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Wall Street Journal / Biz - Money

How to Rent a New York City Apartment Without Paying a Deposit

Owners of some of the city’s largest apartment buildings are signing up for services that allow tenants to pay smaller, nonrefundable fees rather than plunking down hefty security deposits.


Real-estate agents from Citi Habitats take in views from one of the American Copper Buildings, where tenants have the option of signing up with a security-deposit insurance service. Photo: Michael Noble Jr. for The Wall Street Journal

By

Josh Barbanel

4 COMMENTS

In New York the rent is too darn high, and so is the security deposit.

Now some landlords are trying to lighten the burden.

Owners of some of New York City’s largest apartment buildings are signing up for services that allow tenants to pay smaller, nonrefundable fees rather than plunking down hefty security deposits that will languish in low-interest bank accounts for years.

One startup, Rhino, was expected to launch a service for New York tenants on Wednesday that will charge a monthly fee, typically $10 to $25 a month, and promises to reimburse landlords for any damages or unpaid rent up to double the value of the security deposit the landlord otherwise would have charged.

Another service, Jetty, launched last year and moved into the New York market in October. Its deposit insurance product, known as Jetty Passport Deposit, charges 17.5% of the standard security deposit as a one-time fee, and insures landlords up to the full amount of the deposit. This deposit can be rolled over to lease renewals without additional charge. Jetty said the service has expanded to 44 states and is working with managers of 250,000 apartment units across the country.

For tenants, such products can ease a major financial burden. The pile of cash needed to lease an apartment in New York is daunting: A month’s rent, a month or more for a security deposit and often a broker fee on top of that. For the typical Manhattan rent of $3,275, according to Miller Samuel Inc., the total cash outlay could approach $10,000 just to move in.

For landlords, the services can cut administrative costs in handling the bookkeeping complexity of managing bank accounts for each tenant.

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The service providers, which are backed by insurance companies, take a risk that tenants will bolt early from their leases or trash their apartments. But landlords say most tenants fulfill the terms of their leases. And the providers can pursue claims against tenants for excessive damage to their apartments or for unpaid rent.

The idea of security deposit insurance has been around since the 2000s, with the advent of a product called Sure Deposit, which is still offered across the country.

The latest group of startups has stirred the imagination of tech-minded building owners, who see it as a way to ease the friction in closing a deal on an apartment.

Rhino is catching on with luxury-rental developers like Glenwood Management, where three-bedroom apartments can go for $15,000 or more a month, as well as owners of rent-stabilized buildings. Jetty is now available at JDS Development Group’s American Copper Buildings—twin towers connected by a sky bridge with a pool on it on First Avenue in the Murray Hill neighborhood on Manhattan’s East Side. It currently lists a two-bedroom unit on the 31st floor for $9,549.

“These security deposits can get very costly,” said Jodi Stasse, an executive vice president at Citi Habitats, who is overseeing rentals at American Copper. The deposit insurance “has allowed people to have other options.”

Jetty CEO and co-founder Michael Rudoy talks with real-estate agents at the American Copper Buildings in Manhattan. Photo: Michael Noble Jr. for The Wall Street Journal

In Long Island City, Queens, Tishman Speyer’s Jackson Park, a rental with three high-rise towers, is offering Jetty, while nine blocks away, the Pearson Court Square, a 15-story rental by L+M Development Partners, has signed up with Rhino.

“I think this is going to be adopted universally, it is a no-brainer,” said Mitch Posilkin, general counsel for the Rent Stabilization Association, which represents 25,000 property owners and agents with rent-regulated housing and is recommending Rhino to its members. “The administration of these accounts in an enormous nuisance for landlords.”

Ofer Yardeni, the chief executive of Stonehenge Partners, a Manhattan-based real-estate company, said he is providing deposit insurance as a service to tenants rather than as a way to make money, but it has helped the company close deals with new tenants.

So far 30 renters signed up for it, about 15% of all new tenants, said Jodi Berman, vice president for leasing and marketing at the company. Many of those were students or renters coming from abroad with little credit history, who were asked to provide additional months of security deposits. Instead they signed up to pay a larger monthly fee to Rhino.

Rhino said it is available at buildings comprising 23,000 New York apartment units. Jetty said it is working five of the 10 largest private landlords in the city. Jetty, Rhino and Assurant, which operates Sure Deposit, declined to disclose how many tenants have signed up.

Security deposit insurance is a multibillion-dollar market, and the competition will only expand it, said Ankur Jain, founder of Kairos, a $25 million fund set up to build and invest in startups. Kairos is an early investor in Rhino.

“This is a rising tide lifting all boats,” he said. “The more people who are in this space right now, the more tenants can afford rents.”

Write to Josh Barbanel at josh.barbanel@wsj.com

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