With the economy picking back up, REnovators are shaking off the cobwebs and diving back into upgrading units, as renters are willing to pay more for something shiny and new.
JRK Property Holdings settled in at No. 3 on the Top 25 Renovators list this year, making a mad dash up from No. 15 last year. The company attributes its uptick in renovations to restarting work on units that were stopped when the economy tanked, president and chief operating officer Robert Lee says.
The Los Angeles–based company halted many renovations during the economic pinch in 2009 and 2010. However, when the economy began to revive in 2011, JRK’s pipeline of renovations did too. In fact, the company boosted its staffing levels last year, with an eye on future growth.
“We significantly increased our renovation team because we don’t expect this to slow down right now,” Lee says.
In addition to doing the usual appliance upgrades, the JRK team tweaked its approach to cut costs.
For instance, the company adopted a different technique to finish cabinetry. In past years, the cabinets were stripped down to the original box and painted white. But now, JRK renovators are focusing on using a wrap over the original boxes to give them a wood-style finish in deep-brown colors.
“You can make any color cabinet as long as the box is in good condition,” Lee says. “So, as opposed to spending a couple thousand [dollars per] unit on cabinets, you can spend a quarter of that.”
Another company making moves in 2012 was Ann Arbor, Mich.–based McKinley. The firm crept up three slots, to No. 8, with a booming year of renovations.
One project CEO Albert Berriz was particularly proud of was a building in the company’s hometown of Ann Arbor, on which the company spent about $12,000 per unit. The 120-unit project was one of three significant acquisitions for the company last year. The other two are a building in Ann Arbor near the University of Michigan and a 323-unit renovation in Gainesville, Fla.
Berriz says all three properties were underperforming and had great potential to catch up to similar properties in their corresponding markets.
“They’re all in extraordinary markets,” he says. “[They had] great locations and great physical plans. They just needed some modernizing.”
McKinley plans to continue growing by acquiring more renovation projects in 2013. “We’re going to do it again in ’13,” Berriz says.
Knocking on the Door
Herman & Kittle just missed the Top 25 but had a large, notable increase in its renovation projects in 2012. The Indianapolis-based company increased its renovation starts by a whopping 213 percent from one year to the next.
RJ Pasquesi, executive vice president of development and finance, says his team started some preservation projects in 2012, including Sec. 8 housing rehabs in Louisiana, Indiana, and Ohio, as well as some rural development projects. Like Herman & Kittle, many affordable housing owners are seeing these types of rehabs as a big area of future growth, as several low-income housing tax credit and other affordable properties reach the end of their compliance periods.
Another focus of some of Herman & Kittle’s rehab projects is becoming more energy efficient, including by obtaining LEED Silver ratings or by becoming an Enterprise Green community, Pasquesi says.
“Not only are we benefitting ourselves, we’re benefitting the residents by reducing their energy costs and making [the buildings] more sustainable,” he says.
Company leaders are hoping to continue expanding the portfolio by adding at least nine properties in the next year, according to the firm’s Top 25 survey responses.
Pasquesi says one of the upcoming renovation projects on which Herman and Kittle hopes to begin is converting a hospital into affordable senior housing in Indiana. He plans to integrate environmentally friendly concepts as the structure is gutted and rehabilitated into a 55-and-older affordable housing community.
“We’re going back to the wall and pretty much going all new throughout from there,” he says.