The Bar Test: Building Features Renters Insist On But Won't Pay More For
Want to get a jump-start on upcoming deals? Meet the major players at one of our upcoming national events!
Tenants want fast internet and cutting-edge amenities, as well as sustainable and energy-efficient buildings. Meeting those tenant demands while making sure a project can still make money is the real challenge for apartment builders.
Take LEED certification, for example. While most tenants and buyers say they want the building they live in to feature that approved energy-efficiency rating, developers say few consumers are willing to pay a premium for it.
“Nobody will pay you more money for that LEED rating,” said Barbara van Beuren, the managing director of acquisitions at development firm Anbau.
Anbau is currently selling apartments in an 84-unit condominium building at 360 East 89th St. in New York City, and it recently acquired an Upper Manhattan plot for a planned luxury development.
“In the condo market, we’ve done three LEED buildings," she said. "As a matter of fact, a lot of people hate the things we put in, like the low-flow shower, it just screws up your water pressure."
Van Beuren was speaking at Bisnow’s Multifamily Annual Tri-State Conference in New York City this week, and told the audience she believes that as a developer she has an obligation to “do the right thing” with the buildings she works on.
However, focusing on sustainability features is not something she “would make a business plan.”
J.P. Morgan Asset Management Managing Director and Head of Multifamily Allina Boohoff said her company has done retrofit installations of LED lights in all its buildings in New York City, because its clients — meaning pension funds — are paying close attention to the impact that has on the bottom line.
Boohoff said almost of all of the thousands of units J.P. Morgan has developed since the last recession are LEED-certified, fueled by the expectations of its clients and the future residents, not the bottom line.
“In all the surveys I’ve seen, and everyone I’ve spoken to, I don’t think anybody is really willing to pay for it,” she said. “It’s almost an expectation to go into a building to know that it is LEED-certified.”
Landlords and developers face steep competition to attract and retain tenants. In New York City, tens of thousands of new units are hitting the market this year, forcing some property managers to cover broker fees and offer free rent in order to keep vacancies at bay.
Across the country, panelists said, price and proximity to transportation are still major factors in the decision to live in one particular building over another. But increasingly, the level of technology and the types of amenities that a building offers are playing a big role.
“People walk around with their phone. If they don’t see bars, they don’t rent, full stop,” Boohoff said, adding that introducing technology into buildings is challenging because things change so fast. Many Apple products from just a few years ago, for instance, are already obsolete.
Rose Associates, which manages more than 14,000 residential units in about 60 properties in New York City, has developed its own app that residents in its buildings can use to communicate with the front desk and to access amenities.
“If you have an issue with your apartment system, you can snap a picture and have two-way communication with the front desk,” Rose Associates Chief Financial Officer Marc Ehrlich said. “If you want to reserve the grill, it’s right there on your app. You can control your whole resident experience.”
When landlords do integrate technology, it will help them gather data, which they could be able to monetize in the future.
“In the next 10 years, data and software will be the biggest revenue generator for building owners and operators,” said Scé Pike, the founder and CEO of IOTAS, a Portland, Oregon-based technology company that helps integrate technology into multifamily units. “Internet going into buildings ... will essentially create a tremendous amount of data that might be valuable."
Other panelists said that making good use of technology isn't about landing tenants. It helps landlords better manage buildings and offer a better resident experience.
“We had a smoker we couldn’t identify in one of our buildings, so we put a Nest camera in the hallway,” Midboro Management President Michael Wolfe said. “Within an hour we had an alert because we had a good WiFi connection, and we had the person on video and we wrote them a letter. The smoking has stopped.”
Beyond technology, developers are not shying away from the amenities race in physical spaces, either.
“Everyone is building gyms and rock climbing walls, I don’t know how much more you could invent,” IBI Group Studio Lead of Residential and Mixed Use Brian Ahern said. “Just having your own outdoor area and a vista is a great amenity.”