When it comes to developing apartment projects, as well as investing in stabilized apartments, a range of factors are considered: size of project, location, amenities, unit mix … et cetera ad infinitum. As is often the case in sustained and important analysis, the granular often takes precedent to the holistic, and important considerations are lost. One such essential consideration is what I have termed “the importance of Saturday mornings.”
I used to live in San Francisco and worked in Silicon Valley. On a map, the distance between where I lived and worked often appears closer than the 40-mile, more-than-one-hour commute it actually was. Why did I commute such a distance five days a week? It was quite simple: so I could wake up near San Francisco’s Embarcadero each Saturday morning — to run, to shop, to meander, to be among my people.
Lifestyle and the Renter
The modern apartment renter has choices about where to live, especially in a city like Seattle, and those choices are reflective of the identity of a particular renter set, be it Gen Y, Gen X, hipster, foodie, yuppie or some category yet defined. Increasingly, the renter set covers a broader category of both economics and age, as professionals with deep monetary means and an older generation decide that renting, even when you don’t have to, has considerable advantages. Add to the equation a greater concentration of apartments within certain neighborhoods and communities, and it becomes even more challenging to identify an investment strategy or thesis.
How one decides to spend a Saturday morning is a fantastic litmus test for demand drivers. Saturday mornings — that is, how you choose to spend them — reveal lifestyle, hobbies and interests and accordingly can lead us, as an investment community, to a greater understanding of what to build and what to buy. In the end, we have a relatively singular focus: meet demand and attempt to maximize returns along the way.
Saturday mornings tell us much about our clients’ inner motivations to choose a particular apartment community and pay top dollar for their choice. I am taking great pains to remove the term “commodity” from my lexicon in writing this article; however, if you are competing only on price, I certainly hope that is a strategic decision (e.g., micros) and not a result of your project’s relative competitiveness in the marketplace.
What to Measure
How does one measure Saturday morning choices? Often we check boxes on categories such as walkability, transit, access to daily-needs retail (like grocery stores, the gym, dry cleaning) in order to analyze the location of a particular apartment investment. But are there better metrics? Yes, though these tend to be a bit more ephemeral and harder to measure: culture, vibe and community for example. These are all aspects of a location that are attractive to renters on a more subjective level yet can likely predict renter demand better than our old tool box. Solutions may be easier in the future – like tapping into Facebook: Likely, Apartment List is already using Facebook data about user interests to help possible roommates connect. It may be too soon to actually use an algorithm to answer these questions, but it’s certainly not too soon to consider the possibility.
In developing your own thesis on what to build and where to invest, I encourage you to look around for examples. And I don’t mean just Seattle neighborhoods. I mean, look around the world or at least the country. Fantastic examples of great neighborhoods exist all around us, many of which are themselves going through transformations, many of these around lifestyle.
- New York: Park Slope in Brooklyn and Long Island City in Queens have emerged as destination residential neighborhoods. Culture, community and proximity to Manhattan converge to provide an affordable solution to New York living yet provide attributes you only get close to the city.
- Vancouver, B.C.: Yaletown and Gastown are both located within the city, yet offer a residential experience more akin to actual neighborhoods. Yaletown, which further along in its transformation, offers Sunday brunchers, sailors, joggers and meanderers the ability to live close to the central business district but not in it.
- Boston: South Boston, once a very rough neighborhood, is transforming into a desirable neighborhood for young professionals and families. Its desirability is based in its proximity to the waterfront and recreation, while still having good transit options into Boston employment centers.
- Los Angeles: The City of Angel is rapidly transforming, and the changes are based on people’s lifestyles. In a town known for sizable commutes, hubs for both work and play are forming in two unlikely places that purposefully don’t require commutes: the beachfront communities of Santa Monica and Venice on the one hand and downtown L.A. (recently earning the moniker DTLA) on the other. Having left Los Angeles over 10 years ago, I am surprised at yet pleased with the renaissance of live-work lifestyle choices currently being made in Los Angeles — largely through investment by the real estate community.
Where to Look
Use these thoughts as guideposts, yet I challenge you to look beyond the conventional urban neighborhoods where we are currently seeing appreciable new development. Take a stroll on a Saturday morning (versus a Monday morning) and get a sense for the type of activation in a neighborhood. Which day would you rather be there?
Urban in Seattle, for example, is new and largely incidental. Urban can form in many places, as can a great Saturday morning lifestyle experience. Great opportunities abound, however. Think about how certain “hot” neighborhoods have recently come into vogue; much of that desirability centers around lifestyle and what we do on a Saturday morning. All that is old is new again, and there are no lack of examples of neighborhoods forming around old Main Streets all across the country.
Seattle, where I live, is in its infancy of urban renewal and development. In these early innings, we are starting to see new ways our society and populace are organizing. The greatest returns will accrue to those who spot trends early.
The Urban Myth
Finally, I must demystify what I consider the Urban Myth: Simply being urban is not a strategy. I was a bit horrified by a statement I recently read on urban corporate strategies that argued, to a large degree, that “people want to live where they work.” I am praying that this was either a misprint or a failed abbreviation of a greater sentiment. However, I fear some in the investment community have concluded that “urban” is a general panacea for shifting demographics and a newly forming renter set they may not completely understand.
I will use the word Millennials, if for no other reason than to get your attention. The investment community loves to discuss Millennials. Nevertheless, Millennials don’t want to live where they work. Trust me: No one wants to live where he or she works. Renters — and everyone, for that matter — want to live somewhere convenient to work or, to strike an academic tone, “proximate to work.”
Given a choice (and you want renters who have choices since they pay the most), renters will live where they want to spend their time socializing, recreating and enjoying their limited free time. Distance to work is an equation that must be solved in light of a series of constraints such as money, time, family and relationships. Delivering a housing solution that is predicated on a deeper understanding of motivations for being close to work (some of which aren’t necessarily elucidated in focus groups) is surely a step in the right direction — in more closely meeting renter demand and thus increase investment returns.
Where do you like to spend your Saturday mornings? What does that say about your need for a gym, a car, a community room, access to car sharing or Wi-Fi, or where you like to drink your coffee? The mental gymnastics are interesting. But I challenge you to undertake this questioning the next time you review a development pro forma or tour a building. Better yet, ask someone who you know who is actively living in or seeking an apartment. The question may lead to an interesting conversation and some even more interesting insights.