Using Lease Guarantees to Mitigate Multifamily Developers’ Risks

TheGuarantors is a leading provider of risk mitigation solutions for multifamily owners and operators. Its product suite—lease guarantees, security deposit replacements, renters insurance, master tenant liability and compliance platforms—streamlines leasing and shields against financial risks, reducing owner-operator bad debt and strengthening the bottom line.

We spoke with Jesse Schmidt, SVP of Sales at TheGuarantors, about the company’s unique ability to help multifamily developers accelerate their lease-up goals sustainably and responsibly.

Q: What are lease guarantees and why should developers care?

A: Lease guarantees insure rental revenue and come at no cost to the developer. The resident pays for the policy, which covers up to the full value of the lease, and then, if that resident were to default on their rent after move-in, the operator files a claim with us and collects monies owed. Site teams don’t need to chase down personal guarantors or otherwise invest many hours in a collections process that may likely fail – the operator offsets both the financial risk and the operational lift to us. Additionally, the guaranteed rent roll makes the asset more valuable and can lead to more favorable refinancing rates. Lease guarantees provide ongoing financial protection and risk mitigation for the property’s rent roll and deposits.

TheGuarantors’ lease guarantee product is called Rent Coverage and it provides the most comprehensive financial protection available in multifamily.

We have a partner in Queens, New York, that planned for an 18 month stabilization period and ended up achieving stabilization in 12 months and selling the asset just 6 months after that for a record amount. Typically, once a developer sees the benefits from utilizing our services on one property, they call on us for all their lease-up projects thereafter.

Q: Under what conditions would property developers and operators commonly use lease guarantees for lease-ups?

A: Developers commonly use lease guarantees to accelerate time to stabilization for lease-ups. Lease guarantees allow them to widen their applicant pool without increasing risk by approving more conditionally approved or non-traditional applicants who may not meet strict income or credit requirements, such as students, non-U.S. citizens, freelancers, thin-credit applicants, and fixed-income applicants. This helps fill units faster and achieve positive cash flow rapidly and responsibly, which is paramount during the lease-up period.

Q: How can developers use lease guarantees and security deposit replacements to remain competitive in a market with excess supply?

A: In markets with excess multifamily supply, you see downward pressure on rent and an increase in concessions. Lease guarantees enable developers to approve more applicants, therefore filling units faster while often cutting concessions and reducing marketing spend. This accelerated lease-up helps generate sustainable revenue more rapidly, even in oversupplied markets where rents have plateaued but costs remain high.

We recently partnered with a property that opened a month after another lease-up in the same neighborhood. Our partner property was leasing up 140% more quickly with rents that were 10% higher while offering concessions 75% lower than their competitor property.

Developers can also replace traditional security deposits with alternatives, like TheGuarantors’ Deposit Coverage. This not only eliminates the administrative burden of managing security deposits but also saves residents the upfront move-in cost, often equivalent to one month’s rent. Residents often appreciate this as it means less money out of pocket for them at move-in. For the developer, it maximizes financial security while lowering the renter’s barrier to entry.

It’s a win-win: the renter gets access to their dream home, while the owner/operator can reach stabilization quicker and set themselves up for long term financial stability.

Q: The rise of rent concessions in the last year shows that many owner-operators are taking this approach to attracting renters. Can lease guarantees help with these increased costs?

A: Lease-up activity slowed from an average of 15.3 leases a month in 2022 to 11.7 in 2023. Add to this all the new supply coming online, the number of units offering concessions is rising rapidly, exceeding operator budgets. This isn’t sustainable. Concessions may help fill units faster initially, but they eat into revenues over the full lease term.

Rent Coverage and our larger product suite are a more sustainable solution that can help operators accelerate absorption and lease-up stability, minimize concession spend, and boost NOI.

Q: How can lease guarantees help owners and operators beyond the lease-up period?

A: At TheGuarantors, we understand that owners and operators are looking for strong value beyond just accelerating lease-up timelines. While guarantees help properties to stabilize quicker, the benefits continue long after. We have protected more than $3.5 billion

in rent and deposits for owners and operators nationwide. Rent Coverage, in addition to our other products, allow operators to maintain consistently high occupancy by approving more non-traditional applicants year-round, while still minimizing bad debt exposure and strengthening the bottom line.

For example, our partnership with RXR accelerated the lease-up of The Willoughby luxury tower in Brooklyn by 6 months, 33% faster than planned. Our coverage helped secure over $9 million in rent roll for RXR at just one building during lease-up. Beyond that period, we continue working with them to protect more than $22 million in rent roll across their broader portfolio.

We work with 9 of the country’s top 10 operators and our team, many of whom have worked in multifamily long before joining TheGuarantors, has a deep understanding of renter and operator needs. We’ve coupled this human expertise with AI-based technology that can predict renter default with 89% accuracy; when you add in our full stack approach and the strength of our financial backing, we are well equipped to drive strong protection and risk mitigation to operators nationwide, both at lease-up and beyond.

Don’t miss the Lifetime Achievement Award Presentation and Keynote Interview with G. Joseph Cosenza, Vice Chairman of The Inland Real Estate Group, LLC and President of Inland Real Estate Acquisitions, LLC at Connect Midwest: Multifamily, Affordable, Student & Senior Housing Trends on June 4, 2024, at the W-Chicago, City Center Hotel, Chicago, IL. Register Today to network with your peers!