Landlords - Thoughts on commercial deposit insurance product?

Question

I'm considering investing in a company that provides a commercial deposit insurance product that replaces lease deposits for office and retail tenants. This allows businesses the ability to access and invest critical liquidity while providing landlords with enhanced coverage against defaults. Basically, instead of a tenant putting down a deposit, they agree to an insurance policy with a monthly premium rolled into their rent. The liability coverage for the LL is also typically higher than a cash security deposit. The goal is to increase leasing volume while also increasing the security for the LL and reducing leasing friction for both tenant and LL.

Would this be useful for you and your properties?  Any potential downsides you can think of?

Any feedback you can provide, positives and negative, will be very helpful.  Thank you!

Todd Peoples · Answer

Thanks @Nathan G. I haven't heard of Obligo but will look into it.  The good thing about the product I'm considering investing in is it's a true insurance policy.

Great point @Ronald Rohde.  The product is actually underwritten and backed by Euler Hermes, which has underwritten billions in policies over the past 130+ years.  I agree, it's very important that the financial risk is not tied to a startup

Ronald Rohde · Answer

I've heard of a handful using this. Its tricky to classify as "insurance" or a guarantee service. I'd be worried about solvency of any financial startup.

Nathan Gesner · Answer

The product I use is Obligo. It's best to check out their website for a description. In lieu of a traditional deposit, my tenant can get qualified with Obligo and pay a monthly fee in exchange for a "billing authorization" that allows Obligo to withdraw funds from their account to reimburse me for any claim I file. For example:

Deposit of $2,000

Tenant pays Obligo $15 a month or $180 (payable in advance) and they put a checking account and credit card on file with Obligo.

Tenant leaves with $800 in cleaning and repairs.

I notify tenant of the charges, then report the charges to Obligo.

Obligo pays me.

If the tenant manages to close their accounts and Obligo is unable to collect, they still pay me and it is their responsibility to go after the Tenant to collect. They say it's rare so they're willing to take the risk.

This does help reduce the cost of moving in but it's not the best option for everyone. So far, I've only had a handful sign up for it. Most prefer to pay a traditional deposit.

Todd Peoples · Answer

Thanks @Courtney Duong!  Will look forward to his response if he chimes in. I agree, the additional coverage is a huge benefit. Can get 3-5x monthly rent coverage vs 1 month rent coverage with a traditional cash security deposit.

Courtney Duong · Answer

@Todd Peoples. I think @Nathan G. mentioned this in a recent post, but for residential side.  Worth exploring since I normally don't think a 1 month security deposit is not enough in case there are damages or tenants owe more than a month.