How Value Add Raises the Bar in Multifamily Development
“The Real Estate Developer’s Handbook” says it takes land, capital, knowledge and tenants to succeed. No longer! That’s not the right recipe for success today because properties in prime locations and large sums of capital have dried up. This new reality makes value add real estate projects, maximized with insightful interior design, more important than ever before.
Why Multifamily Apartments Have Gained Momentum
The high foreclosure rate fueled by the Great Recession has spawned homebuyer skittishness, making multifamily buildings more attractive than condominiums—even to wealthy consumers. In fact, mobile Millennials and downsizing Boomers are both gravitating towards apartments today, notes Realtor.com. Despite their divergent needs, both generations share several significant similarities; apartments let them remain flexible; reside in high-density, culturally rich areas; and invest their equity in safe financial instruments.
These realities have spurred a new mindset for developers and builders: they view apartments as safe, long-term investments, according to ULI’s “Emerging Trends in Real Estate 2017”. But that doesn’t mean they can build them: besides land and capital scarcities, apartments are expensive to construct due to rising labor and construction costs.
Choosing Value Add Real Estate
Existing properties are the answer. Builders and developers are snapping them up and executing value add strategies. But nothing is more important to this strategy than the age-old real estate mantra location, location, location. The most attractive buildings for value add development are in walkable urban areas that have it all.
The downside? Prime properties are expensive, a reality that’s inspired developers to expand the definition of a prime location and make the once overlooked outer areas of cities and suburban downtowns more attractive to buyers. It’s a pleasant “catch-22:” as these areas become better, and experience strong rental growth, they also witness increased interest from developers, notes Multifamily Executive.
How To Execute A Value Add Strategy
The best candidates are properties that need physical improvements. That usually means a total rehab. But renovating a property’s apartments, community spaces and amenities requires a deft balance as Millennials and Boomer tenants have much in common yet also significant differences, notes the National Multifamily Housing Council.
That was a challenge when we were asked to execute a value add strategy at Hyde Park Tower Apartments in Chicago, a 155-unit, 26-year-old high-rise in Chicago’s Hyde Park. Though each property has its own issues and idiosyncrasies, we find the following universal guidelines effecting when executing a value add real estate strategy.
5 Ways To Add Value In Value Add Properties
1. Craft multifunctional spaces. Valuable urban square footage must do double duty. The lobby of the Hyde Park Tower Apartments, with firm sofas and movable coffee table became a leasing workhorse by day and a social magnet for tenants to gather at night.
2. Make technology a top priority. Millennials place fast, free Wi-Fi throughout a building at the top of wish lists. Lack of this feature is the most frequent reason they move. And more Boomers are learning the benefits of streaming podcasts and video on the treadmill or using apps to access delivery and driving services.
3. Connect tenants. Tenants may not want 24/7 interaction, but they like the possibility to be social around a fire pit, communal dining table, ping-pong table or through building-orchestrated social events. Create spaces that attract residents of every age and are flexible for social programming.
4. Strive for sustainability and healthfulness. Building choices can foster healthfulness through fresh air, low-VOC paints, high quality drinking water and well-equipped gyms. Hyde Park’s fitness center stays open 24/7 and its lounge resembles a clubroom; being with others is known to foster a healthy mindset.
5. Stay ahead of maintenance. Apartment buildings should take a cue from hotels that don’t let their décor get dated. Update fixtures, furnishings and palettes with fresh, aesthetically on-trend revisions such as new color schemes, emerging technologies (especially with audio and lighting), more durable materials and new safety principles from Universal Design.
Deciding which value add strategies to incorporate in multifamily projects requires heeding interior design trends and demographic targets. For example, business centers disappeared as laptops proliferated, but are back as tenants who work from home want the option of a shared space. But they may also want to be able to enjoy other value add features–maybe, an on-site food truck or meditation garden. The bottom line is to invest dollars wisely.