How to Revive Vintage Apartments While Maintaining Profitability
Motus Construction’s Justin Wood delves into what it takes to make renovations financially viable today.
Frequently associated with workforce housing, vintage apartment buildings cater to a diverse demographic of renters. While these properties are in high demand, they often come with structural deficiencies that require major renovations.
According to the latest America’s Rental Housing report from Harvard University’s Joint Center for Housing Studies, 3.3 million occupied rental units—particularly buildings constructed before 1940—were considered at least moderately inadequate in 2019. That figure only increased during the pandemic, as many multifamily operators postponed maintenance activities to reduce social interaction and avoid staff or renter infections.
But now that the health crisis is under control, renovating old multifamily properties is not only a necessity, but it can also lead to improved cash flow and bring previously uninhabitable units back into use. Chicago-based Motus Construction has completed more than 500 multifamily rehab projects since 2009 and continues to meet the urgent demand for improving properties affected by deferred maintenance. Senior Project Manager Justin Wood provided his considerations for renovating vintage apartments in today’s high-cost environment.
What would you say is your biggest challenge when renovating old apartment buildings?
Wood: The biggest challenge is balancing the scope of work with construction costs. We routinely consult ownership on ways to value engineer a project in a manner that allows us to execute without impacting their vision. Because it is more expensive to borrow now than it was a year or two ago, owners have tighter construction budgets. That’s why we work with them to identify potential savings that will still allow the building to operate successfully.
When updating units for various tenant income levels, what budgetary decisions do you make to support investment without displacement?
Wood: A lot of that comes down to the level of finish. As long as you remain thoughtful on finish decisions, it’s possible to make an older building look just as nice as a ground-up development. At the end of the day, the more money the construction team spends refurbishing a building, the more money ownership will have to charge in rent. Once we understand the owner’s overall goal with the property, there are ways to keep costs down.
During the renovation process, how does Motus Construction work with partially occupied and fully occupied properties?
Wood: It depends on the scope. If you are replacing mechanical systems and need to open up walls and ceilings, it’s possible to do that with tenants in place as long as you are able to temporarily relocate them.
We work on a lot of two- and three-story walk-ups. If mechanical replacements are necessary in a partially occupied building, our strategy is to free up a tier by moving tenants elsewhere in the building so that we can perform the necessary improvements, and then move them back to continue to construction vertically.
Major mechanical upgrades are much more intensive in mid- and high-rise buildings, where you almost always need the property to be vacant in order to complete the work efficiently.
Even if the building only needs cosmetic enhancements, you still need to be mindful of tenants. Work crews have to restrict activity to normal business hours, attempt to limit loud noises and manage construction debris and dust. This is a greater concern these days with more people working from home.
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In your experience, what are some structural, mechanical and cosmetic improvements that have the best return on investment in a multifamily renovation?
Wood: First of all, they definitely go in that order: structural, mechanical and cosmetic. We have 12 years of operating data showing the cost of additional maintenance hours outweighs the savings from not addressing structural or mechanical issues. Depending on how long the owner plans to hold the asset, these added costs could be tenfold.
Structurally, owners will see the biggest return from repairing or replacing deteriorated beams and columns. Not only is there a life safety issue, but money spent on new materials like drywall and tile will be wasted as the building distorts and these materials fail.
As for mechanical systems, replacement of galvanized pipes—which are very common in vintage apartment buildings—is a good way to improve a building’s profitability. Galvanized pipes collect sediment and clog up over time, leading to poor water pressure, but it only makes sense to replace these systems during a major multifamily renovation.
Paint and flooring are the cosmetic improvements with the biggest potential for return on investment. Painting a unit all white rather than two-toned not only looks modern and clean, but it can also cut the paint budget by 25 percent. If you have the ability to refinish existing hardwood floors, you can usually accomplish that for $2 per square foot compared to $5 per square foot for newly installed vinyl—and again, the look is much more timeless.
With many properties coming out of the health crisis with deferred maintenance, how have you adjusted your renovation processes to meet the pressing need to elevate these assets?
Wood: This goes back to prioritizing the functionality of the building. While the finished cosmetic choices are something you can play around with, life safety concerns are not. We will consult with ownership on which deferred enhancements they have to address, and we will walk away from a job if they won’t commit to basic life safety improvements. Form follows function, they say, and that’s true even when rehabilitating older buildings. If a property can’t operate safely, all other concerns are moot.
Can you share a case study or multifamily renovation success story that Motus Construction completed recently?
Wood: One project we recently completed, 6230 N. Kenmore Ave. in Chicago, captures a lot of what we have discussed. It was an occupied building where we advised the owner on value-add decisions to accommodate the higher-than-anticipated mechanical costs. 3546 N. Southport Ave. is another great example where we were able to consult with ownership on strategies to keep costs down while improving the functionality of the building and ultimately deliver exactly what they wanted.
Finally, what advice would you offer to multifamily property owners who are considering renovating their vintage apartment buildings?
Wood: The most successful projects will strike a balance between the scope of work and construction costs. One great way for owners to set a realistic budget is to involve the contractor as soon as possible, even before closing on an asset. The more information they have about the existing condition of the property, the more informed they will be about their purchase and anticipated redevelopment costs.