Open up the real estate section of any daily paper and you'll see the ads. They feature an attractive woman doing yoga with a promise of "Tranquility in the City," three twenty-somethings enjoying a gorgeous day outside, or a young couple relaxing in their modern living room.
These ads aren't really telling the reader about the condo. Instead they're selling a lifestyle. They're telling you that you'll be young, vibrant, and hip if you just spend $350,000 to buy a one-bedroom condo that hasn't even been built yet. And the strangest part? They work. Many condo developments in hot markets such as south Florida, Washington, D.C., and Southern California sell out in weeks, if not days.
Since condo developers can convince people to commit thousands of dollars to a unit in a building that hasn't even broken ground yet, it stands to reason that apartment firms could do the same. And, given the increasing size and density of multifamily buildings, a lease-up that starts in advance of a building's opening could save an apartment firm time and money by stabilizing the property faster.
So, using the Internet, animated tours, and other marketing strategies, couldn't renters be persuaded to lock in their next apartment as far as six months out, just like all these antsy condo buyers? Not everyone is so sure.
"One of the debates in rental is, 'How far in advance do I start leasing?'" says Dirk Herrman, senior vice president and chief marketing officer for AvalonBay Communities, an Alexandria, Va., apartment REIT that focuses on infill markets that often demand higher-density apartment properties because of high land costs. "We're trying to figure out how far in advance we can rent because we do want to get the leasing process going quickly."
A Small Window In one respect, pre-leasing high-rises makes a lot of sense. While garden apartments remain relatively easy to open in phases, high rises aren't. "You can open floors, but staging a high-rise opening is hard," says Bruce Ward. "Getting COs [certificates of occupancy so people can move in] is real tricky. It's hard to get COs for just parts of buildings."
If you're opening a building at once, it would make sense that you want as many people to move in as soon as possible. It not only provides revenue, but it also creates a buzz. "It's better to open with 50 percent occupancy so people see activity," says Mark C. Cady, business development manager of Renderings.com, a company that provides developers with graphic leasing and sales tools. "Activity creates activity."
Despite these advantages, many companies don't think about pre-leasing earlier than a few months out. "Pre-leasing probably hasn't been as much of a focus as it should be," says Sarah Belter, director of recruiting and training with Sales Inc., a leasing company located in Atlanta. "Sometimes owners will want to wait because they want to have more of a product to show. We really push them to pre-lease to get the cash flow in sooner."