What’s New in Ancillary Income
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front desk of apartment building

By Barbara Ballinger |

October 25, 2022 |

Updated November 1, 2022

11 minute read

From lifestyle services to guest suites, investigating the amenities and offerings that improve resident experience and retention as well as enhance the bottom line.

Developers, owners and managers have engaged in amenity wars for years to woo residents. One strategy has been using the right mix of features and services, which often need to change over time. 

Many were historically offered gratis or were built into lease payments, but as the options have increased, so too have the expenses. 

Despite recent rent increases across the country, some of this additional revenue has been offset by increased labor costs, insurance, maintenance and taxes, among other expenses. This leaves many owner-operators challenged to find a revenue-expense balance and achieve a strong bottom line.

When it comes to ancillary revenue, as well as cutting expenses tied to amenities and other services that have lost resident appeal, current offerings tend to combine perennial favorites that can make a difference in residents choosing one property over another. Some reflect regional trends and age and income demographics. Some are designed to generate buzz and heighten visibility, locally or nationally. And there may be periodic experiments to see what might become a go based on what competitors are introducing. 

Brian Hawthorne, Vice President of Operations at Denver-based Cardinal Group Management, which manages 35,000 units nationwide, says, “We do our research to see what other properties in a neighborhood offer. If we follow them, it’s usually not the first time most have heard the idea, so we don’t have as hard a time helping residents understand its importance and cost.”      

To test ideas, Hawthorne’s company and others survey residents to learn what they want and are willing to pay. Clifton, N.J.-based Blue Onyx Companies has experimented with fitness and online trainers and pizza kits with how-to videos. “We study engagement levels and have found food was more popular than fitness but recognize both are still important to offer,” says CEO Levi Kelman, whose company develops and manages mixed-use and multifamily properties in New York and New Jersey.

Structuring Payment 

One difference among companies is how they charge: As a separate consolidated fee for amenities and more, like a hotel resort fee; as individual fees, each billed separately; or as freebies or small charges. 

“In our residential portfolio of mostly workforce housing, we don’t charge extra but build costs into monthly rent,” says Kelman. “Rather than try to squeeze residents, we have tried to provide additional value-added services we pay for. You have to know your market and building demographics. Some of our residents have very challenging work schedules and offering some form of fitness activity they can do at home helps when they don’t have time to go to a gym. We’re also exploring partnerships for more expanded wellness services that would probably be at a modest additional cost,” he says.

However, Melanie Gersper, Chief Operating Officer of Atlanta-based ACRE, which develops, acquires and manages 10,000 units in seven states, thinks it’s better not to build charges into rent because it makes it harder to compare one building versus another. For ancillary expenses, her company charges separately. 

Brian Gretkowski’s Bloomfield, N.J.-based Sparrow Asset Management firm, which manages nine assets and also does consulting work, operates similarly. It prefers to charge a lower rent and set an amenity fee for multiple services, typically charged as an annual fee per lease. It spells out what residents get for their money—fitness center, pet wash, resident lounge, rooftop, work-from-home (WFH) spaces, lobby with beverages—he says. 

David Lynd, CEO of San Antonio-based The Lynd Group, which develops, acquires and manages 20,000 units in six states, follows a similar strategy. “Because of the effect of inflation on rents, now is not the time to jam residents with higher increases but instead charge a normal 3 percent increase and charge extra for services,” he says, adding, “We must emphasize the value play and how much more you are giving them. The human brain can justify paying more if it gets more. It’s an easier sale than offering the same four walls at a higher price,” he says.

Steve Hallsey, Managing Director of Atlanta-based Wood Partners, which has 22,000 Class A units in 19 states, adds another caveat. “The danger of charging fees is that it makes it harder to raise rents. Rents already are at the top of the market with double-digit increases. We don’t want residents thinking we’re nickel and diming them for extras since we pride ourselves on our customer service,” he says. 

Hallsey’s company charges for a few services such as utilities, valet trash collection and renting spaces for private use. 

