Rental Reduction Requests: CALIFORNIA

[N M Clarke]

One of my market rate units has asked for a -15% monthly reduction. The press out there has been brutal about how much vacancy and drops in rent, which include a lot of new developments downtown that were super high and skewing the median. Property manager says he's seeing these requests daily and I've already had one ask a few months ago for a different property.

What are BP folks doing? Are you guys making some concessions now? Are they temporary or are you locking them in for a year and raising them up again when market rebounds? We are in a strong rent control market. Any advice or stories shared appreciated.

[Jon Schwartz]

Originally posted by @N M Clarke:

One of my market rate units has asked for a -15% monthly reduction. The press out there has been brutal about how much vacancy and drops in rent, which include a lot of new developments downtown that were super high and skewing the median. Property manager says he's seeing these requests daily and I've already had one ask a few months ago for a different property.

What are BP folks doing? Are you guys making some concessions now? Are they temporary or are you locking them in for a year and raising them up again when market rebounds? We are in a strong rent control market. Any advice or stories shared appreciated.

I'm in LA, and here's my advice:

Offering a 15% rent reduction is going to haunt you for years because rent control won't allow you to restore the original rental rate when markets rebound. Especially here in LA, where annual increases are limited to 3% or 4%.

I'd strongly recommend offering a rent concession -- ie, forgive 1-2 months of rent. Forgiving 1 month of rent for the year is likely reducing each month's rent by 8.3%. After 2 months of rent forgiveness, and you're at 16.6%. That's a bigger savings for your tenant over the next year, and when the economy is stronger a year from now, you'll be back at your base rental amount.

My situation is similar but not as severe. I have a "luxury" duplex in LA; my tenants have made all rent payments through COVID. My next opportunity to increase rent is in January, but I feel like I should forestall my annual increase for a half-year. Even that bothers me because, in the long run, it's going to have a real fiscal impact.

Anyway, good luck! Be compassionate with your tenants, but protect that rental rate!

Best,

Jon