LDEV 669 Exam 2
Absorption
• Absorption: The net change in the total number of apartment homes leased. • Absorption Rate: The proportion of newly completed units that are, or have been leased, usually over a given period (such as 3 months).
Environment
Wetlands regulations come in two forms: • Areas that are typically inundated and have three characteristics: • Inundation • Hydric soils • Plant species • Waters of the United States
Site and Building Design- General Comments
• A development will struggle unless the project meets the target market's requirements.
Site Planning
• A good site plan generally takes into account natural characteristics of the site such as topography, water features, trees, etc. • What are site characteristics that affect the design of multi-family? • How can the configuration of a site affect the design of a multi-family community?
Multi-Family Development
"Unmet demand...is the key element that a market study seeks to identify."
Low Income Housing Tax Credits
After award of Tax Credits • States award tax credits generally twice annually • Upon award of credits a developer has several years to complete the construction of the project • Credits may not be claimed until construction is complete and occupied by residents ("placed in service") • If a state has unused credits, they go into a national pool and are redistributed
Low Income Housing Tax Credits
Allocation of Tax Credits • Federal government allocates to each state at $2.75625 per person. Smaller states are allocated a minimum of $3.16M • Each state's Housing Finance Agency administers the program within the state • Each state has a Qualified Action Plan (QAP) to determine how projects are assessed and funds allocated • QAP's give priority to projects that serve the lowest income and remain affordable the longest
Multifamily Management
Causes of Turnover include: • Job Transfers/Layoffs • Buy a Home • Tenant not happy with unit/amenities/management • Problems with other residents • Competition (better rates, deposit, amenities, age) • Inadequate screening
Environmental Due Diligence
Comprehensive Environmental Response Compensation & Liability Act (CERCLA) highlights include: • CERCLA was enacted to identify hazardous waster sites, assess liability for their clean-up, and create a fund for clean-up (aka "Superfund Law") • Landowner with no prior knowledge of contamination is not held liable for that contamination if the landowner can prove that environmental due diligence was part of the process.
Environmental Laws
Comprehensive Environmental Response Compensation & Liability Act (CERCLA) highlights include: • CERCLA was enacted to identify hazardous waster sites, assess liability for their clean-up, and create a fund for clean-up (aka "Superfund Law") • Landowner with no prior knowledge of contamination is not held liable for that contamination if the landowner can prove that environmental due diligence was part of the process.
Supply Factors
Data related to the Supply of multifamily within an area can be determined in-house, through databases, market studies, or a combination of these sources. The two key factors to examine are: • Analysis of the Competition • Status of the Development Pipeline
Low Income Housing Tax Credits
Eligibility Test: Gross Rents • In addition to the income test, projects must meet a gross rent restriction • Rental rates may not exceed 30% of the elected 50% or 60% area gross median income threshold elected for the project in the Income Test
Low Income Housing Tax Credits
Eligibility Test: Income • Owners must elect one of two criteria • 20/50 rest or 40/60 test • 20/50 test is 20% of the units must be occupied by residents with incomes less than 50% of the area's median gross income • 40/60 test is 40% of the units must be occupied by residents with incomes less than 60% of the area's median gross income • In 2018, a third test was added. At least 40% of the residents must earn less than 60% of the average median income
Low Income Housing Tax Credits
Example • New construction costs $1M • $1M x 9.0% = $90,000 annually • $90,000 x ten years = $900,000 • The net present value of the $900,000 series of payments is approximately $700,000
Product Types
Garden Apartments are typically: • Two or three story (no elevator) • Ten or more units per building • Landscaped common areas • Surface parking (many now offer garages) • Wood framing of the building • 20 Dwelling Units per Acre
Low Income Housing Tax Credits
How developers use tax credits • Developers usually exchange tax credits for equity in a deal • Typically a limited partnership- invests in the partnership and instead of getting cash, they get compensated with tax credits to offset other income • In general, investors receive a discount on the investment and pay the developer $0.80 to $0.90 per dollar for the tax credits • Banks often invest in LIHTC deals to aid in complying with Community Reinvestment Act requirements • Most investors however invest for the tax shelter
Land Use Regulation
Land Use Regulation generally comes in one of the following forms: • Zoning- typical land use regulation • Common Law of Nuisance- prevents an owner from using their property in ways that injure a neighbor's property. • Restrictive Covenants- a private agreement between parties often found in a deed or declaration of covenants, conditions and restrictions.
