Renting Properties to Ultrawealthy Tenants Isn’t As Glamorous As It Seems
High-net-worth renters, especially celebrities, have ‘special requirements’ that go beyond a typical lease agreement.
High-net-worth renters, especially celebrities, have ‘special requirements’ that go beyond a typical lease agreement.
If you’re a landlord, you’re no doubt aware of all the issues that can arise when you rent your property for the median monthly asking rent in the U.S., which was reported by Redfin to be US$2,002 in May 2022.
But what about an ultraluxury home or condominium, one that rents for US$50,000, $100,000 or even $130,000 per month?
“High-end luxury rentals create unique challenges for landlords because the tenants are high-net-worth individuals, often celebrities, who have special requirements,” said Julian Johnston, a real-estate broker at The Corcoran Group in Miami Beach.
Mr. Johnston, who last year represented the owner of an 11-bedroom, 15-bath waterfront home in Miami Beach that was leased to a celebrity for US$130,000 per month, recently worked on a deal where he had to sign a lease rider stating that “if I needed to go to the residence for any reason that I would not speak to, or look at, the tenant.” Another celebrity client wanted to ensure privacy at the rental home, so Mr. Johnston arranged to purchase $20,000 worth of 2.4-metre-high potted plants that were placed along the sea wall and on bedroom balconies so that paparazzi couldn’t shoot photographs from a boat offshore.
The high-net-worth individuals who can afford to rent these properties often come with high expectations. Many demand almost concierge-level service from their landlords or the agents or property managers working on their behalf.
“In your average landlord-tenant relationship, the landlord pretty much dictates the terms, and the tenant will not have that much say,” said Zachary D. Schorr, a real-estate attorney in Los Angeles. “But when you get into these higher-priced leases, it’s not atypical for an attorney to negotiate the terms of the lease.”
Eric Rollo, a licensed broker and managing partner of the Boston office of The Agency, recently worked on a lease where the tenant was a player for the Red Sox, who was renting a townhouse in Chestnut Hill, just outside Boston, for US$18,000 a month. “He was in Florida at spring training but expected to arrive at a turnkey property,” he said. “So, we had shades installed, the internet and cable hooked up and everything done on the front end to make sure the property was ready.”
Danny Hertzberg, a real-estate agent with The Jills Zeder Group at Coldwell Banker Realty in Miami Beach, also has coordinated requests from high-net-worth tenants. “I often receive the initial call with the complicated requests and then connect the tenants with the property manager, who makes all the arrangements for them,” he said. “They expect the fridge to be stocked and massage therapists, chefs and drivers to be arranged. They also want to know that the landlord has a professional management company that has the resources to respond at 4 a.m. on a Sunday morning for a leaky faucet.”
Mr. Hertzberg said many landlords even do light remodelling between tenants so their properties are in pristine condition.
Leases for high-end rentals can be complicated as well, with tenants demanding unique clauses that may adversely impact the rights of the owners.
Mr. Hertzberg was involved in the sale of a five-bedroom home on Palm Island in Miami Beach where, before signing the listing agreement, the owner rented it to a famous Reggaeton artist for over $100,000 a month. The tenant had his own security team, with multiple guards in front and in back of the property, and they were so protective that even though Mr. Hertzberg had the right to show the property to potential buyers, the guards wouldn’t let them access the premises.
“We lost a lot of buyers because they weren’t willing to jump through hoops,” said Mr. Hertzberg. The tenant allowed access only on certain days and at limited hours. Prospective buyers also had to sign a nondisclosure agreement, which prohibited them from taking photographs.
Ultimately, the parties were able to negotiate a showing when the tenant was out of town, but access for home inspections and the appraisal were a nightmare as well, he said. All inspectors needed to be approved by the tenant and were escorted around the property with the tenant’s security team.
The house was listed for about US$20 million and ultimately sold for about $15 million, Mr. Hertzberg said. “The seller left millions of dollars on the table as a result of the tenant,” he added. “He took a big haircut.”
If you’re the owner of a high-end property and planning to rent it out, here are some things to consider.
Be creative when qualifying the tenant. Owners of ultraluxury properties, or their representatives, need to do more than just a basic credit check and background search on the prospective tenant. Some landlords ask for proof of funds, such as bank statements, as well as personal references from former neighbours or landlords. Others request a letter of credit or that the tenant pay six months or a full year in advance. Ethan Assouline, an agent with Compass in New York City, does all this and more. “If it’s a celebrity, you can also google them and do your due diligence to see if they had past troubles or noise issues,” he said. “Plus, we often know who the broker is on the other side when we’re representing the landlord and the reputation of that broker and the kind of clients they work with.”
Make sure your insurance is sufficient. Landlords of high-end properties should consider securing an umbrella policy, which kicks in when the underlying limits of the landlord’s policy aren’t enough to cover the costs if the landlord is sued for an accident or injury on the property. All landlords of homes that are rented long-term—anything over six months—regardless of the rent level, should have a landlord’s policy, or rental dwelling policy, according to the Insurance Information Institute, an industry trade group. A landlords’ policy provides coverage for physical damage to the property caused by fire or other casualty, as well as coverage for personal property the landlord leaves for tenant use. It also includes liability coverage in the event a tenant or guest is injured on the property. Many landlord’s policies also cover loss of rental income in the event the property can’t be rented while it is being repaired due to damage from a covered loss. Landlord’s policies typically cost about 25% more than a standard homeowners policy for this extra protection.
Do a preoccupancy inspection. While inspections on lower-priced rentals are common when the tenant moves out so the landlord can ensure there are no damages, for high-price rentals, Mr. Schorr recommends a preoccupancy walk-through to protect both parties. “Document everything via video and photographs, and have the tenant sign off on it,” he said. “That way, if a dispute arises, you have a record.”