The following are popular ways that properties use to realize additional income. Whichever strategies firms choose, they know to make the costs, what they cover and for how long absolutely transparent to residents.

Lifestyle/concierge services

These have become more popular. Not venturing off the property saves time, says Chicago-based commercial interior designer Mary Cook, whose company, Mary Cook Associates, is a fully integrated commercial interiors firm working with premier real estate owners and developers. “The concierge-style services such as housekeeping, package handling, dog walking, as well as programming of social activities targeted to the demographic, are low-cost, high-impact programming amenities, which help to streamline and simplify life for residents,” she says. Having services onsite also helps to create a sense of community, which, in turn, may help retain residents. “If people make friends, they’re less likely to move,” Cook says.

Many buildings charge separately for such services, from $25 to $40 a month or so. In general, many residents will pay to have their dry cleaning sent out and picked up, apartment cleaned, trash picked up at their door—referred to as valet service—rather than walk down 
a hall and throw it in a chute, Hawthorne says. 

But different types of buildings require different strategies. Gersper says valet trash service works best in a garden apartment where cans can be placed outdoors rather than in a 
mid- or high-rise building where neighbors may not want trash smelling up the hallway. When it comes to pets, most will pay “whatever’s required,” she says. 

Package rooms became another lifestyle service where charges could be levied as the number of packages delivered during COVID skyrocketed—and continues. 

“It’s almost impossible to have enough lockers at any time,” Gersper says, adding, “How do we get rid of them after three days to make room for others?” Gersper’s properties charge one fee when residents sign up and then a monthly fee, with a portion going to the building. Because of the sheer volume of packages received, Lynd builds package rooms with individual lockers and charges all residents $3 to $5 a month. After packages are dropped off, a delivery person texts the recipient and gives a code to open it. 

Kelman’s firm also likes having partnerships with third-party vendors and has orchestrated them with phone and internet providers who see it as a way to secure all business in a building. “The partner does most of the heavy lifting but we both end up benefiting,” he says. Some grocery, big-box stores and car services are beginning to offer similar opportunities for exclusive arrangements, he says.

Parking

Buildings with garages tend to set prices according to a market’s rate and cost to build the covered structure or surface lot, plus keep it clean and possibly offer surveillance, Hawthorne says. Even within one building, charges may vary depending on whether a space is reserved or represents a premium location—for instance closer to an elevator, Hawthorne says. Some buildings pay a third-party operator to collect fees and share revenue for services such as parking, Gretkowski says. 

In Miami buildings, it’s common to charge for parking and allow one or two spots to be reserved, says Marcie Williams, CEO of Charlotte, N.C.-based RKW Residential, which was acquired by Alfred earlier this year. But in Charlotte, buildings may give each leaseholder one free space and charge for the second. As properties install electric vehicle charging stations, there’s usually an opportunity to drive ancillary income. At some communities, the charging stations are an amenity that doesn’t require payment. Bicycle rooms or secured “controlled access” areas within garages are popping up and requiring a fee as bicycle numbers increase. Managers don’t want bicycles crowding hallways and balconies, Gersper says. 

Technology package

Because people are spending more time working from their apartments, many have higher expectations about having the best possible connectivity for their phone, laptop, thermostat, speakers and even their doorbell for security. “This is something most are willing to pay for,” Hawthorne says. His company bundles these services and charges a range, depending on what it offers, possibly $60 to $70 a month, he says. “It’s separate from an amenity or lifestyle fee,” he says.

Storage lockers

Many buildings charge for individual or group lockers separate from amenity spaces and package rooms, which may give residents a place for their overflow such as furniture and out-of-season clothing. The key for these rooms is having a card, key or fob to enter. In Denver, these are often called a “gear closet” and designed to keep skis, snowboards, fishing poles and other outdoor equipment, says Cook. In Florida, they may be used to keep beach chairs, umbrellas and strollers for when grandchildren visit, she says. How they’re operated—by the property or third-party vendor—varies, she says. Prices vary too by size and location. In New Jersey, most run between $50 and $100 a month, Gretkowski says.