Site Planning
Limiting factors of site design include density limitations, parking requirements/configuration, and emergency access. • Parking takes up a large percentage of the land area. • Parking ratios are generally around 1.75 spaces per unit. • Bryan one parking space per bedroom. • College Station 1.5 for 1 BR; and 1.0 per BR • Garages are increasingly popular with suburban multifamily (often a source of revenue) and many developers incorporate separate garages at the perimeter of parking lots.
Identifying the Market Areas
Market Analysis for multifamily projects seeks to identify two market areas: • Target Market Area (Demand)- The TMA delineates the area from where the majority of demand for a proposed project will be generated. • Competitive Market Area (Supply)- The Competitive Market Area consists of the area in which projects similar to the proposed project are located. • The Target Market Area and Competitive Market Area are usually the same area, but may vary from each other based on the location of competing projects.
Multifamily Amenities
Market analysis should provide information to determine what amenities are provided by competitors & what amenities the developer should offer. • Pools are almost mandatory in most markets • Tennis courts are a thing of the past • Indoor recreation/fitness areas • Media rooms • Concierge service • Outdoor living areas (fireplace, grills, TV, etc.) • Valet trash service • Business lounge • Private dining, conference room, catering kitchen
Marketing Multifamily
Marketing of Multifamily projects is taking the unmet need identified during the market study and determining: How the project will be designed to meet this need? How to advertise and lease the project to meet the market need and the financial returns?
Identifying the Market Areas
Note: If market study databases are available, it is OK to use pre-determined market areas. • Makes analysis more consistent • Less confusing for lenders and investors if you are all using the same database • If more than one database is available (e.g. CoStar and REIS), then you may want to: • Examine what the differences in market areas are • Determine what implications can be drawn from the differing areas
Regulatory & Legal
Other Codes, Laws and Regulations: • Building and Fire Codes • Impact fees and exactions • Rent Controls- largely a thing of the past and generally do not apply to new developments.
Regulatory & Legal
Other issues to be aware of include: • Asbestos • Lead and lead paint • Pesticides and herbicides • Indoor air quality • CFC's (refrigerants) • Radon • Underground storage tanks
Low Income Housing Tax Credits
Overview • Created by Tax Reform Act of 1986 • Incentive for the development and rehabilitation of affordable rental housing • Awarded to developers on a competitive basis by Housing Authorities • Developers either use, or sell, the tax credits to reduce their equity or debt on projects • LIHTC costs the government approximately $9.9B annually • Can be used for single-family dwellings, duplexes, townhomes, and apartments.
Site Planning
Parking Analysis • 15 acres at 20 DU/AC = 300 units • 300 units * 1.75 Spaces/Unit = 525 spaces • 12' * 40' = 480 feet per space • 525 spaces * 480 SF/space = 252,000 SF • 252,000 SF/43,560 = 5.8 acres for parking • 5.8 acres/15 acre site = 38.7% of site
Environmental Due Diligence
Phase One Environmental Site Assessments (Phase 1 or ESA) • A report prepared for a property that identifies potential or existing environmental contamination liabilities. • Addresses both the underlying land as well as physical improvements to the property. • Sampling of soil, air, groundwater and/or building materials is typically not conducted during a Phase I ESA. • The Phase I ESA is generally considered the first step in the process of environmental due diligence • Standards for performing a Phase I are based on ASTM Standard E1527-13. • If a site is considered contaminated, a Phase II environmental site assessment may be conducted, ASTM test E1903, a more detailed investigation involving chemical analysis for hazardous substances and/or petroleum hydrocarbons.
