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With deregulation, owners need to spend money to make money.

On the surface, the deregulation of $2,000 a month and above rental apartments looks like good news for landlords. Opportunities to rent apartments at fair market value can significantly increase revenues for owners who have, by law, had to endure tenants paying $500 a month for a one-bedroom unit or $1,500 a month for six or eight-room apartments that could command three to five times the amount in today's tight rental marketplace.

Thus, deregulation appears to be a victory for owners who have been straight-jacketed by well-intentioned, but onerous, rent control regulation. But is it?

Flush with the opportunity to obtain fair market value for units, landlords are eager for vacancies. The rental market is hot. Family-size apartments, especially, are in strong demand. But deregulation is a double-edged sword. In order to command fair market value, the size, quality and condition of a building and its individual units, as well as the quality and depth of services and amenities, must meet the expectations of today's demanding renters.

With deregulation, it's not just business as usual. Given the same vacant unit before and after deregulation, with the former, a landlord could only increase rents slightly without doing much else. Now landlords of older residential buildings will have to spend money first - and significant amounts of it - to make money later.

As more and more apartments become rented for market rates, there will also be increased competition to fill vacancies. The growth of new construction of high-end rental buildings - with all their bells and whistles - and the high-quality conversions of commercial buildings to modern residential properties, will also provide impetus for landlords with deregulated units to invest in upgrading their buildings, increasing services and adding amenities in order to compete in the free market.

How do you treat new tenants that are moving in at market price? What services and amenities do you provide? While new buildings have the luxury of including state-of-the-art fitness facilities, children's playrooms, outdoor gardens and indoor pools into their blueprints, owners of older buildings must work within their existing structure to supply more value for the money.

To command market rates, it matters if the lobby is updated and better furnished, if elevators are refinished, and if the doorman dresses a little better, with shoes that sport a perpetual high shine.

Renters willing to pay multi-thousands a month for units are looking for amenities packages that support those high-end rents: computer wiring, Internet access, state-of-the-art recycling fixtures, fiber optics and high-end appliances among them.

Within buildings that command top-dollar in the market. landlords are also going to have to be much more responsive - quicker to do repairs and quicker to upgrade outdated equipment.

Adding to the investment in major capital improvements is another short-term downside of filling previously below market rentals with higher-paying tenants: a high-end vacancy can mean losing two to three months of rent while upgrading the unit, and finding a new tenant in the face of increasing competition.

In the long-term, deregulation can signify significant revenue gains for building owners willing to make the investments required to upgrade their infrastructure, public spaces and apartments.

Increased renovation and restoration of rental buildings may also accomplish the same thing that co-oping did in the 1980's, as rental buildings begin looking as good as co-ops that have invested time, money and energy into improvements.

It will take time, but for landlords who face the realities of having to spend money to make money, they, their tenants and the City at large will all ultimately benefit from deregulation.
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Title Annotation:Focus On: Property Management; apartment rent deregulation
Author:Clarke, Harvey
Publication:Real Estate Weekly
Date:Apr 29, 1998
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