Finally, Renters Have Some Pull

By DANA MATTIOLI

Now it's a renter's market, too.

As the housing downturn deepens, rental rates are falling in many major U.S. cities, including New York and Los Angeles, and tenants are finding they have greater leeway to renegotiate their leases.

Early in the housing crisis, former homeowners were starting to rent again, supporting demand for rentals. Now, with more newly constructed condos being converted into rental units, landlords are struggling to keep buildings occupied. Apartment rents nationwide fell 0.4% in the fourth quarter from the third quarter -- the first drop since 2003, according to Reis Inc., a New York City-based real-estate research company. Apartment vacancies rose to 6.6% in the quarter from 5.7% a year earlier.

In some major cities, the declines have been far steeper. In Manhattan, rents fell on almost all kinds of apartments in 2008. Rents of studio apartments fell 7.4%, and rents of one-bedrooms and two-bedrooms in buildings without a doorman fell 5.5% and 5.6%, respectively, according to a report released Tuesday by the Real Estate Group of New York, a Manhattan-based brokerage firm. In Miami, 60% of rents decreased in the fourth quarter, and 45% of rents in Los Angeles declined. Rents did buck the trend in a few cities. During 2008, rents increased 2.3% in Pittsburgh and 4.2% in Houston.

The overall weak rental market has emboldened a number of tenants to start negotiating with their landlords. Richard Laermer, owner of a public-relations firm, was heading toward 2009 with the prospect of lower income and a steep monthly rent -- $4,700 for a two-bedroom, two-bathroom apartment in midtown New York City. So in November, he asked his landlord for a break. Even though it was months before his lease was up, he won a $200-a-month rent decrease.

"Owners realize that there isn't the job growth necessary to sustain high demand for rentals, and they have to be much more realistic" about price, says Daniel Baum, chief operating officer of the Real Estate Group.
Seeking a Discount

Some landlords and property managers say they have never encountered so many tenants looking to bargain. Mitchell Rattner, president of Home Equity Savers in Riverwoods, Ill., owns 50 condo complexes and homes around Chicago with a partner and says that requests by tenants to negotiate were almost unheard of until fairly recently. In the past 10 months, he's discounted two of his tenants' rents midlease to keep them from moving out. "If they're good payers, we will give them a discount," he says.

But even in a positive climate for renters, there are steps people should take before trying to renegotiate a lease. Mr. Baum of New York's Real Estate Group suggests seeking out evidence of similar apartments in your neighborhood that are being rented for less. Present these findings to your landlord to bolster your case for a lower rent.

Offering to extend your lease can also help persuade a landlord to make a deal. Mr. Laermer told his landlord that he'd stay an extra year if he worked with him to lower the price midcontract; Mr. Laermer also hinted that he'd leave the building otherwise. Of course, if you plan to play hardball and threaten to leave, be sure you are prepared to move.

Gentle persistence can pay off. Michael Soon Lee, a broker who owns Realty Unlimited in the San Francisco area, worked with a couple in November to lower their rent. The wife had recently been laid off, and the $1,800 monthly rent was too high. At first, the apartment manager refused to budge on price. But Mr. Lee advised the couple to approach the property's owner, who reduced their rent to $1,400, asking only that they add another year to their lease.
A Worried Email

Jared Wilk, a Realtor at Wilk & Welch Associates, a real-estate developer and property manager in the Boston area, recently got an email from a tenant at one of his apartment complexes after her rent check bounced. The tenant was worried that she'd have to break her lease for financial reasons. Since she had rented the three-bedroom apartment for a year and a half, Mr. Wilk told her he would work with her to lower her rent or, if she wanted to find someone to sublet her apartment, he would waive the customary fee. Mr. Wilk says he was willing to make a deal with his tenant because of her steady track record -- and the fact that he wouldn't be able to rent the apartment for much more than the discount he would offer her.

It may be easiest to negotiate in cities like Miami and Las Vegas that have been hit hard by home foreclosures. There, renters are getting a boost from a "shadow supply" of rental units: Investors who have scooped up foreclosed homes are renting them out so they don't have to sell into a declining market. Such investors "are undercutting a lot of the normal rental rates so they can attract tenants quicker," says Elizabeth Olds, real-estate economist with Boston-based Property & Portfolio Research Inc.

In some California cities, vacancy rates are being boosted by the conversion of new condo projects into rentals, says Patrick S. Duffy, principal of MetroIntelligence Real Estate Advisors, a real-estate consulting firm based in Los Angeles. In downtown L.A., where there are a lot of new condos, the vacancy rate was almost 10% in the fourth quarter, compared with an L.A.-wide vacancy rate of 4.5%.
Signs: 'Now Renting'

For renters, it pays to be aware of your surroundings and look for indications that management may be willing to work with you. Blake McCrossin, a 27-year-old who works for an entertainment magazine in Los Angeles, noticed that the Hollywood apartment building he lived in for three years was having some difficulties. The building had once had a waiting list, but now the outside wall displayed "Now Renting" signs. The building maintenance and landscaping were suffering, and the desk security was becoming scarce.

In March 2008, he approached the management and explained that the $1,350 he was spending each month on his half of a two-bedroom unit was too expensive, since he had just had a pay cut. The landlords, eager to keep him and his roommate in the building, lowered the rent to $2,390 -- $1,195 a month each -- and granted both renters a month-to-month contract. (Mr. McCrossin moved seven months later, after the complex became more run-down.)

Fear of losing a good tenant is often enough to make landlords reconsider their rent. Jenna Carpenter, a 28-year-old living in a $2,000-per-month one-bedroom apartment on New York's Lower East Side, didn't plan to renegotiate her contract. But once she told her landlord she didn't plan to renew her lease in March, he offered to lower her rent. They are now negotiating a cut of between $300 and $400 a month.

Even if your landlord won't adjust your rent midlease, he or she may offer concessions. Ms. Olds suggests asking for free use of amenities that would normally carry a cost, such as a gym or pool, or even asking to be upgraded to a better apartment with a great view or more square feet.
Gift Cards and Appliances

First-time apartment-hunters can also nab lower rental prices and concessions. Some apartment buildings are luring potential renters with gift cards, appliances, reduced rates and concessions such as free pool and gym use. Building owners fear that this summer's crop of college grads will move back home with their parents rather than renting apartments, says Jessica Scully, vice president of Scully Company, a property-management company with units in Pennsylvania, Florida, New Jersey and Connecticut.

The company is offering up to two months of free rent to new tenants at some locations, Ms. Scully says. It is also starting to work with tenants whose contracts are about to expire, offering a free month of rent when they renew at some locations.

"In the apartment business before the downturn, it wasn't a 'Let's make a deal' climate," says Ms. Scully. Now, "it's something we are seeing more of."

Write to Dana Mattioli at dana.mattioli@wsj.com