Conceptual Design
Regulatory Analysis consists of an analysis of all regulatory conditions that impact the site. • Zoning (density, building height, etc.) • Building lines and setbacks • Ingress/egress • Drainage/detention • Parking requirements • Building/fire codes/windstorm • Results of market analysis should guide the Conceptual Design
Identifying the Market Areas
Relatively large market areas, or market areas with distinct demand/supply characteristics, may be divided into more than one sub-market.
Conceptual Design
Site Analysis Site analysis includes a detailed analysis of the site and how site related conditions affect the development of the site. • Topography • Vegetation • Surrounding land uses • Features of the site (good and bad) • Adjacent roads, easements, power lines • Results of market analysis should be included in this analysis
Environmental Laws
Some environmental laws to be aware of include: • Endangered Species Act • National Historic Preservation Act • Archeological and Historic Preservation Act • The Wild and Scenic Rivers Act • Executive Order 11990 (Wetlands) • Clean Water Act of 1977 (more wetlands)
Analysis of the Competition
Sources of Information • National sources include Costar and REIS • Regional sources: Metrostudy, John Burns, etc. • "Local" sources: Brokerage firms • Developer research
Design Process
The Design Process starts with Conceptual Design which flows into; The Preliminary Design phase and finally; The Final Design phase which ends with construction plans for the site and the buildings.
Final Design
The Final Design involves converting the Preliminary Design plans to construction plans such as: • Construction Plans for the buildings that are reviewed and approved to get building permits. • Site Plans prepared by the engineer that are reviewed and approved for site work such as drainage, utilities, and driveways/parking lots. • Landscape plans showing amenities, landscaping, and irrigation.
Preliminary Design
The Preliminary Design looks at various alternatives to layout the community based on the analysis generated during the conceptual design phase. The alternatives are refined and a site plan showing building footprints, parking layout, setbacks, reserves, etc. is generated. The preliminary design generally has enough detail to obtain preliminary reviews from public agencies.
Analysis of the Competition
The analysis of existing competition in a market report usually starts with a summary of the competition with various tables of supporting data including: • The number of leased units • The number of vacant units • Rental rates • Square feet per unit by apartment type • Rent per square foot • Unit mix As with all analysis of competing projects, there is no substitute for touring each competing property.
Site and Building Design- General Comments
The developer should visualize all aspects of the project and consider the following: • Mentally drive through the site. • Visualize how the facilities are used. • What is the view from every window? • Imagine living in each unit. • What impression do tenants get upon arrival? • What does the leasing office/amenity building look like upon arrival? When entering? • Do the bedrooms and living rooms offer privacy?
Interior Design- Home Office?
The increased number of people working from home has increased the number of three bedroom apartments with the third bedroom being used as a home office.
The Marketer
The marketer communicates the developer's vision for the community and works with the other team members to make the vision a reality. • Contractor- If a project is completed in phases, the marketer coordinates the sequencing and phasing of the project to minimize impacts to potential tenants. • Land Planner- making sure that the plan has an acceptable sense of arrival and that the plan does not just "fit everything onto the site," but makes a statement. • Interior Designer- furnishing the leasing center and model apartments. • Property Manager- includes marketing costs in operating costs, and provides input for cost effective design.
Market Analysis
The two main uses of multifamily market studies are: • The developer's internal analysis regarding programming, and financial analysis. • Lenders and investors use market studies to assess market conditions and potential risks.
Conceptual Design
The work product produced during the Conceptual Design phase is a program for the community that takes into account all factors • Site conditions Regulatory restrictions • Market conditions The end product is a definitive statement of the unit mix, number of units, architecture, general site layout, thematic design, amenities, etc.
Land Use Regulation: Purpose
The zoning regulations and districts as herein established have been made in accordance with adopted guiding principles for the purpose of promoting the health, safety, morals, and general welfare of the city.
Land Use Regulation: Purpose
They have been designed to: • lessen the congestion in the streets; • to secure safety from fire, panic, and other dangers; • to ensure adequate light and air; • to prevent the overcrowding of land; • to avoid undue concentration of population; • to facilitate the adequate provision of transportation, water, sewerage, schools, parks, and other public requirements.
