Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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complexes with typical amenities such as pools and tennis courts, we are seeing a pent- up demand for upscale, luxury-laden, well- located projects," Velas says. "T e younger crowd likes the newer styling that's hard to replicate in buildings built in the 1960s and '70s." T e vacancy rate for these new projects is under 5 percent and rents are approach- ing $1 psf. "I know this doesn't sound like much compared to the major metros, but up to this point, our most expensive rentals in the best locations topped out at 75 cents psf," Velas adds. Potential tenants are looking at the price- to-rent ratio, according to McConnell. And in some markets, including New Jersey, effective rents are closing in on the max point. "When the rents max out, the tenants will be redirected back toward homeowner- ship," he says. But this scenario is a distant dream for many secondary and tertiary markets, and developers know it. Still, pursuing multi- family construction projects in smaller markets requires extra care. "Understand- ing the pipeline is critical," says Drew Dolan, president of Titan Development in Albuquerque, N.M. "In bigger markets, you might just need a great site." Titan Development recently broke ground on the fi rst phase of a multifamily develop- ment project totaling more than 460 units in Albuquerque. The first phase is being fi nanced by a regional bank that had long- standing relationships with Titan and its project partner, Alliance Residential Co. And that's just the beginning. Titan currently has six more Albuquerque-based multifamily development projects in the queue. After several years of developers and investors chasing 6 percent cap rates on mul- tifamily in major markets, Dolan is begin- ning to see the fi rst signs of change as those markets become overbuilt. "Dollars here can buy a lot more return than dollars in bigger markets," he says. "But by the time investors recognize the stability of markets like Albu- querque, they'll be too late." Rich Rosfelder is associate editor of Commer- cial Investment Real Estate. CCIM.com November | December | 2012 31 THE TENANT OF THE FUTURE Generation Y members are ready to leave their parents' house and fi nd apartments that fi t their needs. What does that mean for owners and investors? CIRE asked Todd Clarke, CCIM, CEO of NM Apartment Advisors in Albuquerque, N.M., to discuss how Generation Y is shaping the future of the multifamily market. CIRE: What is Generation Y looking for in an apartment? Clarke: Basically, they favor smaller, connected spaces in urban locations. Between college and age 40, this generation will likely hold a dozen different jobs, so they pack very light. Unlike Baby Boomers, who collect things like baseball cards, antiques, or jewelry, Generation Y collects digital things. ITunes is a great example. Plus, a higher percentage is single. They want their smaller personal space and larger communal space. CIRE: What steps are owners taking to attract younger renters? Clarke: They're adding more outlets with built-in USB charger ports in kitchens and bedrooms. Open storage spaces are also popular because Generation Y likes to see their stuff. And a Formica countertop in a cool color attracts more attention than a granite countertop. I recently made some of these changes to an apartment I renovated to chase Generation Y, which led to a 50 percent rent increase over the former tenant. As for marketing, you can sell experiences. For example, tenants might not cook for themselves but offering them a map showing hundreds of nearby restaurants helps them create an urban adventure. CIRE: What factors will shape the future of the multifamily investment market? Clarke: The key demographics are Generation Y and Baby Boomers who choose to cash in houses and rent. On a micro level, both groups share a desire for urban, walkable neighborhoods with transportation access. On a macro level, both coasts and cities near the 30th parallel north are attracting renters. There are exceptions like Chicago, of course. And some markets, such as Tulsa, Okla., are adding cool amenities like skate parks in an effort to rebrand and attract younger residents. Access to airports will also be an important factor. Clearviewstock/Veer