Before creating any new strategy in multifamily, establishing solid market research and supporting numbers of investment returns are key to its success. Approaching potential value-add properties are no exception. From quick cosmetic fixes to upgrading major systems, value can be found in properties that once were shiny and new.
However, implementing the right upgrades can prove tricky without proper understanding of each community’s market and the residents who call it home.
First and foremost, Sean Burton, CEO of Cityview, says, “Operators really need to be able to understand a project during due diligence and have the expertise to assess deferred maintenance and enhancement costs and scope to develop an accurate business plan and the skilled team to effectively execute on that plan throughout the asset hold period.”
Burton; Humberto Cubillos, senior vice president of asset management at Eagle Property Capital; and Lee Rosenthal, president of West Shore, share more insights below.
1. Preserve the Already-Valuable Assets
Maintaining existing assets that are valuable to residents and the community is a helpful start when beginning the process.
“Asset preservation is first and foremost in value creation. West Shore has achieved success in value-add renovations by implementing a strategic approach that prioritizes asset preservation and thoughtful spending for every property in every state within its portfolio,” Rosenthal shares. “This commitment to value creation has been instrumental in enhancing property values; supporting leasing, tenant satisfaction, and occupancy rates; as well as long-term financial stability of the properties and continued returns for our investors.”
2. Understand Your Tenant
As lifestyle preferences can range from one market to another, Burton points out that knowing your tenant base is imperative. He says, “At Cityview, we do this by executing in-depth consumer research, putting boots on the ground, shopping the comps, and studying the area’s work, lifestyle, and market trends. We have had success employing our systematic approach to delivering a curated product specific to the needs of the building and submarket.”
Consumer research can provide further details on what residents are looking for—whether that’s upgraded unit finishes or the latest fitness equipment.
“Each project and submarket has its own unique personality, so return on investment should be assessed on a project-by-project basis. That said, unit interior upgrades, particularly to the kitchens and washers/dryers, are almost always in high demand. But it is not enough to just redo cabinets and countertops,” Burton continues. “We are thoughtful with every dollar we spend to try to ensure that we get paid on those dollars. We put a lot of care into selecting the right upgrades and materials. Tenants value functionality, aesthetics, and durability, and we want to ensure that we provide that by making thoughtful upgrades that utilize durable and long-lasting products.”
Cubillos agrees, “The largest return on investment is achieved on the unit interior upgrades, which are valued most by the residents.” Eagle Property Capital aims to modernize flooring, light fixtures, and doorknobs. On specific communities, the firm replaces countertops with granite or replaces black appliances with stainless steel ones. “We need to define the right balance of investment versus return on the capital allocated at the unit interior level,” he notes.
3. Reach for Eco-Friendly Upgrades and Savings
Energy-efficient upgrades can not only appeal to resident preferences but provide an additional source of income in the form of savings.
Rosenthal says West Shore has found success through this approach, “First would be electricity and our use of light, which play key roles in property operations, tenant experience, and placemaking. By investing in energy-efficient upgrades propertywide and at the unit level, we reduce utility expenses and bolster our appeal to an ever-growing group of environmentally conscious prospective or existing residents.”
In a similar fashion, Eagle Property Capital looks for ways to increase value by finding savings. Cubillos adds, “We capitalize on initiatives that reduce operational expenses, such as trash management, and strategies for water and electric conservation consistent with our ESG commitment.”
4. Embrace the Trends That Make Sense
Following design trends but also finding ways to set a community apart are beneficial in adding value to a resident’s everyday life.
“The design landscape is forever changing, so it’s also important to stay close to the trends and continually innovate. Successful operators have to go beyond what the competition is doing and come up with fresh ideas to stand out in the marketplace. In addition, we value optionality in our spaces to allow for changing trends and tenant desires to live differently in the spaces. Not every tenant is going to want the same thing, so creating multifunctional spaces throughout the projects allows residents to create an individually tailored lifestyle,” Burton shares.
Cityview has seen an increased demand in more custom features that one would find in a single-family home—for instance, cabinets that extend to the ceiling or two-toned color schemes; waterfall countertops; or brass fixtures. Outside of tangible finishes, Burton notes connectivity and optionality as important offerings.
“Residents want to be able to work from anywhere in the building, which includes comfortable spaces (communal, private, and semi-private) and seamless Wi-Fi,” he adds.
5. Create Value Beyond Four Walls
Keeping with trends outside the units, Cubillos says, “We modernize the exterior of the buildings with fresh paint and accents, rebrand with appealing monument signs to drive traffic, and improve the clubhouse/leasing office by leveraging the pool or lake views to make the complex aspirational for our residents. We also tailor amenities to the needs of the residents by building playgrounds where there is a high concentration of families with children; grilling areas with pergolas and tables; dog parks; outdoor exercise equipment; pickleball courts; soccer courts; package mailboxes; coworking spaces; and state-of-the-art gyms, among many other upgrades.”
Similarly, Burton says that adding programming or repositioning unused common areas are high-value upgrades.
He shares, “Installing seating, a bocce ball court, fire pits, or an outdoor pizza oven to an area that was previously an empty grassy space really helps drive value for a value-add project. We have repositioned underutilized storage areas into fitness centers, converted inaccessible courtyards into lively outdoor gaming lawns, and installed gardens to provide tenants with fresh produce to increase livability value for residents.”
Rosenthal has seen demand lately in fitness centers and outdoor lounge areas as well as pet-friendly amenities like dog parks and pet spas.
6. Don’t Forget Communication
As a property undergoes renovations, Cubillos makes sure to point out that it is important to keep current residents informed.
“Communication to residents is key,” Cubillos says. “Helping residents understand the value-add program, and how they benefit, ensures they embrace all the changes enthusiastically—and are more tolerant and accepting of some of the short-term inconveniences caused by renovations. It’s a minor sacrifice in the interest of creating healthier and more vibrant communities for society.”
Ideally, renovations with faster turnaround can benefit residents and the overall financial impact. With accurate budgeting of time and materials, a more lucrative result can be achieved especially when small mistakes can add up when being multiplied over hundreds of units, Burton points out. Regardless of which area a firm decides to take on first, the ways in which to instill value are endless.
“Tenants no longer view their living space as their four walls, but rather the entirety of their apartment community,” Burton says. “Successful operators view every space throughout their buildings, both inside and outside a unit, as an opportunity to provide something extra for their tenants.”