals new tenants were paying in my existing building. Once I had that, I typed up 'my' proposal, and backed it up w/ bullet points to explain my reasoning. I then made an appt to sit down w/ the leasing office and walk through it - said I liked the building, has been a great tenant paying ontime,etc - and was insulted by their proposal which was just unacceptable. Quoted the other rates at specific buildings so they knew I was prepared to move if needed, and w/in 2 days they got back to me and actually BEAT what I had requested by a small amount/month. Even better than the 25% reduction, they agreed to give me 1 month free up-front AND granted me the option of early termination w/ 60 days notice (told them we wanted flexibility in case we ended up buying); so no 12 month commitment.
I think it's a good idea to take your sweet time negotiating with them (but realize they might call your bluff so you need to be prepared w/ time to move if needed), and in the meantime focus your efforts on gathering facts to use in your favor to rationalize lowering your rent, as well as figuring out plans B&C if they don't give you a satifactory deal.

The other thing I'd add is it helps to have some idea of how many other empty units there are or aren't in the bldg (ask the doorman if you have one; have a friend call & inquire as a potential tenant, etc), b/c if there is no available inventory and they can easily fill your unit w/ a week of showing it, then they're less inclined to save themselves the trouble. I live in a big luxury high rise and knew there were other vacancies on higher floors w/ the same floorplan that they were struggling to rent at a lower cost - so figured I had a fair amount of negotiating leverage.
Don't think switching the tenant designation should matter- that's just symantics.

Lefrak knows what they are doing. I am sure they will give you close to the same deal they are giving new renters. I got 15 percent off last years rent. Only an idiot would stay with no rent reduction

Good work Under.

I got 20% off, but I still think I could have gotten more ..
Basically I told them that based on comps in the neighborhood, that is what it is worth. I waited until the last week, though ..

I think you want to negotiate sooner rather than later to underscore the fact that you are ready to leave.

The most effective thing for me was showing comps (typically from Streeteasy). Underwhelmed's comments sound particularly throughtful.

Yes, do write everything down.

I was able to cut my rent by 14%.

I had the EXACTLY same experience as Underwhelmed...
They initially offered a small decrease and I came back to them with
specific prices in nearby buildings of similar type (i.e., gym,
concierge, etc.) and similar floors...
I got 25% off the rent (with a free month up front on a 12 year lease).

Thanks for all of the feedback thus far. It definitely sounds encouraging that I could get them to be flexible.

I have been putting together some comps and started to look at neighboring apartment buildings. One issue I have is that the complex I live in historically rents at a discount to surrounding options as it is one of the older developments in Battery Park. This is despite the fact that the apartments are larger than one bedrooms in other buildings. Unfortunately, I don't really know what that discount has been historically. So, in terms of using comps, I will actually be citing smaller apartments that are still more expensive than I hope to pay in rent. Any suggestions on how to approach that issue?

for what it's worth - we got a 15% reduction, that's what we asked for after receiving the lease with no incr yr one small incr yr 2. got an out with notice when we buy which is our goal. played it on the good tenant paying on time, you won't have another vacant unit to market - had some #s in the back burner but didn't get into it, put it in writing LL accepted out:out.

jnb...you're getting very good advice here and I'll be using it again in December when my classic six comes up for renewal.

w/r/t adjustment for apartment size do what an appraiser would do which is try and come up with a rent per square foot per annum and then apply that rate to your square footage with other adjustments for view, floor height, amenity etc.

I'm assuming you're in Gateway Plaza....which brings back memories.....I moved into building two (?) in the summer of 1982 when the building first opened....what a mess that was...but great views and nice size floorplans as you know....good luck and let us know how it plays out....

I'd add that your big adjustment should be for ceiling height.....if memory serves

Here is a letter that did the trick for me. Old rent was $2,400, they wanted to keep it flat, I offered $1,800. We settled for $1,950. For obvious reasons I redacted the names and addresses.