Land Use Regulation: Purpose
They have been made with reasonable consideration, among other things, for the character of the district, and its suitability and compatibility for the particular uses specified; and with a view to conserving the value of buildings and neighborhoods, and encouraging the most appropriate use of land throughout the city
Identifying the Market Areas (cont'd.)
To delineate the Target Market Area, a developer examines the following: • Physical Barriers such as rivers, highways, railroad tracks, and drainage & topographic features should be considered when defining market areas. • Political Subdivisions such as city/county limits can impact local support for multifamily projects. Although not as critical for multifamily developments, but school districts should be considered in assessing market areas.
Identifying the Market Areas
To delineate the Target Market Area, a developer examines the following: • Travel time to/from major employment centers and make assumptions as to "acceptable" commute times. • Mass transportation facilities/routes and proximity to highways and major arterials. • Existing and future development patterns should be analyzed to determine which areas should be included/excluded. •Socioeconomic composition such as changes in income, age, and other demographics may be included in the analysis (Note: it is illegal to define target market areas based race, religion, or ethnicity).
Low Income Housing Tax Credits
Types of Credits • A "9% Credit" program is for new construction • A "4% Credit" program is for rehabilitation • Each year of a ten year period a tax credit of either 4% or 9% of the construction costs of the project is granted to the developer. • The tax credit is generally 30% of the cost of a project in the 4% program, and 70% of the cost of a project in the 9% program. • Developer gets tax credits for ten years • Community must comply with federal requirements for 30 years
Marketing Plan
Typical marketing budgets include: • Exterior Marketing: Web-site, directional signs, billboards, and other material that directs a tenant to the community. • Interior Marketing: Model apartments, sales displays, leasing office, and other features of the community that create a sense of arrival and the desire to lease an apartment. • Preleasing: Flyers, direct mail, advertisements, etc. • Recognition Marketing: the advertising campaign, press releases and public relations/outreach. • Other: Awards, move-in gifts for residents, gifts to outside leasing agents, etc. • Marketing/advertising budgets are generally 1% of the construction costs of a community ($50M = $500K)
Interior Design
Unit Design- All interior design elements should be supported by market research. Some design concepts to be mindful of include: • Nine-foot ceilings are the "norm" • Kitchens should provide at least 16 linear feet of counter space • Bedrooms should feature closets with 12 linear feet of clothes rods • Finish materials should meet market demand • A "rule-of-thumb" for added features is that the feature should generate addition revenue equal to 1% of the cost of the feature (e.g. spending $500 to provide space for a washer and dryer should generate an additional $5 per month in rent) • Median apartment sizes are trending smaller.
Interior Design- Unit Mix
Unit mix should be based on the market study. Not only should the market study examine the mix of bedrooms, but it should also take into account the number of bathrooms and "master" suites.
Demand Factors
Upon delineating a target market area, the developer should analyze the factors creating demand for multifamily within the area: • Employment- usually drives population growth in an area. • Population- the number and composition of people in the area. Trends in population change are key to assessing demand. • Households-The number and type of household within the proposed market area. Household composition determines number of units, unit mix, amenities, etc. • Income- median and average income, and changes in income, give an indication of rent ranges within a market area
Demand Factors
Vacancy Rate, Absorption Rate, and Rental Rates are measures to assess demand for space in the market. • Vacancy Rate • Absorption • Rental Rates
Exterior Architecture
When designing multifamily projects a developer should be aware of several issues: • If the market analysis indicates a higher end project, then the exterior appearance should be designed to match market demand. • Regional traditions and conditions should also be taken into account. Santa Fe styled buildings with flat roofs would not be appropriate for regions with large amounts of snow/rain. • Balconies should be approximately six feet. • Repeating building designs saves money throughout the design and construction process.
