Multifamily Interior Renovation Q&A
What is the most impactful way to renovate a multifamily property? Is it more important to remodel the units or amenities first? We frequently receive similar questions from clients and industry peers about multifamily renovations. To answer some of these inquiries, I have summarized a few of the most frequently asked questions to share knowledge and industry best practices. Ware Malcomb is currently working on multifamily and residential projects in markets across North America.
What do you do when clients are requiring renovations, but the budget is too small to make a difference?
The delicate balance of budget and improvement is key to the success of a renovation. As designers, we must weigh the requirements and budget allotted with careful consideration to avoid a watered-down renovation, and possibly disappointed tenants and clients. Most clients just want to see improvement to the property. Having a 5-year plan in place will solve this potential problem. The plan will demonstrate that you understand the challenges and have balanced the needs of the property with the client’s financial needs. If you must take action immediately, reduce the scope until the budget matches the “deal” renovation (c) as illustrated below. The Renovation Curve shows the impacts on a renovation project based on the value of the dollars invested.
Is it better to bite the bullet and complete the entire renovation at once?
From a cost perspective, it certainly is less expensive to complete the full renovation at once. The impact is the most dramatic which allows you to raise rents immediately. However, unless you have recently purchased the building with a full value-add renovation in mind, the funding is rarely available to take on the whole property. This is why it is wise to consult with a design firm who can help you develop a strong multi-year plan for revitalization.
Why only bring the property to a B+ level, why not to an A+?
This is really about the goals of the owner. As with most older buildings where the architecture is suffering with some physical obsolescence, you may never get the property to compete with the newer A+ properties on the market. Bringing the property to a B+ level typically will provide the best return on investment. If the building is not functional in its current form, it may be necessary to gut the building to its core to bring the property to an A+ level. In this case, the underlying asset must be inexpensive enough to leave room in the budget for the full renovation. Taking a building all the way to an A property will involve much more than a cosmetic renovation – this will require a major overhaul of the building including all MEP systems, and potentially a new skin to conform to current market trends. A building really needs to be in poor shape to warrant this level of renovation.
Is it more important to remodel the units or the amenities first?
While both are important, you should always start with the amenities and other public areas such as corridors. The cost and benefit of the amenity upgrades are shared equally with all units which delivers greater overall value. According to the National Apartment Association, “building-level amenities tend to command higher rent premiums than unit-level amenities. . . . Highly amenitized buildings tend to be in prime downtown areas, where rents are typically higher.”(1)
What is the tipping point where a renovation turns into a watered-down renovation?
The exact point is hard to define, but according to the Renovation Curve, it occurs anytime to the left of (c). Start with your overall budget and work with a qualified architect/designer who can help scale your renovation appropriately. Our team at Ware Malcomb can help maximize your budget and bring the most value to your renovation.
How much value can I expect from a renovation?
The exact value derived from the renovation will depend on the market your property is in. Nationwide, according to the National Apartment Association, “post-renovation effective rents averaged increases of 8 percent. Class C properties were able to push rents 11.8 percent, Class B, 7.6 percent and Class A, about 3.0 percent. Even so, a property with a pre-renovation classification of C that was upgraded to B averaged rents of $919 per unit after renovations, $880 less per month than their Class A counterparts. While owners of older properties can increase rents to help finance renovations that make their [buildings] more competitive and attractive to residents, these properties are still able to maintain affordability, broadly speaking. On average, occupancy rates in renovated properties increased by 0.55 percentage points in just three months, and an additional 1.15 percentage points six months after renovations were completed.”(2) Different areas of the country may differ slightly from the National averages.
“With more than 51 percent of all rental housing stock built before 1980 and new supply on the rise, it’s imperative that apartment property owners remain competitive, keeping buildings, outdoor spaces and individual residences up to date.”(3) Working with a qualified design team will allow you to stay knowledgeable about current market trends to keep properties up to date.
Should I spend money on a lighting designer?
Yes. Everything looks bad under poor lighting, while good lighting will even improve bad design. A good lighting designer will increase the ROI of any renovation. Pay particular attention to the lighting temperature. Frequently, maintenance staff will unknowingly install the wrong lamps and change the whole feel of the space. Here are a few lighting best practices to keep in mind:
- A commercial office will have a cool 4000K lighting which is great for office tasks.
- A residential space is a warm 2700K. The warmer color helps people feel more comfortable in a space; colors appear more vibrant, and it creates cozier spaces.
- Many general contractors will try to install 3000K lights because they are standard commercial lighting. In multifamily spaces, we still recommend 2700K. It is available, but not always from the GC’s standard sources.
- Make sure that all lighting in a space is consistent.
What about the renovations that you don’t see? How do you deliver value for those?
This is referring to renovations on mechanical, electrical, plumbing and structural systems. Unfortunately, these renovations are black and white; the systems either work or they don’t – and they have to work. Adding smart thermostats is one way to add value to the mechanical systems. Other ways include enhancing building insulation, and sound dampening systems between units. These are things that add value to a tenant and can be monetized.
How do you derive the most value out of a small budget?
If your budget is less than expected, strategically concentrate as much of the budget as you can into one common area. The tenants will appreciate one, well executed space over larger marginalized renovations.
We work with clients to maximize budgets and enhance long-term real estate value of properties. The key is to strategize with your design team to match the scope of work with the budget. In a small renovation, it may not be necessary to even pull a building permit. If that is the case, a designer can help you with a design intent drawings and specifications. This will cost you significantly less than the price of a full construction document set. The general contractor and the owner together will manage the construction details. This is a great way to get the most out of a small budget. It is important to consult with a qualified design team to help you determine what is right for your building and property.
Thinking of starting a renovation project, or want more information? Contact your local Ware Malcomb office. Click to view local offices.
References:
1. https://www.naahq.org/sites/default/files/naa-documents/government-affairs/naa_valueaddamenities_2017_final-r.pdf, page 9
2. https://www.naahq.org/sites/default/files/naa-documents/government-affairs/naa_valueaddamenities_2017_final-r.pdf, page 14
3. https://www.naahq.org/sites/default/files/naa-documents/government-affairs/naa_valueaddamenities_2017_final-r.pdf, page 16
