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Unlocking Value in Multifamily – Right Now

By: Neill Nagib, Managing Director, Peak 15 Capital

Over the last 10 years investing in multifamily real estate has been very rewarding for investors with well-developed asset management capabilities. However, we are moving past the point where value creation is possible with some cosmetic improvements. The multifamily market in secondary cities is becoming very competitive. Tenants are becoming more discerning, and their needs are becoming more sophisticated. To compete, real estate investors need to understand the difference between trends and fads.

You could do this with a headline or slogan (such as VW’s “Drivers Wanted” campaign), color or layout (Target’s new colorful, simple ads are a testimony to this) or illustration (such as the Red Bull characters or Zoloft’s depressed ball and his ladybug friend).  All good advertising copy is comprised of the same basic elements.

Creating Long Term Value

Creating long term value is about understanding the evolving needs of end users. Those needs are driven by economic and social trends. Younger occupiers are driving less, working from home more and are used to having most of their daily needs and wants delivered to their doorstep. So, rather than driving everywhere millennials are hailing ride sharing services, rather than heading off to a mall they’re shopping online and getting delivery. These trends have in large part been cemented by the pandemic. How investors adapt to this is going to determine how their product is perceived in the market.

It’s likely we will see the trend toward hot desking continue.

The pandemic has raised several profound issues for us to contend with in real estate. What does the new normal look like? Will we all go back to the office? Are malls really dead? What’s important to end users? Whilst it’s difficult to see a complete devolution of the office market, we expect firms to rationalize the amount of office space they occupy. It’s likely we will see the trend toward hot desking continue, even for more senior staff members, as companies seek to make cost savings on their real estate spend.

The pandemic taught occupiers how to manage their teams remotely. Technology has advanced enough for managers to monitor workflow whilst maintain productivity levels. According to the Pew Research Center, more than half of the people they surveyed would prefer to work from home permanently if given a choice, and it’s clear to see why. Working from home allows for personal flexibility, less commute time and more work-life balance. Teleworking is not going to be a fad that fades post-pandemic, but a trend that has accelerated as a result of the lockdowns. So, what does that mean for multifamily investors?

If we accept the premise that teleworking is going to remain a part of our economy than developers and investors looking to enhance their portfolios might look to ways to make teleworking space available to tenants. One way to achieve this objective is to convert large common areas such as underutilized gyms or party rooms into small break out rooms for videoconferences – add in some sound proofing and the space is perfect for would be podcasters. Large tables with plug points and high-speed internet would also goa long way toward adding value for occupiers. Similarly, adding ride sharing pick-up points and dedicated lockers for package deliveries are an excellent way to show prospective tenants that you understand their needs and are catering to their lifestyle.

The most competitive multifamily developments are going to offer lifestyle amenities that embrace modern living and enhance work-life balance. The pandemic has taught us how important it is to be in a home environment that meets both our practical and psycho-social needs. Unlocking the hidden potential of your assets will require some creativity, planning and an understanding of your target market, but if you’re looking to capture and retain premium tenants the investment in the areas we discussed  will be worth it.