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Flashy Amenities Or Home Offices? In High-Cost Environment, Apartment Developers Face Tough Choices

The effects of the pandemic have changed how developers are executing their plans for residential buildings: from adding video doorbells and new package systems to building bigger living spaces and home offices.

“It's not just about the architecture anymore. You could design a nice space, the lobby could be fantastic, but what extras does it have?” MG2 Design associate principal Victor Malerba Jr. said at Bisnow’s Tri-State Annual Multifamily Conference last week. “What’s the extra sauce?”

But developers are also aware that new residential demands may shift as the long-term equilibrium of the hybrid work movement settles. With many employers yet to announce their permanent return-to-office policies, making long-term plans for building design has become a gamble for developers bringing their products to the market today.

MG2's Victor Malerba Jr., Silverback Development's Josh Schuster, WSP's Susan Erdelyi Hamos, ITALKRAFT's Raul Gutierrez and KOW Building Consultants' Kenneth Wille speak at Bisnow's Tri-State multifamily conference.

Slate Property Group principal Martin Nussbaum has dealt with this dynamic firsthand, with a 200K SF site in Dutch Kills that Slate acquired in 2019 and began building prior to the pandemic. 

“We redesigned the building in the middle of Covid to create nooks, so that we can create home offices in all the apartments that could accommodate it,” Nussbaum said at the event. “For lack of a better way of saying it, we shrunk down sizes of bedrooms a little bit, took away walk-in closets, and created a 5-by-7 [foot] workspace area to accommodate the work-from-home concept.”

While tenants in the luxury market have long sought out larger spaces and extensive amenities, that trend has been exaggerated by remote work, said Elise Rosemarin, a senior vice president with property management firm AKAM.

“Amenities and space are a driver for the luxury market in general,” she said. “There's a surplus of people looking for larger condos and rentals. There's a large emphasis on doorman buildings.”

Certain amenities, like multi-use outdoor space, have universal appeal for prospective tenants. But some developers are focused on flashier offerings, designed to grab attention fast.

“There's a building in Baltimore that has a paintball room,” Silverback Development principal Josh Schuster said. “I almost want to have a convention with all the developers and say, ‘Can we stop the amenities like the arms race?’ Because it's gotten out of control.”

Different groups have a huge variation of amenity demands — meaning design is becoming more of a gamble. FirstService Residential Senior Vice President of New Development Consulting Marc Kotler said one of the new offerings that has taken off in apartment buildings is the use of hands-free technology, but not all groups are as drawn to new tech.

“It depends on the demographic you’re servicing,” Kotler said. “Younger demographics want to see enhanced tech, whereas older demographics might not want that. They may want more staffing services.”

Kastle's Bob DiProspero, Bozzuto Management Co.’s Nancy Goldsmith, FirstService Residential's Marc Kotler, AKAM's Elise Rosemarin and Herrick Feinstein's Bill Fried speak at Bisnow's Tri-State multifamily conference.

Narrowing the focus on a target tenant group and an appealing range of building facilities is just one challenge designers and developers face. After two years of the pandemic affecting the costs of building materials and labor, plus current inflation, developers are taking an expensive gamble when it comes to choosing which amenities to prioritize.

“There’s an 800-pound gorilla in the room: costs,” KOW Building Consultants CEO Kenneth Wille said. “We’re a pretty creative industry, we’re used to curveballs, but the last two years have been kind of a force majeure. No one really knew that these things were going to just jump like this, in terms of costs and inflation.”

Some buildings have been able to squeeze more value out of amenities by creating dual purposes for spaces, WSP Senior Vice President Susan Erdelyi Hamos said. As project manager for the American Copper Buildings' 2016 construction, Erdelyi Hamos described how the development team was able to create maximum efficiency on the bridge connecting the two buildings, which serves as the amenity floor for both.

“The reason we did that was not only to have a beautiful pool and spa, but also to allow the mechanical system for the two buildings to work together,” she said. “So we use that space under the pool for transferring mechanical utilities from one and to the other.”

Erdelyi Hamos said that some amenity trends, like the demand for more space, can be fixed through modifying construction materials. WSP has been able to switch to using high-strength concrete to cut down on slab thicknesses, wall thicknesses and column sizes. 

But Rosemarin cautioned developers against being too reactive to trends, including hybrid and remote work, that may not last.

In previous times of economic uncertainty, tenants have been focused on smaller spaces and bargains, meaning that the demand for more space may not endure a return to office, because people will spend less time in their homes.

“You need to be mindful of what you’re building and the time you’re in," Rosemarin said. "I think there's going to eventually be a cool off.”