The following is an excerpt from the Q&A between Obligo COO Omri Dor and Lauren Shanesy, from Multifamily Executive.
MFE: Tell us about Obligo. What is it, and how does it work?
Dor: Obligo is a financial technology company that partners with luxury multifamily owners and operators to provide a new kind of amenity — deposit-free properties. In a deposit-free property powered by Obligo, renters provide a digital “billing authorization” in place of a security deposit, allowing management to bill them in the event of damages, while keeping landlords secure and renters accountable.
Landlords may only charge up to a limited, pre-agreed upon amount, and unreasonable claims may be disputed, just like a normal deposit. If the landlord makes a claim, Obligo pays out at once but allows renters to repay in installments.
The renter is required to provide authorization to one or more billing methods up front as part of the qualification process. Obligo will test those billing methods using open banking technology, to make sure that funds are available, before making a decision to accept a renter. Renters who don’t qualify for the billing authorization service, or who prefer to pay a traditional deposit, can pay their deposit electronically using the same onboarding experience.
MFE: How is this model different from other no-security deposit offerings?
Dor: Various companies have been offering insurance-based replacements for security deposits for over 20 years. The goal of the insurance-based offerings is to help renters who are struggling to afford their deposits, and the price is accordingly high, usually around 17% of the deposit size. This is addressing an acute need of an important segment of the rental market, but it’s not catering to the majority of renters.
Obligo’s goal, in contrast, is to replace all security deposits, starting with luxury multifamily owners and operators. The first step to achieving this goal is to drastically drive down the cost of the service. To do that, Obligo is using a credit-based financial structure (not insurance) and utilizes state-of-the-art payment and underwriting technologies, such as open banking.
The second step toward replacing all security deposits is to take a holistic, property-centric approach, rather than a renter-by-renter approach. Obligo is powering deposit-free properties, where no deposit is the norm and deposits are the exception. To accomplish this, Obligo plugs into each property’s existing tech ecosystem: the CRM, screening, payment, and accounting platforms.
MFE: What need in the multifamily housing industry is Obligo meeting?
Dor: The multifamily market, especially on the luxury end, is facing unprecedented competitive pressure. On the one hand, there’s increasing supply. On the other hand, renters have access to a lot of data and are a lot savvier about comparing locations, prices, amenity packages, and online reviews.
As a result of this competitive pressure, landlords who wish to maintain their rent levels must offer increasingly appealing amenity packages and provide a consistently excellent renting experience. It’s no surprise that concessions are at an all-time high in the multifamily market, especially on the luxury end, and this trend is expected to continue throughout 2019. Unlike a concession, however, Obligo increases your NOI, too.
MFE: What are the benefits of this kind of arrangement for property managers?
Dor: Going deposit-free simplifies life for all parties involved. Leasing agents can go paperless and close deals on the spot, without sending their valuable prospects to the bank to get cashier’s checks. Management companies don’t need to process checks, do bank runs, open and close escrow accounts, take W-9 forms, or fill out 1099 forms. Moreover, they don’t have to ‘race’ to return renter deposits, and they can finally put an end to the, “Where’s my deposit?!” choir of angry emails, phone calls, and online reviews.
MFE: Two multifamily managers have implemented Obligo at their properties. What kind of feedback have you received on the system?
Dor: Our two launch partners, both based in New York, both decided to roll out Obligo for their entire portfolio. In about 10 of our 20 live properties, Obligo is offered as a free amenity, paid for by the landlord. In two buildings, the landlords have decided to return deposits to their existing renters. We think this fact alone, that landlords are willing to pay for the service and return deposits to existing renters, speaks volumes about the value that managers see in deposit-free properties.