Even as occupancy concerns weighed heavy on multifamily operators heading into 2010, apartment firms pushed forward this year with new openings and have found that absorption rates are tempering the need for longer pre-leasing periods. Indeed, improvements in prospect traffic and an increased use of Internet and mobile-based apartment search applications have a lot of consumers—particularly in urban markets—looking for here-and-now apartment deals rather than signing up for a post-COO (certificate of occupancy) unit somewhere down the road.
“We had 2,300 new units open in the Chicago market this year, and between March and September alone, over 1,000 of those units were leased,” says Chicago-based Fifield Cos. president Steven Fifield. “Our market seems to be ahead of schedule and back to 95 percent occupied, with new openings easily hitting the 80 percent to 90 percent full mark [within the year].”
According to Fifield, pre-leasing efforts in Chicago over the course of 2010 were minimally successful. At Fifield’s 422-unit West Alta tower, pre-leasing secured only 20 or so contracts prior to the buildings grand opening. “Of course, you like to get that pre-leasing activity, but in a market where there are a lot of buildings opening, it is difficult to get traction,” Fifield says. “There is not a perception by people that they need to make a commitment with competitive product available in the market. You have to just get ready to staff up, turn on the utilities, and open up for business.”
The Windy City market has nevertheless been favorable to landlords: On a pro-forma of 30 leases per month, West Alta experienced up to 18 leases a week across most of the year, with 70 units leased in the first month alone. Likewise, San Antonio, Texas-based Lynd Co. saw its 249-unit EnV tower in Chicago get 40 percent leased in under two months, primarily by marketing a best-in-class amentity package that included a fitness center, movie room, rooftop pool, wine storage lockers, and a dog run, all targeting graduate students and urban professionals.
The burn-off of free rent specials and the apartment prospect’s embrace of Internet and mobile apartment apps is also minimizing the need for pre-leasing and powering up leasing office traffic and lead conversions. “With the Internet today and strong local outreach and marketing programs, all of our lease-up volumes are probably 50 percent better than what we pro-forma, and rent levels are 10 percent better,” says Tom Toomey, CEO of Highlands Ranch, Colo.-based UDR. “The concessionary levels are burning off quicker, and obviously if you have a higher volume [of converted prospect traffic], you’ll get to stabilization quicker, and that first turn of leases isn’t as painful.”
Phased and multi-building communities has been one area where pre-leasing has been successful, notably where prospects can tour stabilized portions of the community just prior to the opening of new buildings, such as in Washington, D.C., where Chicago-based Equity Residential is opening up the second tower of 425 Mass Apartments ahead of schedule. Purchased completely vacant in March 2010, the 559-unit, two tower community began lease-ups in April and is currently 50 percent occupied, with amenities that include a game room, two rooftop pools, and entertainment areas with grilling stations, private dining cabañas, a large-screen TV and WiFi lounge areas with views of the U.S. Capitol and the Washington Monument.
“We were able to do more pre-leasing with the east tower of Alta as part of the same complex and highlight amenities to prospects, particularly those coming out of ownership market,” Fifield says. “Offerings like home theaters, parking, and concierge services included in a rent check compared to writing a check to a condo board as well as paying a monthly mortgage are enticing to prospects—renting has become both a more luxurious and affordable lifestyle.”
Regardless of unit availability in any given market, there will always be a small demographic of prospects that embrace the pre-lease model, enabling any community to open up with at least a minimum threshold of occupancy. “In every case, you are trying to get ahead of the opening,” Toomey says. “First-occupiers get the best units, the best views, and the best floor plans. [Those premiums assist sales] before you ever open your doors, and help as you are trying to get ahead of your curve.”
