PRIVATE REPORT LABEL MARKET
Speed-to-Market Design
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We are in a rather unique time for multifamily real estate. The high material and shipping costs as well as supply delays makes building from the ground up riskier than it would be under more predictable conditions. The investment rates, cap rate compression and inflation are also all factors in assessing the risk level for multifamily investors. However, high demand for rental units has contributed to the most stable supply and demand condition of any property type for the past several years. Multifamily properties are underbuilt and in high demand, and rental rates have increased in double digit percentages based on that demand. All those things considered, we’ve seen a larger emphasis placed on speed-to-market design.
Speed-to-market in terms of design and construction can refer to multiple different scenarios. We’re going to refer to it mainly in regard to existing assets that are long terms holds with goal of current cash flow but a focus on appreciation returns over the next 5-10 years. In past markets, we saw more short term holds than we are seeing now. With those long term holds come an increasing need for capital improvements to either keep a luxury rental property relevant to the large influx of new builds, or to reposition an asset to allow it to be competitive.
“With those long term holds come an increasing need for capital improvements to either keep a luxury rental property relevant to the large influx of new builds, or to reposition an asset to allow it to be competitive.”Photo Info: Living at Noho North Hollywood, CA
We have a deliverable that we offer to our clients that are wanting to do just that. We refer to it as a Property Positioning Plan that assesses the property holistically, strategically lays out priorities for improvement based on the current market and the targeted demographic, and applies aesthetic and program trends to the property at hand. This plan has been used in conjunction with a developer’s or property manager’s business plan to finalize yearly budgets and determine the areas of attention for the most promising return on investment.
The speed-to-market aspect comes in when we address it from the standpoint of quick updates with the most impact. By assessing the property as a whole, developers can prioritize funds based on market conditions and what will appeal the most to their prospective resident base. One thing to consider when making these decisions is the difference between capital improvements and perceived capital improvements. For example, we had a project several years back that we were repositioning, and the client was holding a large budget number to completely replace the parking awnings.
“By assessing the property as a whole, developers can prioritize funds based on market conditions and what will appeal the most to their prospective resident base.”Photo Info: Living at Santa Monica, Santa Monica, CA The Fillmore Center, San Francisco, CA Visconti on Glen, Scottsdale, AZ
“When the resident perceives it as an upgrade they are willing to pay more in rent, and it’s a higher return on investment. Not all improvements will do that, and if there is a choice, its always to lean towards resident needs and wants to gain a higher return.”
They were in good condition and mainly only needed new paint and signage. When we talked to them about prioritizing those funds somewhere else it ended up making sense because the residents would not see that upgrade as an actual upgrade. When the resident perceives it as an upgrade they are willing to pay more in rent, and it’s a higher return on investment. Not all improvements will do that, and if there is a choice, its always to lean towards resident needs and wants to gain a higher return. We’ve also found that when it comes to residents, aesthetic holds a lot of weight, and new furniture and finishes can have a huge impact.
