Charting the choices of renters-by-choice: exclusive to units; surveys show that moving back into the city has become attractive for renters-by-choice. It is important for multifamily housing developers to know what this type of resident wants, and to provide it. Butz profiles the needs and wants of this growing population.
In response to high demand, developers have joined with government agencies and community groups to provide multifamily housing that offers an in-town location and a luxurious lifestyle.
According to the National Apartment Association (NAA) and National Multi Housing Council (NMHC), several factors are fueling the growth of consumers choosing urban multifamily housing. First and foremost: the rise of childless households. Between 1995 and 2010, households with children are projected to decline slightly, while those without children are forecast to rise by 10 million, with an additional 7.6 million non-family households also forming.
Another factor is that cities and regions are adopting "smart growth" policies that limit further outward extension and refocus efforts toward high-density housing in key urban locations. These areas include Portland, Ore.; King County and Seattle, Wash.; South Florida and Miami-Dade County; and Santa Clara/San Jose, Calif.
Dallas, Philadelphia and Washington, D.C., also have taken significant steps toward encouraging urban redevelopment via multifamily housing.
The Renter-by-Choice Profile
NAA/NMHC reports that the fastest growing segment of apartment residents comprises households with an annual income of $50,000 or more. This is borne out by JPI's own resident surveys. For example, 31.5 percent of residents in the JPI Mid-Atlantic region properties have annual individual incomes of $60,000 or more, significantly higher than the annual U.S. per capita income of $22,199.
NAA/NMHC also notes that the 45-74 year-old age group will soar from its present 80 million people to 100 million by 2010, and more than 112 million by 2020. Renters aged 46 and older comprise 15.3 percent of the residents in JPI's mid-Atlantic communities.
JPI's research shows that overall its urban apartment dwellers' are between the ages of 31 and 35. This makes them more mature than renters of JPI's suburban apartments, whose age ranges from 25 to 35. Urban multifamily renters also are single, without children living in their homes, and are much more affluent. Their annual household incomes range from $80,000 to $130,000, compared with the $50,000 to $60,000 yearly income for residents of JPI's suburban communities.
A third factor behind the back-to-the city boom in renters is a change in federal policy that reduces the tax on housing capital gains, prompting older owners to sell homes that have substantially appreciated in value. This tax incentive has combined with the gray wave to fuel the move back to the inner city, which represents a major lifestyle choice for aging boomers, who have less need for single-family housing now that their children are grown and no longer are residing with their parents.
These affluent professionals don't need both a vacation home and a house in the suburbs, so they sell the latter and more often move to urban locations.
Young professionals (persons aged 20-29) are another category of renters-by-choice that is growing. This group is expected to increase 11 percent by 2010, according to NAA/NMHC.
This group of younger apartment dwellers also gravitates to upscale multifamily housing located downtown or near areas that offer a lot of employment opportunities. This lifestyle, as depicted on the popular television show "Friends," is widely accepted and sought after by this group.
Do Research. Act On It.
During the early 1990s, extensive consumer research enabled JPI to first identify that multifamily housing demand had swung back toward the inner city. Research is critical to the success of any urban multifamily housing development. Without obtaining, and then acting on, critical data that comes from solid consumer research, developers risk investing in and building properties that do not meet renters' needs and expectations. Such apartments tend to be difficult to market without resorting to self-defeating tactics such as rent concessions, gifts or discounts.
JPI launches the research process by mailing out lengthy questionnaires to potential renters. The firm generally receives several hundred answers for each community. JPI has conducted these surveys for three urban developments that are in or near downtown Dallas, totaling more than 1,500 units. It also conducted them for Jefferson at Penn Quarter, a 428-unit ultra-luxury multifamily community under construction in downtown Washington, D.C.
Other than lifestyle option, research shows that urban apartment dwellers have preferences that differentiate them from their suburban counterparts. Urban renters opt to live where they do because they so greatly value convenience. They want ready access to shopping, entertainment and all types of transportation. They also are concerned about security and safety. While it is impossible to guarantee a person's safety, developers can install and talk about features, such as perimeter fencing and intrusion detection devices, as well as offer services such as courtesy patrols, concierge service and valet parking.
Parking, Coffee and Weightlifting
Interestingly, parking can play into urban renters' safety considerations, even though urban apartment dwellers typically do not like to pay extra for parking. Small urban in fill land areas, however, usually lack parking space. This makes it necessary to build a garage and charge at least $100 per month per space to recoup the expense. The presence of a controlled-access garage may then be added to the menu of other security features and services that developers discuss with potential renters.
Urban renters prefer the one-bedroom floor plan. If they choose a den, they tend to use it as an office. JPI's research shows that urban renters are not very interested in loft-style floor plans unless the loft space is at least partially enclosed by a wall. Lofts or regular apartments with some loft features are a more workable design for small-scale urban multifamily communities. While urban apartment dwellers want some features that all renters prefer--such as in-unit washer-dryers, resort-style pools and fitness centers--they also demand oversized windows, downtown skyline views, hardwood floors and historic, warehouse-looking exteriors.
One very interesting and crucial aspect of this pre-construction research is getting a handle on how much extra per month a potential renter actually is willing to pay for the features they say they want in their city-based multifamily housing.
Renters in downtown Dallas, for example, are willing to spend an additional $50 per month to guarantee a view of the city skyline. This rate most likely would be higher in larger metropolitan areas.
Those surveyed for Jefferson at Penn Quarter indicated they would be willing to pay an additional $14 per month to an outside firm, such as Bally, so that a fitness center would be available inside the community. And, they were willing to pay an additional $9 per month for an onsite grocery store; and $5 more per month to have a cafe, such as Starbucks.
Revitalization Takes Planning, Cooperation
In addition to the critical need for extensive and targeted market research, urban redevelopment through multifamily housing presents other unique challenges.
One potential obstacle is finding suitable contiguous parcels of land available in the inner city. Another potential problem is dealing with objections from nearby residents. This can be resolved by getting to know and cooperating with the surrounding community.
Working with government at various levels is also a part of the urban redevelopment process.
Financing inner city multifamily construction is yet another test. Philadelphia instituted a 10-year abatement of all city real estate taxes with good success to encourage urban multifamily housing and other downtown redevelopment. Other kinds of deals may include city revenues up front for infrastructure or low-interest enterprise zone (EZ) bonds.
There is no question that attracting renters-by-choice through urban redevelopment is probably the most challenging of any type of apartment development. Done properly, however, urban redevelopment holds profitable growth potential for developers willing to do their homework and cooperate with their communities.
Jim Butz is Executive Vice President and Mid-Atlantic regional Managing Partner for Dallas-based JPI, one of the nation's largest luxury apartment developers and operators, with multifamily communities in more than 20 states.