Land Use Regulation
Zoning, or a municipal ordinance that controls the use of land within its jurisdiction. Types of zoning include: • Specific zoning • Floating zoning • Performance based zoning • Planned Unit Developments • Transfer of Development Rights
Fair Housing Act
• Advertising and Media: marketing to specific areas to avoid low to moderate income families; using mixed race models for advertisements in one area and not another is illegal. • Leasing staff must not "steer" prospective tenants by using positive/negative comments to try to influence a prospective tenants locational preference. • Developers cannot rely on building officials to make the developer aware of compliance issues prior to construction- ignorance is no defense.
History: WWII and Beyond
• After World War II, home ownership was still out of reach for most families and construction of apartments boomed. • In the 1940's, Gustave Ring pioneered the garden apartment development. • By the 1960's, one-half of the apartments built were garden style apartments. • The Housing Act of 1949 guaranteed, "a decent home and suitable living environment for every American family." • The federal housing projects and programs actually made urban living conditions worse, and "public housing" was stigmatized.
Measuring Marketing Effectiveness
• An effective marketing program examines the competition to determine occupancy rates and rental rates. • Leasing agents should always be knowledgeable about all aspects of the competition including amenities, standard features, unit mix, pricing, etc., especially new competition that could have a competitive advantage over an existing community
History: WWII and Beyond
• As construction of single-family homes slowed in the 1950's, multifamily emerged as an investment option whose returns rivaled investments in office buildings. • The 1960's saw baby-boomers entering the workforce, creating families and demand for multifamily development. • During the 1970's, REIT's changed the financial side of the multifamily business and more apartments were built in suburban areas. • Construction standards in the 1970's improved with design innovations such as soundproof walls; swimming pools and tennis courts; and kitchen and bathroom innovations.
Estimates of Value
• Comparable sales- projecting the sales price of the subject property based on a similar property that recently sold. • Income approach • Value equals Net Operating Income divided by the capitalization rate (NOI/Cap Rate) • NOI= $500,000 • Cap Rate= 7.0% • Value= $500,000/.07= $7.1 M
Fair Housing Act
• Cost of compliance with Fair Housing Act and Americans with Disabilities Act of 1990 is nominal. The cost of retrofitting facilities or fines can be costly. • ADA states that, in general, if the cost of compliance is too high and a reasonable accommodation can be made, then the reasonable accommodation is acceptable.
Waiting List
• Creating a waiting list for apartments minimizes the number of days an apartment is vacant after construction. • Generally, apartments should not be assigned to tenants more than three weeks prior to receipt of the certificate of occupancy. • Communication between the leasing agent and tenant with regard to the actual move-in date is critical.
Site and Building Design- General Comments
• Decisions regarding design should be driven primarily by the findings of the market analysis. • What type of design decisions must be made with regard to multi-family?
Mid-Rise Apartments are typically:
• Definition may vary by location- 3 to 8 stories (NYC 12 story is a mid-rise) • Three to eight stories (with elevator) • Steel or concrete framed building • Fire sprinklers are usually mandated by code • Parking varies (surface, garage, podium, etc.) • 50-100 Dwelling Units per Acre
Multifamily- Introduction
• Demand for multifamily is being fueled by both ends of the demographic spectrum. • Millennials are delaying purchasing homes due in part to student loan debt. • Baby-Boomers are moving into senior housing that offers varying levels of service.
Site and Building Design- General Comments
• Design decisions should take cost and longterm maintenance into account. • What type of design decisions can increase cost, or affect long-term maintenance?
Why is Design Important?