July xx, 2009

Xxx xxxxxxx xxxx xxxxxx
Residential leasing Agent xx E xx Street
xxxxxxxxx & xxxxxxxxx, Inc. Apt xx
New York, NY 00000 New York, NY 00000
xxxxxxxx@xxxxx.com

Dear xxxxxx,

Thank you for sending lease renewal documents. Having looked through them, I noticed that the proposed rent for the next leasing period beginning October 1, 2009 was $2,400/month, the same as the current rent.

Given the current market environment, I am prepared to offer $1,800/month.

My offer is driven by the following reasoning: (1) Over the last month or so I spent considerable time examining rental offers on the Upper East Side as well as in Manhattan in general. There is substantial availability of options in terms of apartment size, amenities, view, lease terms, etc. (2) A number of recent real estate reports and press commentary seem to point to a 20-25% decline in selling and rental prices on per square foot basis in q2’09 compared to q2’08. (3) Economic and residential market deterioration in Manhattan continues, with unemployment rising. It is almost certain that by September 30th (end of my lease) rental rates will fall further. (4) The new lease date (October 1st) falls outside the traditionally busy rental season. While it will not be impossible to rent out the apartment, it will certainly be more difficult than if it were available now. Hence, it is more beneficial to the landlord to secure the tenant now. (5) I have few physical possessions making it easy to move and no ties to the building. (6) I have always paid rent on time and have not been a burden to the building, making me an attractive tenant.

In summary, I would prefer to remain in the building, but on terms that are appropriately reflective of current rental market environment. Please notify me promptly of the rental decision so that we both may either begin making alternate arrangements or execute the new lease.

Thank you for taking the time to review this letter. Please do not hesitate to contact me with additional questions.

I look forward to our future contact.

Sincerely,

xxxxxxx xxxxxxxxxx.

I love it when people write full page letters telling me there is a bad economy.

I have a whole collection of them.

Just cut to the chase, how much time do you think I have?

MAV: you missed a bit the point of the letter. It is not to tell you that the economy is bad. It is to show what strategy works. Anyway, more to the point of your question. The landlord probaly needs between one day and three weeks to make this decision. My letter was written in mid July for a lease that expires on Sept. 30. We signed a new lease in mid August, but negoatiations eneded in the last days of July. You obviously do not have to write the letter but the written word can be more effective that a spoken one. You may want to mention in the letter that they are offering you a net effective increase in rent while the mkt is down around 20%. It is also important to emphasize that if they meet your terms you are ready to sign the lease immediately -- this will show them you are serious.

On the topic of whether you should start negotiations as soon as possible or wait until the last minute you should determine:
That if you show your hand too early with a threat to move, the landlord usually has the right to show prospective tenants the apartment. So how many weeks would you like strangers roaming your home? Granted, many high end only show apartments vacated and freshly painted but some don't.

My bad, I didnt specify that I am a LL who gets these letters and emails just about every week. I was not responding in the context of the discussion, but giving my reaction to whenever I see one of these...

MAV: Another thing you could do is use street easy or http://www.urbansherpany.com to find out what apartments in the same building on the same line are renting for.

I already know what the other apartments are renting for, I own the buildings...

MAV: you probably understand that this site is dominated by tenants/buyers so our responses are going to be influenced by our interests. Having said that... A friend of mine lives in a walk-up with 8-10 apartments, of which two have been empty for almost a year. The asking price is such that no one rented them. The friend's lease was coming up, the landlord refused to lower rent and she has found a new place. The asking price on the other apartments is (I believe) $2,300-2,400 with $1,900-2,000 being a more realistic rent. So, the landlord has been forgoing at least $1,900/mo per apartment for 12 months, or $45,600. He is now stuck with a third apartment. It is not impossible that another tenant will also move out soon. It seems to me that the logical thing would be to cut rent enough to fill the apartments fairly quickly but offer tenants only 1 year leases. That way if the market begins to pick up he/she will not be stuck with long-term leases. On the other hand, as unpleasant as it must be for landlord to have to lower rent, it must be even more unpleasant to get no rent at all. So, bite the bullet and face the reality. Besides, you are probaly still making a ton of money on the apartments, even with lower rent.

