For developer Jonathan Holtzman, the customer is driving tremendous change in the multifamily sector. His new company, City Club Apartments, intends to incorporate hospitality-like elements into a new brand of apartments that he plans to take international. The properties will all have the same name, like those of a hotel brand.
"We believe the future of the apartment business is the hospitality business," says Holtzman. "The only difference between a hotel and an apartment is that we just stay longer." Hotel-inspired amenities such as concierge services and valet parking are increasingly making their way into new apartment developments. Michael Lojas, director of leasing and marketing for Chicago-based Draper and Kramer Inc., says that renters have begun to expect customer service from their landlords that is more in line with that of a resort or hotel.
"In the past, we were able to differentiate ourselves by offering unique amenities," he says. "However, with many offerings now considered standard, we have found that selling the 'brand' of living in a Draper and Kramer building has been most impactful in setting us apart from some of our peers."
Real estate investment and management firm Waterton even has its own word for the interchangeability of the two property sectors - "resitality." This means "hotel-like experiences" at apartment communities and "home-like experiences" at hotels.
Joe Downs, vice president of Minneapolis-based Opus Development Co. LLC, says that emulating a travel life style is a development consideration for today's apartment buildings.
"People are used to visiting other cities, staying in hotels and having concierge services, which are now employed in apartment buildings," he says. "It's a very high-touch customer intimacy and value proposition in these higher-end properties."
Downs also emphasizes the importance of developing properties in areas that he calls "incredible neighborhoods of cities." The lines have begun to blur between urban and suburban locations. What's most important are walkability and convenience, the same factors one might consider before booking a hotel.
Finding the balance
In the fourth quarter of 2017, Opus wrapped up construction of Ceylon Luxury Apartments in Clayton, an inner ring suburb of St. Louis. The 120-unit apartment building features 13,297 square feet of retail space. According to Downs, Clayton is the professional services mecca of St. Louis, with 8 million square feet of office space and the best public schools in the state. Ceylon is situated on what he calls "a revered location on restaurant row."
Opus plans to break ground later this year on two apartment projects in Kansas City, one in Westport and the other in the Crossroads Art District. Crossroads is home to Kauffman Center for the Performing Arts, which hosts operas, ballets and concerts.
Beyond walkability and hospitality like services, Opus focuses on offering a variety of floor plans in order to appeal to a large mix of residents, adds Downs. The firm offers seven different unit types, ranging from a junior studio to a two-and-a-half bedroom.
"We try not to guess who our resident is and make all floor plans around that·person ," says Downs. "We develop in these core locations that have multiple demand drivers. The empty nester wants to move back for the excitement and energy, while the millennial wants to walk to work and party with friends."
Over the last few years, developers have delivered a modest amount of new supply to the St. Louis market - less than 2,000 units per year, according to Downs. The new supply has been holding up very well to demand, he says. Kansas City has experienced more supply and absorption than St. Louis, with an overall occupancy rate of 95 percent, according to Downs.
From a national perspective, strong demand from renters has pushed the country's occupancy rate to 94.8 percent, according to ARA Newmark's 2017 year-end report. The long-term average is 94 percent. Developers seem to be responding well to renter demand, given that new supply for this cycle is expected to peak in 2018. The New York-based firm projects that developers will deliver 375,000 units nationwide this year, up from 365,000 units in 2017.
'The future is choices'
The first of Holtzman's City Club Apartments to open is located in Cincinnati. The property is currently in the lease-up phase. Rents range from $1,000 to $3,000 per month, depending on floorplan, according to the property's website.
Next on the list and currently under construction is the $70 million City Club Apartments - CBD Detroit. The 288-unit property will occupy the site of the former Statler Hotel, an 800-room hotel dating back to 1915.
In addition to apartments and penthouses, the new development will also feature 13,000 square feet of street level retail space, including a pet store, restaurant and gourmet market. Valet parking and concierge services will be available.
City Club's third property will be located in Minneapolis, followed by Kansas City. Holtzman plans to roll out nine more properties over the next three years. Each of the developments boasts 40 to 50 different floor plans.
"The future is choices," reiterates Holtzman, chairman and CEO of the Farmington Bills, Michigan-based company. "The customer has a tremendous amount of choices, finishes and square footages."
Too many communities have extremely limited floor plans because doing so is easier for the developer and builder, he says.
According to Holtzman, today's renters are staying longer in their hometowns. He says the trend of young adults moving from the Midwest to coastal cities has slowed. Residents have become less mobile, which helps further demand for new apartments in the Midwest since investors and developers historically have overlooked the region.