• Details often have a large impact on the financial performance of a multi-family project. • Although things such as the location of air condition units, trash containers, exterior lighting generally do not make the difference in whether someone signs a lease, they do factor into tenant turnover which increases costs for a project. • Security issues like privacy gates at the entry, privacy, security (e.g. location of entrance), and the number of entrances into/out of a project can affect tenant retention
High-Rise Apartments are typically:
• Eight or more stories (with elevator) • Steel or concrete framed building • Fire sprinklers • Parking varies (surface, garage, podium, etc.) • More articulated facades with several building materials and gables, bays, and balconies. • 100+ Dwelling Units per Acre
Endangered Species
• Endangered species include both plants and animals • Endangered species vary by region (from both a biological and regulatory standpoint) • Some states have laws that supplement Federal laws that protect plant and animal species in that particular state (e.g. California) • Species common in Texas include: • Bald Eagles (typically near lakes) • Black-Capped Vireo & Golden-Cheeked Warblers (Austin) • Cave Adapted Invertebrates (Austin) • Salamanders (Austin- Barton Creek) • Prairie Dawn (flower Houston area) Department of
History: WWII and Beyond
• In 1973, President Nixon ended all federal housing programs. The deliberations from the President's ending of these programs resulted in the creation of the Housing and Community Act of 1974. • Section 8 of the Act redirect federal funds from construction of multifamily projects to subsidies to landlords . • The Economic Recovery Tax Act of 1981 and the deregulation of financial institutions in 1982 promoted the development of multifamily projects at near record levels. • The Tax Reform Act of 1986 removed the tax incentives of income properties. • Overbuilding from the early1980's and poor national economic conditions impacted development of multifamily into the 1990's.
Ownership of Multifamily
• In 1990, 14.2 million (90%) multifamily units were occupied by renters and 1.5 million (10%) were occupied by owners. • One-third of renters lived in single-family detached rental units. • Owner occupied multifamily units are typically condominiums (the owner owns everything within their walls, and an undivided interest in all of the other real property) or cooperatives. • Cooperatives are common in New York City, Chicago, San Francisco. • The cooperative is a corporation that owns the building and the resident leases their unit from the corporation. Department of Landscape Architecture
History
• In the 1850's owning a single-family home was out of reach of all but the wealthiest families. • In the mid to late 19th century, economic growth and electric trolleys allowed a growing middle class to move out of the tenements and into the suburbs. • The suburban building built during this time were known as "French Flats" or apartments and were built and occupied by "respectable" families. • The media at the time claimed that tenements promoted sexual promiscuity; and were hot beds of criminality, disease, prostitution, and general depravity
History: WWII and Beyond
• Low Income Housing Tax Credits created by the Tax Reform Act of 1986 allows housing agencies to offer tax incentives to developers who construct multifamily housing for low to moderate income households. • During the 1990's, President Clinton created the Housing Opportunities for People Everywhere (HOPE VI) which led to the demolition of many failed high rise housing projects which were replaced with lower density projects. • During President Clinton's presidency, many Section 8 contracts expired and the owners could restructure their debt through HUD, or opt out of the federal program and become market rate properties.
History: Recent Trends
• Many downtown areas, through TIF's and TIRZ districts, are being revitalized by the conversion of warehouses and industrial buildings into multifamily projects. • Developers are tapping into other niche markets such as: • Senior Housing • Student Housing • Smaller Units (Ivy Lofts) • Pop-Up Hotels • Challenges for multifamily developments: • Affordability • Continuing perception of multifamily and land use regulation
Market Analysis
• Market analysis for multifamily is not an exact science- the product and consumer preferences, and the impact on consumer choices are largely qualitative. • Opinions vary regarding local versus national market research firms. Both examine local market data, but some argue that local firms can add qualitative assessments based on local knowledge.
Gauging the Development Pipeline
• Multifamily developers often put projects on hold due to changes in market conditions. • This often makes it easy to track projects in various stages of the entitlement process and when competing projects may come to market. • Good sources of data for future projects include zoning applications, subdivision plats, site permits, and building permits. • All of the information gathered for existing projects, to the extent available, should be collected for future projects.
Multifamily Management
• Multifamily management receives much more focus than it has in the past. • Managers have a direct impact on the bottom line • NOI = EGI-Operating Expenses • For Multifamily, the cost of apartment turnover is one of the key drivers of NOI. • Costs of turnover include: • ? • ? • ? • ?
