Launch Slideshow

Apartment Renovation Drives Rent Growth

Apartment Renovation Drives Rent Growth

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    Daniel Hertzberg

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    Daniel Hertzberg

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    This 312-unit property, formerly known as Las Flores, joined the Greystar Real Estate Partners portfolio in 2012, when the South Carolina firm picked it up in a four-property deal. 

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    A "before" picture of a kitchen at Greystar's Avana La Jolla.

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    Chet Frohlich

    Avana La Jolla after Greystar's $2.3 million renovation

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    Chet Frohlich

    A kitchen at Avana La Jolla after Greystar's $7,500 per-unit renovation..

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    An "after" shot of a cyber cafe/resident kitchen at Bell Partners' Bell Park Central, a 490-unit property in Dallas.

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    Steve HindsInc.

    A "before" shot of the resident kitchen/cyber cafe at Bell Partners' Bell Park Central.

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    Another look at Bell Park Central's cyber cafe/resident kitchen before it was renovated.

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    The amenity center at Hummingbird Pointe, a 236-unit Cleveland property built in 1969 and recently renovate by Forest City Enterprises.

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    A "before" shot of Forest City's Hummingbird Pointe Apartments in Cleveland.

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    The indoor pool after Forest City's renovation of Hummingbird Apartments.

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    An ariel exterior shot of Forest City's 10-story Hummingbird Pointe Apartments.

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    Renaissance Apartments in the South Side Chicago neighborhood of Woodlawn was renovated by Preservation of Affordable Housing.

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    A renovated kitchen in a unit at Renaissance Apartments.

When it comes to value-added renovations, developers face myriad choices: You have only so much money to spend but a million different ways to spend it.

But in many ways, renovations are all about matching the competition—to a point.

“You need to look at the new generation of product and what they are developing and delivering,” says Wes Fuller, executive director of investment at Charleston, S.C.–based Greystar Real Estate Partners, which plans to spend roughly $200 million to renovate 15,000 units in the next three years. “We can’t do the same, but we can do similar materials, similar looks, and similar colors. These renters want the look of the new product but can’t afford it.”

To capture those residents, smart renovators are concentrating on a handful of updates with impact: stainless steel appliances, fresh color schemes, rejuvenated kitchens, and distinctive common spaces like an outdoor kitchen, indoor pool, or resident lounge, according to the results of our fourth annual Apartment Renovation Index (ARI) survey.

“We focus on creating memorable social spaces both indoors and outdoors,” says Emily Moore-­Pleasant, an asset manager with Greensboro, N.C.–based Bell Partners, which expects to renovate 3,100 units this year. “We could spend our budget doing a fair job enhancing all areas of a property, or we could focus on doing something really well and memorable where a prospect walks away thinking, ‘Wow!’ We generally go for the ‘wow’ factor.”

We’ve highlighted a number of these strategic decisions in the pages that follow, focusing on a few properties, from affordable to upscale, that found new life not by abrupt changes in direction, but by subtler shifts that still deliver big returns on investment.

“In most of our markets, it’s generally possible to raise rents by $15 to $75 per month, depending on the scope of the interior renovation,” Moore-Pleasant says. “To raise rents by $100 or $300 will generally involve more risk and a resident demographic reposition; major overhaul or gutting of spaces; or a rare opportunity to capitalize on a severely undermanaged property in a highly desirable and improving location by bringing rents to market level without renovations.”

With rent growth projected to soften in 2013, many firms aren’t interested in that level of risk. “Our approach is to renovate while maintaining a high level of occupancy,” says Fuller. “Some projects may require a lease-down, but we rarely invest in those … . We like our investments to maintain cash flow and pricing power.”