Know the Job Sectors, Know Your Apartment Customer

by | 04 June 2015

Commercial real estate professionals are often inclined to love buildings and math. Discussing physical structures allows us to explore and pontificate on building systems and materials — concrete, electrical systems, curtain walls and plumbing fixtures — which to use and how use may impact operations or returns. Math makes it all work — yields, returns, income multipliers, waterfalls and splits.

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Yet, we are in a business of people. Arguably, one of the most important terms in our business is “customer.” Often, when we hear “customer,” we think of this in relation to a salesperson: We think of customer as someone who is waited upon at Nordstrom or a Starbucks — the person handed a shopping bag or a latté. Just as in retail, apartment developers, owners and investors must know their customer. Without question, knowing your customer will lead to more predictable returns, steadier cash flow and our greatest aspiration: the ability to grow cash flow, thereby increasing returns at a higher rate.

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Just who is our customer is a greater question – and possibly the greatest question. Retail strategists live in a world of demographics and psychographics and ask very bleeding-edge questions such as what is a customer’s SoLoMo (social-local-mobile, which refers to preferences and behaviors). The purpose is simple: Knowing your customers allows you to better sell to them and, paramount to our business, to retain them.

One way to arrive at who the customer is, is to look at what they do and, more specifically, in what job sector they work. Unsurprisingly, generalizations – certainly on a case-by-case basis — are wrong as often as they are right; however, the use of job sector analysis can offer insights into the interests, desires and behaviors of our customers — and ultimately into their renting (and renewing) behavior.

FIRE: Financial Services, Insurance and Real Estate

The FIRE sector is the most traditional of all job sectors and customarily regarded as “white collar” jobs are. Members of the FIRE sector wear suits (sometimes), have fairly traditional educational backgrounds and work in places where one can expect to see well-appointed elevator lobbies. There is no secret to the FIRE sector.

On the West Coast, many FIRE sector employees commute to work because downtowns in cities like Seattle, Los Angeles and, in some respects, San Francisco, have not had a lot of residential housing; many FIRE sector participants work in downtowns. This model is changing. Learning the interests and habits of the FIRE sector is a surefire way to capture their rental dollars.

STEM: Science, Technology, Engineering and Math

The STEM sector is often associated with education and, more specifically majors, in post-secondary education. Increasingly, the industry is thinking of STEM as the “tech” sector. Doing so is a gross generalization yet helpful in framing a job sector beyond white collar and blue collar. STEM sector workers are employed at companies like Microsoft, Google, Redfin, Facebook, Saleforce.com and Amazon.com.

Ascribing a company to a sector is simplistic yet important in learning more about customers (and their buying and renting decisions). A more complex analysis reveals as many misconceptions as it does insights. For example, isn’t Amazon.com a retailer? Redfin is a real estate brokerage, right? Are the renting predications of a Colliers real estate broker the same as a Redfin agent?

TAMI: Technology, Advertising, Marketing and Information

TAMI is STEM’s more advanced and specific big sister. The TAMI sector is a very business-centric and industry-specific moniker. I owe my introduction to the TAMI sector to one of the sharpest minds in our industry, Jeff Daniels at AIG. The TAMI sector is borne out of a marketing campaign in Lower Manhattan yet is just as applicable in San Francisco’s Silicon Valley, Seattle’s Silicon Canal, Portland’s Silicon Forest or Los Angeles’ Silicon Beach.

My favorite example of TAMI sector behavior is digital marketing firm Smith‘s 2012 move from Bellevue, where many of its clients are located, to Seattle’s authentic and patinaed Pioneer Square, where it could best attract and retain talent. TAMI knows what she wants.

TAMI sector employees like to work in neighborhoods like Portland’s Pearl District, Santa Monica/Venice in West L.A. (or DTLA) and New York’s DUMBO neighborhood. Where these employees work and where their executives choose to locate operations is very instructive in learning how to attract and retain a high-profile and high-paying renter cohort.

Optimizing returns using a new paradigm

Our discussion here is too short to direct with specificity how to convert job sector analysis to acquisition/operation/disposition strategy. The point is an introduction into a strategic methodology in order to address the increasing sophistication and competitiveness of our industry. We need to start with the customer.

Just as retail marketers live in a world of “customer acquisition strategy” as well as “customer retention strategy,” we must explore investment paradigms to increase investment thesis accuracy, optimization and competitiveness — and thereby returns. Knowing and studying job sectors is a great first step to best form apartment investment strategies and optimize operations. Anyone up for a SoLoMo analysis?

Dylan Simon is a hobbyist technophile and self-taught urbanist. For more, follow his blog and connect with him on Twitter and LinkedIn.