Rent Concessions Here, “Gift” Concessions There

Apartment Listings in Japan

Rent concessions and incentives have become the norm today not only as a method of getting tenants interested in a property but as a way of renewing their leases as well.  I'm skeptical of any pro-forma, regardless of property type, that does not include some losses to concessions and incentives.  In an economy ravaged by unemployment, this is especially true in multi-family properties.  Those of us who are lucky enough to be employed, are not earning what we'd like to be earning.  Multi-family landlords have to bear the brunt of reduced spending power if they are to keep their properties well leased.  I came across an extremely interesting article published by Bloomberg yesterday that describes how rent concessions and incentives are not just changing the economics of real estate in Japan, but having a huge impact on the nation's culture as well.

In Japan, it is common for an apartment tenant to pay two different kinds of deposits.  The first deposit is what we are used to seeing her e in the U.S.–a refundable security deposit that is returned in whole or in part to the tenant upon vacating the unit.  The second deposit is something known as “reikin” in Japan.  Reikin is a gift of sorts that the tenant pays the landlord as a sign of his or her appreciation that the landlord is allowing the tenant to occupy the property.  Because it is a respectful offering and not any kind of security deposit, reikin is for the landlord to keep.  According to the Bloomberg article, this practice has been commonplace for over a century in Japan.  But with commercial real estate suffering so badly as of late, many large owners of multi-family units are doing away with the practice.

One of my colleagues here at Llenrock Group has lived several years in Japan and still has many family members and friends there.  I brought up this article with him to get his perspective and he was shocked to hear that landlords in Japan were doing away with reikin.  Japanese people hold on to their traditions fiercely, and are unlikely to give up a tradition simply because they are facing tough economic times.  But what is important to note is that the people in this article who are quoted as favoring the abolition of reikin are all heads of housing REITs, large institutional owners, or  Japanese research analysts at multinational banks like Deutsche Bank DB.  It doesn't seem that small entrepreneurial owners are as keen on doing away with reikin, perhaps because entrepreneurial owners can afford to hold on to their traditions as they do not have to answer to international shareholders and investors.