Proptech providers say flexible rent has been preventing evictions during the COVID-19 pandemic.
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Since COVID-19 sent the economy into a tailspin a year ago, much has been written about the movement to cancel rent and the importance of continuing eviction moratoriums. But some in the real estate industry have pointed to solution that may be more viable in the long term for both residential and commercial tenants: flexible rent.
Even before the pandemic, companies were springing up to provide more flexibility for tenants and landlords. Take NestEgg, which launched in 2017 as a property management app for independent landlords that includes rent collection. The company promotes the collection of rent on a flexible schedule, said Eachan Fletcher, the company’s founder and chief executive officer, formerly the chief technology officer of travel website Expedia.
“Our hypothesis is when tenants are able to pay rent that aligns with when they make their money, they’re more likely to pay on time,” said Fletcher, who came up with the idea for the app while managing properties himself.
NestEgg pays landlords up front on the first of the month, so they can cover their various bills, and then allows the tenants to pay weekly. In April and May 2020, at the beginning of the pandemic, 66% of landlords on the platform participated in a test of the program, and 100% were paid their full rent on time, which was up to 45% higher than the national average. No tenants defaulted.
The majority of the properties the platform serves are in Chicago, where NestEgg is based, with a median rent of $1,450, according to Fletcher. The company announced this past November that it had raised $7 million in Series A funding.
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“If you can help people pay rent on their terms, they will pay it,” Fletcher said.
Last year, the real estate private equity firm Asia Capital Real Estate (ACRE) began partnering with proptech provider Till to implement a flexible rent program at the majority of its multifamily properties across the U.S. The system analyzes each renter’s individual cash flow to customize a payment schedule that will be easier for them to meet.
“Many of our residents are currently facing unforeseen challenges because of the global pandemic,” said Les Menkes, founding partner at ACRE. “Being sensitive to this, we realized that the financial reality of many of our tenants does not align with a one-size-fits-all monthly rent payment model.”
ACRE is also offering Till’s Rebound product, which customizes a long-term payment plan for renters already in the middle of eviction proceedings or in imminent danger of eviction.
In exchange for renter participation in the program, landlords defer all late fees and eviction proceedings for as long as renters continue to comply with the agreed-upon schedule.
The program has since been deployed to almost 75,000 ACRE-managed units in Florida, Georgia, Kentucky, North Carolina and Ohio and the company has seen fewer missed payments.
“After testing out an in-house flexible rent option at one of our properties, we found that by spreading out the same monthly rent into several chunks, fewer renters miss payments, preventing delinquencies and reducing accounting headaches in the process,” Menkes said. “This has led to a sizable decline in late fees and evictions, which ultimately helps not only us, but also our renters.”
Some commercial tenants that are struggling during the pandemic have also successfully negotiated more flexible lease terms. Pierre Debbas, a real estate attorney and managing partner of the Manhattan firm Romer Debbas LLP, said he has worked with landlords and tenants to renegotiate rent for a fixed percentage of the gross revenue on a monthly basis.
After New York City restaurants had to drastically restrict capacity limits, Romer Debbas represented a 150-plus Midtown restaurant in the renegotiation of their lease. The eatery had relied heavily on foot traffic from tourists, as well as corporate and private events, and the landlord agreed to accept a monthly rent based on 10% of the restaurant’s gross receivables each month, for 12 months.
“Negotiations of this nature are unorthodox for the restaurant industry, but landlords who have a vested interest in keeping their tenants afloat are realizing that without creative solutions like this, we could enter a crisis of tenant defaults across the city and the landlords will be in a position of having their spaces vacant for potentially years to come,” Debbas said. “Most of are the mindset that … if we can keep restaurant tenants from going under that roughly one year into the pandemic, we should start seeing life gain some semblance of normalcy and the restrictions that are currently imposed on restaurant tenants will either be lifted or not as stringent, thus preserving the long term viability of the industry.”