I can not speak to that situation, but I can tell you that there is sometimes more than meets the eye.

I have personally lowered rents in the range of 15-25%, and maybe even more in some cases to get things rented. I do not give out free months or the like (just price things right) and I don't have more than a couple of vacancies. It should be noted that I have 4-5 story walkup buildings in Manhattan between Houston-96th and I manage my own buildings.

ukrguy - how big is the apartment?

to ukrguy, re: his friend in the walkup, with the landlord who refuses to budge.

IMHO, how flexible (or stubborn) a landlord will be may depend on how he has financed the building. remember, if he bought it in the old days (say, pre 2001), the numbers probably worked for him at rents far lower than today.

it's possible that there are landlords who are paying on really old commercial mortgages who can still break even, even with a really high vacancy rate. in that case, they've got little to lose in keeping a hard line. assuming the building is desirable in some major way (location, view, unit size), i think they're betting that they will snag enough price-insensitive people to keep things going, as long as they want.

sure, they may be leaving some money on the table, but if they've got a big enough portfolio of properties and they're cash flow positive, they may simply not be paying close enough attention to the market to worry too much about it.

UKRGUY - Forget holidng a hard line, your friend's landlord just sounds like a moron. Before he decided to lose tenants baesd on $400/month divide, he should have been pretty confident he could rent at the higher price within 2 months, otherwise he is fiscally WORSE off than he had been caving up front. Maybe he's trying to empty out the building in hopes of selling it - makes no sense to me otherwise?

secondandc: my best guesstimate 300 sq ft, but everything is brand new renovated; the vacant ones are about 400 sq ft, also renovated. the palce is on 81st between 2 & 3 av.

anotherguy: I thought about this aloso, but at the end of the day it is better to get less $$ than nothing.

underwelmed: I agree with you entirely. Not to get too academic, but this is a lesson in psychology of sorts. Some people/landlords are so used to raising rents that they cannot bring themselves to lower them, be it out of greed or egos. Something similar can be seen on Wall Street: no matter how bad things get, and how well people in finance (supposedly) understand free markets, I still know lots of people who firmly believe that they deserved a bigger bonus for 2008 than for 2007 and an even bigger one for 2009. Oh, well this is what makes life colorful.

to MAV: since you already reduced rents and have full buildings, it does not seem like you need our advice in negotiations.

I do not need your advice, no. I was giving my perspective to help the tenants of the board understand

Are you suggesting that I not post anything? I would think this board would value the advice of a landlord....

I'm a landlord, too. I own one apartment in a walkup building that I have been renting to the same tenant for over 3 years. I have not raised the rent the entire time because my own costs have not gone up. However, the building management is going to double the sublet fee starting in January, and I was thinking of raising the rent to compensate for that (~$65/mo). If you were a tenant, would you think that was fair, even in the current economic climate? The rent I'm charging is very reasonable for the location. I doubt if one could find a significantly nicer apartment for the same rent (if they could even find one at all). And I'm a good landlord (I think) -- take care of problems as they come up, respond to calls, etc.

My long-term plan for the place is to use it as a pied a terre. It's paid for, no mortgage, just the maintenance and insurance. So I wouldn't be thrown into economic turmoil if the tenant moved out, but OTH the income is nice, and she's been a good tenant. We're on a month-to-month lease.

ues--remember, even if your expenses haven't gone up (though, I can't imagine your homeowners insurance hasn't increased at all during that time), it still makes sense to adjust for inflation.

You don't mention what the current rent is, though I'm assuming from what you've described we're talking 1900 or so a month, no? If 1900, then you're raising the rent by a little over 3%. That, in my opinion, seems entirely reasonable, though be prepared for the tenant to balk, especially given that she's enjoyed a 0% increase over the last three years...

Rent is $1400, so increase would be about 5%. I go back and forth about it.

And actually, none of my expenses on this place have increased since I bought it. Landlord's insurance and maintenance have stayed the same. This increase I mentioned would be the first.