"I think the Midwest is going to have a very large resurgence of manufacturing with the new [Trump administration] tax laws. Job growth has been tremendous," says Holtzman. "But the amount of new apartments, other than Chicago or Minneapolis, has been miniscule." The Tax Cuts and Jobs Act that Holtzman references is expected to enhance the American economy and drive consumer confidence and spending power.
The majority of the new City Club Apartments will be located in the Midwest. One community is planned for Pittsburgh.
Making life easier
Another company continuing to invest and find opportunities in the Midwest is Draper and Kramer.
"Chicago is still the lower-cost city of choice compared to the East and West coasts where the cost of living is so much higher," says Gordon Ziegenhagen, vice president of acquisitions and development. "We have a diverse economy that's attractive to developing businesses and startups as evidenced by McDonald's and other companies that have moved downtown - and that equates to ongoing rental demand and development opportunities for multifamily." (McDonald's headquarters office will relocate downtown from suburban Oak Brook.
Earlier this year, Draper and Kramer broke ground on 61 Banks Street, a 58-unit luxury apartment building in Chicago's Gold Coast neighborhood. The eight-story property, slated for completion in early 2019, is situated on the last undeveloped lakefront parcel in the area. Luxury amenities such as full-time concierge services and 24-hour valet parking will enhance the property's hospitality feel. Monthly rents are expected to begin at $5,500.
In the St. Louis suburb of Richmond Heights, Draper and Kramer recently opened the second phase of EVO with 46 townhome-style units. The multi family property also includes an adjacent four-story, 281-unit apartment complex that opened in 2016. All told, plans call for four phases of develop ment and more than 800 units.
Other development trends for today's multifamily product center around technology and convenience, says Michael Lojas.
"In the multifamily arena, there's an array of smart home features trending that we now evaluate and consider in our new development plans, from package [delivery] closets and a keyless door entry to smart lights, smart thermostats and home monitoring systems," he says. "Our focus has been looking at features and offerings that simply make life easier.
Bloomington, Minnesota-based Doran Cos. has incorporated a package concierge system at all of its properties. The firm has retrofitted some older communities to accommodate the system, and has even expanded services to include dry cleaning and laundry, according to Tony Kuechle, senior vice president of development.
In partnership with KM2 Development, Doran is currently developing a 191-unit luxury apartment property in Edina, a southwest suburb of Minneapolis. Known as ENVi, the property will be situated on a site formerly occupied by Best Buy, which closed in 2012. Slated for completion in summer 2019, the project will include a mix of studio, one, two and three-bedroom apartments as well as first-floor town homes.
"We've been moving out to some of the underserved suburban communities and having success," says Kuechle. "Our focus is a mix of both urban and suburban."
In downtown Minneapolis, Doran has unveiled plans to develop a $100 million, 372-unit apartment community known as The Expo. The project, a joint venture between Doran and CSM Corp., will be located on the former General Mills Corp. site and feature a 26-story tower. The luxury property will include amenities such as chef-grade kitchens, an outdoor pool with dining areas, fitness center, spa and sauna.
Developers add familiar touch of amenities to attract older residents
Amenities like grilling stations create opportunities for residents to come together socially, fostering a sense of community, says Tony Kuechle, senior vice president of development at Bloomington, Minnesota-based Doran Cos. In an effort to attract more empty nesters, Doran has incorporated what Kuechle calls "entertainment suites" to essentially recreate the first floor of a typical home.
"By doing focus groups, we found that we were having a hard time attracting the empty nester ," he explains, in reference to older couples whose children have grown into adulthood and moved out of the house. "They did not want to leave their homes because they didn't want to give up their dining rooms. That's where the family memories were."
The suites feature gourmet kitchens fully stocked with cooking utensils and dinnerware and are able to accommodate up to 14 people. Now, empty nesters account for 35 percent of residents at Doran's suburban communities and 43 percent at its urban communities, according to Kuechle.
Another feature that empty nesters look for in an apartment is larger unit sizes. This is especially true for persons transitioning from a single-family home. These renters are likely to choose a floor plan ranging from 1,400 to 1,600 square feet, says Kuechle.
Jonathan Holtzman, chairman and CEO of Farmington Hills, Michigan-based City Club Apartments, believes that the apartment industry is too fixated on the millennial generation.
Where the industry has an incredible opportunity, in his opinion, is to look at baby boomers and figure out where they might want to live in the near future. He thinks it's roughly likely that a baby boomer would choose to sell his or her home and move into a penthouse apartment. Seniors housing, on the other hand, can wait.
"We're going to live to our 80s and 90s," he says. "We need to focus on a much wider range of customer. That will change what the industry builds and operates."
Written by Kristin Hiller for www.REBusinessOnline.com