Amenity spaces

Some rooms continue to be offered for free such as gyms, but others are part of a yearly amenity fee or subject to periodic charges when booked for an event. The same type of policy may be applied when buildings make a personal trainer or yoga instructor available. Sometimes, cost depends on how nice and new a space is. “If it’s an old-school clubhouse with a few chairs and sink, residents usually won’t pay, but if it feels like a club room with a resort feel and has a pool and hot tub that may be different,” Gersper says.

Utilities & more

These types of charges are hardly new, and utility, water and sewer bills may be billed by the building or a third-party billing provider as separate charges, Gretkowski says. However, gas and electric bills are usually paid directly to utility providers. 

Outdoor spaces

With garden-style apartments and an increased interest in outdoor space, some developers add a backyard area off lower-level units. “We charge $30 extra for this option,” Lynd says.

Deposit fees

Deposit fees used to be equal to one- or one-and-a-half-month’s rent and charged when residents first leased an apartment. The funds were returned if the apartment was left in broom-swept condition. If there were problems, money was deducted. But some managers now charge $30 a month for alternative programs, referred to as “no deposit programs,” Gretkowski says. These programs allow residents to pay a smaller monthly fee rather than provide a full deposit upfront. Money isn’t typically returned at the end of a lease, he says.

Renters’ insurance

In past years, it was up to renters to secure insurance if they wanted it, but many developers now insist on taking out policies and charging residents for coverage. That way they know the renter is adequately covered, Gersper says. “Some like it and some don’t, but it’s not that much, maybe $11 or so a month,” she says. 

Guest suites

Some buildings have set aside space for furnished suites they rent to residents’ guests at rates that usually are more affordable than local hotels and VRBO/Airbnb properties, says Gersper.

Food and drink

Offering food has become a highly popular option, particularly as COVID ramped up and more residents worked from home. More food trucks visit properties and pay a flat fee to the building. Many communities collaborate with local entertainment venues, restaurants and coffee shops to incentivize contribution to the local community by offering residents discounts and other incentives, Cook says. Small grab-and-go grocery/convenience stores are also popping up, sometimes in a lease center, which adds activity plus a payback to the building. They often stock products different demographics want. “We curate for climates, stocking suntan lotion in warm weather locales,” Lynd says. In the future, pet food may be available through vending machines 24 hours a day. “We’re not there yet but looking at possibilities,” Williams says.   

Key fobs

Some buildings give one or two keys to a renter and charge extra for others, maybe $50 to $100 each, Gersper says. “As more younger Millennials move into apartments, they want dog walkers and cleaners to have access, and many renters will purchase more keys as a convenience,” she says. At Hawthorne’s properties, it prefers to limit access for security to lease holders, so no extra fobs are available, he says. “Some may balk, but we try to hit home the value of what we are doing,” he says.

And yes, pets = dollars

The influx of pets in buildings has spurred many properties to recognize an opportunity for money and they often charge by breed and size. “If you don’t allow pets, you lose a decent portion of the renter pool,” says Gretkowski. In northern New Jersey, properties typically charge $500 upfront, plus $50 per month for pets. The same fee structure applies to all pets regardless of size or breed. The Lynd Group also views pets as a good source of income since 70% of its residents have a pet. “We love, cater to them and accept any breed 
or size,” he says.

More apps = consolidation

Because the number of services is increasing, some buildings add a centralized app that residents can use with local businesses to schedule services related to their home such as home cleaning or dog walking, in addition to paying rent or submitting service requests, says Williams. “The goal is to create efficiency for our team members so they can focus on the resident,” she says. “We leverage our scale to bundle technology services, so we are able to provide competitive and comprehensive offerings to our residents,” says Williams, whose company manages 35,000 units in seven states. 

 

Barbara Ballinger is a frequent contributor to units.