Successful Development Builds from the Consumer Up
For developers, knowing their markets includes not only knowing their residents, but knowing their capabilities.
Multi-housing developers are problem-solvers by nature. They serve their prospective clients best by listening to their concerns, understanding residents’ goals and sharing their vision of the project before it begins.
Bob Koch, AIA, calls this process “direct consumer awareness.” It’s a values-based approach to development that considers the priorities of the consumer—not the architect or developer.
“Successful developers have become much more strategic on the product decisions they are making,” says Koch, president of architectural firm Fugleberg Koch in Winter Park, Fla. “When considering amenities, you need to know which choices a resident will value most, instead of what may cost you the most. If you don’t know your market, then you won’t be able to answer this question.”
For developers, knowing their markets begins with knowing their capabilities. This means focusing on the strengths of the market segment in the areas the developer has the most experience in. This bit of self-analysis should come easy for most.
“The best opportunities are where you see job growth, and that may not be in the largest cities,” says Koch. “Whether it’s high-tech or blue-collar, the jobs define the workforce, and that is your target.”
Typically, job growth is spread relatively evenly and affects all sectors of housing. Some metro areas like Dallas continue to grow in this manner, with a balanced job market and multiple sectors of housing needs. However, greater opportunities may lie in cities like Chattanooga, Tenn. or El Paso, Texas, where corporate investments or the consolidation of the military are creating a need for new development.
“When you look carefully at job growth, it becomes a window that defines the economic profile of your customer,” says Koch. “The developer’s best prospect is someone moving into the market [for a job] or moving up to another level economically through job advancement.”
This is most likely to occur in communities that have best weathered the recession, and in areas with job growth in targeted industries. Together, these two attributes typically herald an early economic recovery for the region.
Developers then need to judge the submarkets “on the ground level,” says Koch. “If you don’t already have inventory in other locations, then talk with people and get their feedback. Knowing the market means finding the ‘total lifestyle bundle’ that is important to [the residents].”
In good times, market studies and five-year, historical projections have helped developers learn more about their markets. However, these studies were never able to predict demand for new products that had no history in the submarket.
“For anyone using strictly historical forecasting over the past five years, the results have been horrible,” says Koch. “Not that the products we built in the past won’t work. There’s just a lot more focus today on prioritizing preferences rather than just listing them.”
Koch sees the senior lifestyle sector and student housing—based around colleges with a good growth profile—as two strong, emerging markets.
Another big opportunity is the large number of potential home-buyers who have become long-term renters due to tougher mortgage requirements. Compounding this trend are continued fears among future home buyers that values have yet to bottom out, as well as questions about the future of 30-year mortgages.
“We are seeing rental products moving very successfully in markets where would-be home buyers are being held hostage by greatly elevated credit underwriting,” Koch says. “These young people will continue to swell the ranks of the rental market for at least the next five years.
“On a macro level, knowing your market also means realizing that the sustainable building movement will attack multi-housing in a much deeper way,” says Koch. “Green building and energy efficiency have not been prime factors so far, but they will positively affect rental rates in the future.”
Know your renters
Sometimes knowing your market isn’t enough. Architects and developers may also need to convince creditors that what they’ve learned about their markets is true.
Valerio Dewalt Train Associates (VDTA) of Chicago and Lincoln Property Co. of Dallas both did their homework before breaking ground on a recent rental project in Chicago.
Brian Byrne, executive vice president of Lincoln Property Co., understands the importance of knowing the firm’s market. “We worked together to profile our ‘core constituency’ as a starting point for our design,” says Joe Valerio, AIA and principal at VDTA. “The L.A. experience fit our user profile. We walked the newest L.A. rental housing, saw some interesting new projects and knew we could take the next step.”
VDTA designed an urban experience but the concept needed to be sold to the mortgage lender.
“It was exactly what I was afraid of,” recalls Valerio. “There were three older male lenders sitting across from us who just didn’t get [the impact of] a red lobby. We were ready for them to suggest that we redesign the whole building.”
Fortunately for VDTA, a new hire—a woman in her mid-twenties—happened to be in the room. In an impromptu moment, one of the financiers drew her into the meeting, asking her opinion of the project. She said, ‘It’s the coolest thing I’ve ever seen.’ The lenders looked at each other and nodded. They had met their market in their own conference room.”
Following the success of 1401 South State for Lincoln Properties, Valerio began working on EnV for Lynd Development Partners. For this high-profile, mixed-use development, Valerio took nothing for granted. “Where 1401 was in the gritty South Loop, EnV was in an area with a very different look and feel. A new user profile was developed, asking the big question again: ‘What was going to attract them?’ [but] with a new answer.”
Michael Lynd, CEO and vice president of investments, knew he could achieve premium rents for the top (28th) floor, but didn’t want to limit the breathtaking view of the Chicago River and Lake Erie to just a handful of residents. In one of those “we’ve got to do this” moments, says Valerio, the team decided to devote the entire top floor to amenities for all the residents.
“The intent was to make this the most elaborate community level that we could imagine,” says Valerio. “The truth is, we talked ourselves into the concept, but it turned out to be true. We thought that we would get a premium for every apartment if everyone had a share in the drama of the top floor.”
EnV’s rooftop pool terrace comes with cabanas, an all-season bar and catering kitchen, a 24-hour fitness center—and a captivating view of the city skyline. The building’s leasing office also shares this view, which hasn’t hurt rentals one bit.
Zeroing in on the target
Lynd recognized early on that the future site of EnV was extraordinarily well-positioned for a high-end rental apartment. The city’s Merchandise Mart stood close by, and another large office tower was under construction south of the site.
“To its credit, our developer knew it had the right piece of dirt,” recalls Valerio. “We knew that 30,000 people—among the most affluent of Chicago’s young people, in terms of take-home pay—worked within a few blocks of the building. Our job was to ensure that 500 of them desperately wanted to live in EnV.”
A myriad of small design touches have been added by VDTA to make EnV’s 249 apartments irresistible to renters. One of the big things was units with lots of glass. When residents open their curtains, every apartment has a panoramic view of the City of Chicago. The designers also added a unique outdoor experience for each balcony. Every terrace is protected by glass on two sides, creating a wind pocket that makes balcony access comfortable, even on the Windy City’s most blustery days.
VDTA doesn’t design a building; it builds an “experience” around the developer’s target audience. “Understanding that you want to make these people passionate about the building is the essence of marketing, and it should be the essence of architecture as well,” Valerio says.
Fortunately, Lynd and VDTA understood their market from day-one. The mission was to elicit a passionate response from a relatively small portion of the overall population at a high lease rate—about 25 percent above comparable rental buildings in the city. “Because we knew our market, we were not looking to attract renters from Schaumburg (Ill.),” says Valerio. “We didn’t want everyone to want to live in EnV. Some developers are able to ‘click’ on that idea, and others aren’t.”
To comment on this story, email Diana Mosher at [email protected].