Identifying the Income-Driving Amenities: A Post-Pandemic Playbook for Multifamily Owners
Multifamily property owners may be inclined to retrench amid a still-uncertain environment; they’re missing a unique opportunity to meet new, enduring needs of tenants seeking a community atmosphere.
By Matt Quinn, Vice President
A 30-year-old, Class-B property won't be mistaken for a brand new, Class-A apartment complex. But, it can still offer outstanding curb appeal. Renovated units with modern kitchens and baths that feature in-unit washers/dryers will always stand out to tenants. After years of experimenting with different amenities, a few bubble to the top.
Class-B properties are generally found in suburban areas and have rents which can be 25% to 40% below Class-A apartments. Class-B properties also tend to be older. Many of the properties in the Pathfinder portfolio, for instance, were built between 1970 and 1990, which means most have gone through substantial renovations.
Understanding what tenants value most is key for property owners to determine which amenities will remain “on trend.” Here are five areas, where forward-looking property owners are allocating resources to renovate and improve properties.
Top-Shelf WiFi: Dependable internet service obviously falls into category of “work-from-home” trends that have become so pronounced over the past year. However, we’ve since learned that WiFi has also become a gating item that can open up new possibilities as property owners eliminate the historic boundaries between indoor and outdoor living. This allows tenants to “escape” their apartments to find new settings, indoors or out, and better mix with their neighbors. Looking ahead, you’ll see more tenants on their devices around the pool and BBQ areas.
Community Courtyards / Gardens: Most properties already have the space for outdoor living, but these areas can fall into disrepair. Charcoal grills, for instance, are rarely used. Often without shade, these spaces can also be uncomfortable in southwestern climates. With WiFi now enabling more freedom of movement, trees or pergolas can make outdoor spaces more inviting, while gas grills represent a huge upgrade evident in the lines that form each night.
Pools (Reimagined): Prior to the pandemic there may have been an argument as to whether pools enhanced or detracted from property values. With new learnings, the answer is obvious. But property owners must invest in the space to maximize the return on investment. Umbrellas and cabanas for shade, resort-style furniture, TVs and turf for “yard games,” help to create a more inviting space.
Fitness Centers: Similarly, “fitness centers” with a broken treadmill, rusty free-weights, or a TV that never quite works, no longer cuts it for tenants. While social distancing has created challenges, property owners have significantly upgraded these spaces with new equipment that facilitates interactive classes – providing access to a digital community -- and new processes to reserve times and equipment – so these spaces can be safely enjoyed.
Dog Parks: Each of the aforementioned amenities, of course, help facilitate a community. But few if any features have the impact of a dog park to spark conversations among neighbors and provide an outlet for pets. At many of our properties, these spaces can become the setting for “yappy hours” and scheduled meetups. And adjacent pet-wash stations help keep the dogs and the property clean. These spaces are more valued now as pet ownership soared during the pandemic.
The Payoff
It can be challenging to justify the capital investments for these upgrades without being able to quantify the returns. This is especially true for amenities because returns can be difficult to measure. The cost of upgrading a WiFi network, adding gas BBQ's, spiffing up the pool area or adding a dog park can generally be recouped down the road upon the sale of the property. But the bigger returns generally show up along the way in higher rents, improved tenant retention and other areas that may be less apparent.
And, small-dollar boosts can be had through add-ons like $35 monthly pet fees or $75 monthly parking charges. Big boosts, though, emerge when owners turn an average 15-month tenancy into a 30-month tenancy, reducing marketing costs, turnover-related expenses (such as painting or new floors), or other related outlays. Of course, being able to support meaningful rent increases also helps. And in addition to higher cash flows, these efforts translate into higher property values.
It may seem like a contrarian bet, but we don’t view better amenities as a short-term trend. After a year in which tenants found a community, quite literally, in their backyards, we view this as a tremendous opportunity to distinguish our properties at a time when tenants are becoming more discerning.
Matt Quinn is Vice President at Pathfinder Partners, focusing on asset management activities. Prior to joining Pathfinder in 2009, Matt worked with a San Diego-based firm which consulted on mergers and acquisitions and with the Wealth Management division of a California regional bank. Reach him at mquinn@pathfinderfunds.com.