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 30, 2022.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
Amrish Maharaj undid a century of hodgepodge alterations while navigating strict conservation rules
Haberfield, a charming slice of suburbia in what locals call Sydney’s “inner west” region, is miles from the landmarks like the Harbour Bridge and the Opera House, and isn’t famous for multimillion-dollar waterfront mansions. What it is known for, however, is fiercely protecting its architectural identity.
After an uproar in the 1970s led by local residents—who were fed up with period homes getting unsympathetic makeovers—the National Trust created the Haberfield heritage conservation area in the mid-1980s. As a result, the suburb of approximately 6,500 people has one of Sydney’s best-kept streetscapes.The heritage designation has been a win for preserving the past, but has created challenges for architects tasked with making Haberfield’s homes more family-friendly, sustainable and sellable.
Architect Amrish Maharaj was hired by his clients, owners Ramy and Sarah Azzam of ML Constructions, to modernise a single-storey Federation dwelling—an era of Australian architecture between approximately 1890 and 1915. Although its bones dated back to the turn of the last century, the Haberfield home, coined Glencoe, had already undergone a number of objectionable changes before conservation rules had come in. The design was stuck between two time periods.
“Its original roof and chimneys had been removed and replaced with a post-1943 hipped roof clad in terracotta tiles. The length of the house had been doubled with the addition of a substantial rear extension. A small skillion roof was put over the front veranda, metal balustrading and the front verandah detailing had also been amended, removing the original timber work,” Maharaj said.
“The previous work appeared to have focused on increasing the number of rooms, and not improving the spaces within,” he added. From the entry, a dark central hallway cut the house in half, splitting four bedrooms and a bathroom to the north from an additional bedroom, an enclosed lounge room, dining room and kitchen to the south.
Despite the patchwork of renovations and extensions over the years, planning regulations still remained strict for the team attempting to bring the residence into the 21st century.
“We had an initial concept, which was a little more modern than the end result, but the local council wanted a more traditional construction. We had a heritage expert come and look at the house and give their recommendations,” he said. “She determined that it was probably part of a group of three or four houses that were once the same beautifully detailed Federation-era homes. But somebody had come along in the 1940s and did their own thing.”
“There was a discussion about pulling off the roof and getting it back to what it was, but it came down to a question of budget. We tried to put back as much as we could, by replacing the front windows with traditional timber, we changed the front path and front fence just to give a little nod to what used to be, without stripping the render and reconstructing the whole roof.”
Now the street appeal of the home is a better fit with its Federation neighbours. The decision was then made to pull focus from the facade while investing attention, and funds, into the rear of the house.
“In keeping with what the Council was wanting, we used traditional materials and techniques in the construction of the back extension even though it does feel very modern,” Maharaj said.
As well as employing conventional methods for the external build of the large rear addition, a host of modern-day luxury finishes were used inside, where the interior design was overseen by owner Sarah Azzam.
High-traffic floors were finished with limestone tiles, Polytec joinery was used throughout, and internal walls feature a sleek white set render. Bathrooms feature Fibonacci Terrazzo tiles with underfloor heating.
A standout of the new look is the grand triangular gable crowning the rear indoor-to-outdoor living zone, a unique design feature in the neighbourhood of smaller sized blocks and heritage homes. The seamless flow to the backyard is an element that has become a must-have in modern Sydney homes thanks to the temperate climate.
“Our work began with the deconstructing and restructuring of the original home. Retaining four good-sized bedrooms to the front of the house, the central areas were dedicated to service spaces, with a big family bathroom, laundry, powder room and en-suite. The home then steps down to a large open-plan kitchen, dining and living room, which seamlessly connects to an al fresco dining area, garden, and a new pool and cabana,” Maharaj added.
“It’s such a Sydney thing, the seamless flow to the outdoors from the main living area. When I think about our briefs, from every single client, I’d say right at the top of everyone’s list is natural light, good ventilation and a connection to the garden,” he said. “Australians also love a north orientation.”
The Azzams, who declined to comment on the project, bought the unrenovated Haberfield house in 2020 for A$2.5 million (US$1.6 million), then sold the reimagined residence in 2023 for A$4.9 million.
“They bought it as their forever home. That large space at the back was created that way because they’ve got a big extended family,” Maharaj said. “They were often talking about Christmas dinners of 20 to 30 people, and space for a grand dining table was specifically on their list of requirements. Sarah has a great design eye and was meticulously hand selecting the finishes. But they ended up seeing another house nearby and decided to do it all again.”
Maharaj shared some more thoughts about the design and build process.
The biggest surprise was… I think we got lucky with the glass gable in the back of the house. We tried to do something similar on a house only a couple of streets away about a year later and it was completely knocked back by Council. When we pushed back to ask why, we were told it should never have been approved as is. Sometimes the approval process includes a bit of luck.
A favourite material we discovered during the process was… Of all the materials, I’d have to say that the Super White Dolomite and the limestone flooring we used were the big hits. We had quite a few potential buyers asking about these items in particular. We have received a number of calls from other homeowners in the area who are looking for a similar renovation, and even the odd call from people who have seen the home and wanted to express how much they loved it.
The most dramatic change was… When we start these jobs, we can often see that the houses have been either abandoned or people have just added and removed rooms and walls over time. So bringing that all back together was really fulfilling for me as an architect. Originally, this house felt like a cold hospital ward when you walked through it, with all these rooms coming off one corridor. Bringing it back to life and making it feel like a home with a heart is something we’re really proud of.
The total cost of the renovation… Being able to do the building himself, and their own interior design meant the pair could save some money, but they really spared no expense. It was a project that cost approximately A$1.5 million.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.