Multifamily Management
• Multifamily management receives much more focus than it has in the past. • Managers have a direct impact on the bottom line • NOI = EGI-Operating Expenses • For Multifamily, the cost of apartment turnover is one of the key drivers of NOI. • Costs of turnover include: • Renovations/clean-up • Lost revenue • Managers time • Perception of other tenants
Product Types
• Multifamily ranges from a single-family home converted into separate living units to very-high-density high rise apartment buildings. • The Ivy Lofts in Houston were a micro condo development with condos of 400 square feet, or less. The program changed and it is now a hotel/condo project with separate lobbies for residents and hotel guests.
Multifamily-Introduction
• Often perceived negatively- undeservedly • Ranges from affordable housing for migrant workers to multi-million apartments in New York City • Multifamily has changed over the last 10-20 years and continues to change. Location design, features, etc. • Some cities are now encouraging multi-family as a way to combat urban sprawl • Multifamily offers convenience, affordability, and flexibility. • Subject to large cyclical swings- 1972 900,000 units developed and in 1992 only 139,000 units were developed nationally
Multi-Family Development
• Purpose of Market Studies • Regional Context • Identifying the Market Areas • Demand Factors • Supply Factors • Sales Activity (Disposition)
Rental Rates
• Rental Rate: The periodic charge per unit for the use of property. • As with vacancy and absorption, the average amount of rent for a particular type of apartment (e.g. one-bedroom) is not as important as the trend in rental rates in the sub-market. • A developer should look at rent per unit (i.e. average rent per month); rent per unit type (e.g. one-bedroom); and projected changes in rental rate within the submarket, among other factors.
Preleasing Apartments
• Some developers advocate installing a leasing trailer to generate a list of prospective tenants prior to opening a community. • The majority of apartment developers prefer to have the leasing center (recreation center) open 60-75 days prior to certificates of occupancy for the apartments. • The leasing center creates a good first image of the community and demonstrates many of the amenities the community has such as fitness, pool/spa, media room, etc. • Some developers prefer to develop a community in one phase, while other developers prefer to phase development to manage cashflow.
What is Multifamily Housing
• Technically it would be any building that has more than one dwelling unit. • According to the U.S. Census Bureau, multifamily housing is any building with five or more dwelling units.
History
• Technological advances in building construction such as steel frames, load bearing walls, and innovations like the electric elevator in the mid to late 19th century allowed apartments to become larger and more accommodating. • The Census of 1920 documented that the United States had become urbanized with more people living in urban areas than rural. • Apartment construction boomed and evolved with new types of construction like row houses, duplexes, and mid and high rise apartments. • During this period, luxury apartments were built near economic and civic centers and modest apartments were built near transportation routes.
History
• Tenements were relatively affordable (due to the number of people in each unit) and within walking distance of factories. • Tenements were poorly built; had little or no plumbing; poor ventilation; little lighting. These factors combined with overcrowding promoted illness and disease. • Given the low cost of construction and the number of tenants within a building, tenements were often very profitable for the owners. • The tenements segregated the poor working class from wealthier classes, which the wealthy appreciated and promoted.
History: The Depression to WWII
• The Depression shut down the real estate industry across the United States with most properties being foreclosed by the lender. • Prior to the Depression, government involvement in housing was inconceivable. • Presidents Hoover and Roosevelt created the Federal Housing Administration and the Federal Home Loan Bank to promote the recovery of the housing industry (focused mostly on single-family). • The 1934 Housing Division of the Public Works Authority and 1937 U.S. Housing Authority were created and charged with redeveloping the worst slum areas in major cities.
Fair Housing Act
• The Fair Housing Act of 1968 prohibits discrimination based on the race, color, religion, sex, national origin, handicap or familial status. • The Fair Housing and Fair Housing Enforcement Act of 1988 requires builder and developers of structures of four or more units to make reasonable accommodations for people with physical disabilities. • According to the NAHB, accessibility includes: access to building entrances; accessible routes through a unit; access to public/common area; doors of sufficient width to allow wheelchairs; light switches, electrical outlets, thermostats, grab bars in restrooms; and accessible kitchens and bathrooms.
