Developers Adopt Rent-to-Own Programs for luxury homes

Initiatives providing cash for new developments and options for residents are being trialled in the US.

When coronavirus seized the U.S., weakening the luxury housing market, developer Gil Dezer revisited a concept he had tried out during the Great Recession more than a decade ago. He rolled out a rent-to-own program for the recently completed residences by Armani/Casa, one of his exclusive projects in Sunny Isles Beach in south Florida.

While more common for the lower echelons of the country’s residential real estate, rent-to-own plans, also known as lease-to-purchase agreements, afford tenants the option to buy their home with all or a portion of the paid rent applied toward the purchase price after typically renting for a year.

In a time of volatility, such as the ongoing pandemic, lease-to-purchase programs present one option in developers’ playbook, along with various concessions, to lure hesitant buyers.

“When the market is as murky as it is now and people really don't know which direction it's going in, they're a lot more cautious and they're not pulling the trigger so fast,” said Jordan Brill, partner at New York-based Magnum Real Estate Group.

During the financial crisis of 2008-09, Mr. Dezer, 45, who serves as president of Sunny Isles Beach-based Dezer Development, found himself “stuck” with about 900 units, owing $475 million to lenders. “We successfully sold off the units one by one by one, by getting creative in various different ways,” he said.

Part of those innovative sale methods, rent-to-own offerings accounted for approximately 20 sales, Mr. Dezer said. “We didn’t sell a whole building [that way] but we’re hoping for that kind of success again,” he said.

This time around, though, Mr. Dezer is in a much better place. Sales in the joint 308-unit project between Dezer Development, The Related Group and fashion designer Giorgio Armani’s interior design outfit began in 2016. Today, Residences by Armani/Casa has roughly 50 unsold units, Mr. Dezer said. Debt has been paid off, so any revenue from the last homes available in one of Miami-Dade’s most lavish buildings is profit for the developers.

Residences by Armani/Casa’s rent-to-own program, which has already garnered two leases in the one month it has been available, serves as an incentive to potential buyers, especially affluent New Yorkers fleeing the coronavirus outbreak that has overwhelmed their city, Mr. Dezer said.

Currently, the priciest listing in Residences by Armani/Casa is a five-bedroom penthouse seeking $12.5 million. Two-bedroom units start at about $1.5 million. Meanwhile, rentals can go for up to $20,000 a month, Mr. Dezer said.

Whether such programs will buoy sales is yet to be seen, as most purchase options inked today would take several months—or a whole year—to realize (unless, of course, residents elect to buy sooner).

And, ultimately, options are just that—a choice. Even if renters might pay a premium for essentially reserving a home for a future purchase, there is no guarantee they will go through with it.

Source: Mansion Global