When it comes to developing apartment projects, as well as investing in stabilized apartments, a litany of factors are considered – size of project, location, amenities, unit mix, et certera 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, yet I worked in Silicon Valley – which on a map often appears closer than the 40 miles / 1 hr to 1 ½ hour commute it was (here is a bit about me). Why did I commute so far five days a week? Quite simple, so I could wake up near San Francisco’s Embarcadero one day a week – Saturday morning. To run. To shop. To meander. [To nurse a hangover.] To be amongst my people.
Lifestyle & The Renter
The modern apartment renter has choices in 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 is covering 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 their Saturday morning is a fantastic litmus test for demand drivers. Saturday mornings reveal lifestyle, hobbies and interests and can accordingly 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 client’s 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 predilections? Often we check boxes on categories such as walkability, transit, access to daily needs retail (e.g., grocers, gyms, drycleaners) in order to analyze the location of a particular apartment investment. Are there better metrics?
They tend to be a bit more ephemeral, but yes. Culture, vibe, community. 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 (tapping into Facebook? – likely, Apartment List is already using Facebook data on interests to help possible roommates connect). It may be too soon to log into an algorithm to answer these questions, but it’s certainly not too soon to ask them.
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 to other 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 going through transformations themselves, much 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 the City 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, further along in its transformation offers Sunday brunchers, sailers, joggers and meanderers the ability to live close to the CBD, 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 waterfront and recreation, while still having good transit options into Boston employment centers.
Los Angeles – The City of Angeles is rapidly transforming based on lifestyle. In a town known for 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 one hand, and downtown LA (recently earning the moniker DTLA) on the other hand. Having left Los Angeles over ten years ago, I am both shocked and pleased by the renaissance of lifestyle live/work choices currently being made in LA – largely through investment by the real estate community.
Where to Look
Use the foregoing thoughts as guideposts, yet I challenge you to look beyond the conventional urban neighborhoods where we are currently seeing appreciable new development. I will pick on South Lake Union, but just a bit as it’s an amazing neighborhood. Take a stroll on a Saturday morning versus a Monday morning and get a sense for the type of activation in the neighborhood. Which day would you rather be there?
Urban in Seattle is new and largely incidental. Urban can form in many places, as can a great Saturday morning lifestyle experience. Check out what is happening at Bothell Landing and the newly forming lifestyle hub in North Renton, particularly at Renton Landing (the thousands of 737 MAX orders certainly don’t hurt employment prospects). Have you thought about the future of great communities such as Issaquah and North Bend?
Great opportunities abound. Thinking in the context of how certain ‘hot’ neighborhoods have recently come into vogue, much of it is 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 ‘the old Main Street’ – transformations in Ballard, W. Seattle and Columbia City all come to mind.
Seattle 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 (see my post on Points of Continuity).
(and finally) 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 read to a large degree “people want to live where they work”. Although I am praying that this was either a misprint or a failed abbreviation of a greater sentiment, I fear some in the investment community has 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) – Millennials don’t want to live where they work. Trust me, no one wants to live where they work. Renters, everyone for that matter, wants to live somewhere convenient to work – or to strike an academic tone, ‘proximate to work’. (Look for a future article likely titled “First Move, Second Move”.)
Given a choice (and you want renters who have choices – they pay the most), renters will live where they want to spend time socializing, recreating and enjoying limited free time. Distance to work is an equation that must be solved for in light of a series of constraints – money, time, family, relationships. Delivering a housing solution that is predicated on a deeper understanding of motivations for being proximate to work (some not necessarily tactically elucidated in focus groups) is surely a step in the right direction, and a step to better meeting renter demand, and thusly investment returns.
Where do you like to spend your Saturday mornings? What does that tell you about your need for a gym, a car, a community room, access to car-share or Wi-Fi, or where you like to drink your coffee? The mental gymnastics are interesting and ones that I challenge you to undertake the next time you review a development proforma 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.
As always, I invite you to reach out to me to discuss the market, your investment needs and how my research and market analysis can help you maximize investment returns. You can always read more on my blog.