Measuring Marketing Effectiveness
• The absorption rate is the key test of the effectiveness of a marketing campaign. • Historic absorption rates range from four to seven units per week. • Absorption rates higher/lower than the projected rate should trigger an assessment of the market to determine if rates are too low/high for the market. • Marketing is an on-going process starting during the due diligence phase and lasting until the disposition of the asset.
Marketing Multifamily
• The developer should engage a marketing team during the due diligence period (it may be the developer or an outside firm) • The marketing plan should be put in place upon approval of the construction loan • Leasing center (recreation center) should be the primary focus during construction with completion scheduled for 60-75 days prior to the CO for the first apartments. • Advertising should begin 75 days prior to releasing the first apartments for lease.
Site and Building Design- General Comments
• The developer should not let the design professionals dictate design and product decisions, especially unit size and unit mix. • What concerns would a developer have regarding the design team?
History
• The first multi-family developments in the United States date back to colonial times in area around New York City. • Ground leases for a specific number of years that encouraged, or required, the tenant to make improvements to the leased property. At the end of the lease, the property and improvements reverted to the landlord. •Industrialization in cities in the 1900's created demand for affordable housing. • By 1893, 70% (1 million people) of the population of New York lived in tenements. • Buildings built in this era came to be know as tenements which quickly gained a sordid reputation.
Leasing Centers and Staff
• The leasing center should promote the lifestyle being sold. • It should not appear to be an office with cluttered desks, etc. • If possible, tenant services should be handled in a separate office within the community. • Leasing staff are typically compensated on a salary plus commission basis. • In the past, one leasing agent could handle 100 units.
Sales Activity
• The market report may include information about properties recently sold properties in the sub-market. • Information typically provided may include: • Sales Price • Number of Units • Year Built • Vacancy Rate for the property • Sales price per unit • Sales price per square foot • Based on this information, a developer can project the future sales price for the subject property
Marketing Strategy
• The market strategy is the developer's vision that the team implements and follows until disposition of the asset. • The market strategy focuses on what is to be done; why it is to be done; and the expected outcome
Marketing Plan
• The marketing plan is the roadmap for the advertising campaign, public relations campaign, and the leasing activities. • The marketing plan starts with the market analysis and creates the message about the project to the potential tenants. The marketing plan is the means to get the message to the market. • The plan starts with a marketing and leasing budget.
Advertising
• The primary means of advertising apartments today is through the internet. • A community should have a well-developed web-site that may contain information on the size, layout, and pricing of units; amenities; location; etc. • There are a variety of web-based entities that offer a range of services to market and lease apartments.
Ownership of Multifamily
• Timeshares, often in resorts, are the right to use (or the fee simple ownership) of real estate for a specific period of time. • Some cruise ship lines are offering timeshare interests.
Vacancy Rate
• Vacancy Rate: The vacancy rate is the percentage of all available units in a market area that are vacant or unoccupied at a particular time (i.e. a snapshot). • The number is less meaningful than the reason • Changes in vacancy rate (trends in the market) • Is there a cause for changes in the rate? • What is theVacancy Rate for the type of multifamily proposed for the subject property (i.e. Class A, Class B, etc.)?
Market analysis for multifamily projects seeks to answer the following*:
• What is the appropriate target market and market position for this project? • What are the size and rate of growth of the target market, and what percentage of that market can be attracted to the subject project? • What are the opportunities, gaps, or specialized niches where a need exists in the marketplace? • What is the appropriate rent range for the market? • What types of units and unit sizes are suitable for the market? • What amenities and unit features should be provided to appeal to this market? • What are the indirect economic constraints? Or what are constraints to development not related to supply and demand, such as regulatory issues, site, etc.?
Analysis of the Competition
• When analyzing the competition it is useful to compare the rent per square foot. Looking at per square foot rents minimizes differences in square feet of unit types and gross rental rates. • When comparing rental rates per square foot, a property with a lower rent per square foot should have a higher absorption rate. If not, then other factors should be assessed to determine differences in properties. • A vacancy rate of less than five percent indicates a strong market for that type of property
