HOW DO YOU DETERMINE YOUR UNIT MIX?

Really solid thread idea, @yayaa" . Love these kind of specific questions. redever nailed it in saying that it is an art not a science.

Unit size and unit mix are both major drivers for an apartment project and getting both right is incredibly important.

To determine what would be ideal for a specific development, you have to take into account:

• Market Comps - i.e. what currently exists in the market. Consider this your baseline. When you do or pay for your initial market study, you want to see how big the units are. You want to see how many 1BRs there are compared to 2BRs. You want to note if there are any 3BRs. You want to know how all of these lease compared to each other and you'll ask the people at the property which type of units fly off the shelves faster. You then compare the unit sizes to the project age - typically older deals will have bigger units, so you can discount those some. Finally, you look at the specific floorplans to make sure a floorplan isn't just not leasing because it flat out sucks. Lord knows some architects design some dumbass floorplans and some developers are happy to rubber stamp them. Remember too that while developers care about $/SF - renters don't give a shit. If your competitor has a 750 SF 1BR going for $1,500, and you can build a 700 SF apartment that doesn't "feel" any smaller because it's a better floorplan and charge $1,450 a month, you're not only winning the PSF battle but the renter is also saving money every month.

• Target Market - This is how you determine how to respond to your comp set. Typically, a younger target demographic means your units can be smaller and there will be more 1BRs than 2BRs, but there are always exceptions. Likewise, the more urban the project is, the smaller the units will typically be and the more 1BRs there typically will be. A old school garden deal may be 50/50 or 55/45. A newer wrap deal may be 60/40 or 65/35. A high rise could be 75/25 or 80/20. Or, if you are specifically targeting a group of people like wealthy empty nesters who are looking for apartments for a year while they sell their mansion and figure out where they want to buy a condo in relation to their beach house, you know that there's no way they're downsizing from a 7,500 SF house to a 1BR - so you build bigger units, more 2BRs, and make sure you have tons of rentable storage.

• Construction Type - This one is slightly more out of your hands. A high rise is always more constrained, unit-wise, than a wrap deal, and a garden deal is fully customizable. In a high rise, your architect has to work much harder on fitting units into your building, making those units intelligently designed, and giving you the mix you want. This is because the land is always more constrained, making the building more constrained, and there is infinitely more engineering involved.

• Efficiency - Finally, efficiency is a big one. Make sure your corridors are double loaded as much as possible (aka make sure the hallway has doors on both sides, not only one). Make sure there isn't wasted space in the corners. Make sure the amenities and leasing office are put in intelligent locations. Make sure the grade doesn't screw you out of half a floor of units. Don't go building any more kitchens and bathrooms than you absolutely have to - because those always cost a whole lot more than a bedroom does.

At the end of the day, you will give your architect guidance and a framework to work within, you'll take what the architect gives you and input it into your model, you'll play around with it some and probably drive your architect crazy by asking for revisions, and then you'll have bigger things to worry about so you'll make the call. At the end of the day, does it matter if your building is 65/35 vs. 70/30? Yes. Does it matter more than a hundred of other things? Not really - you're either right or you know next time to adjust.

Now post COVID-19, I am most interested in two things - one major and one minor.

The minor trend that interests me will be dens/in-unit offices/work from home space. Dens, typically, fell out of fashion during this current market. They still existed in some high end in-town deals that needed to fill space in a high-rise or otherwise simply differentiate themselves from the market and also in some garden deals that simply had the space, but by and large dens were far more prevalent in pre-2008 buildings.

I've seen a lot of articles written by people clearly not that tied into the industry about COVID-19 making co-working and shared office spaces a new thing in multifamily amenity areas, but I've been building those for 3+ years - that isn't anything new. Not only that, but the shared office space in our amenity areas is in the top tier of "amenities people actually use" - unlike that expensive sofa and TV setup that is only there for looks.

I'm interested in how many people actually switch to work from home, because if it's a lot, a handful of micro offices or a well designed WeWork lookalike open space isn't going to cut it. If the hyper-aggressive work from home predictions are right, people are going to want work from home space. This could lead to the emergence of dens. This could lead to larger kitchens in smaller 1BRs and 2BRs that usually only have a bar counter. This could lead to the 1BR/2BR split shifting back toward 2BRs. I'm not sure how it's going to play out, if it does, but it's something to keep an eye on.

The larger trend I'm interested in seeing is urban vs. suburban living. One of the overarching theses over this cycle is that if given the choice between a $1,800 650 SF 1BR brand new in an ideal location and a $1,800 1,100 SF 2BR older building in the burbs, millennials will almost always be willing to pay for the in-town product. This idea has driven much of the apartment development market this entire cycle, because it isn't wrong. Location, Location, Location, right?

Well, I'm wondering about two forces that may counteract this. The first is mass unemployment. As I'm writing this, we are almost up to 40 million people newly unemployed. The underemployed number is tens of millions higher. People may no longer be able to chose between a new build in town $1,800 650 SF 1BR and an equally priced 2BR outside of town in an older building. They may have to get a 650 SF 1BR outside of town in an older building just to afford rent. We're already underwriting zero rent growth through lease-up moving forward and only 1%-1.5% the year after that.

The second goes back to the work from home argument. I think the death of the office talk is outrageously overblown, but office doesn't have to die for it to have an impact. If even 5%-10% more people work from home, perhaps the location vs. extra space argument no longer tilts dramatically toward location. Perhaps after being cramped into their 650 SF apartment for two months, people will value space a whole lot more.

It's hard to tell. Things always change, and sometimes in ways you don't necessarily predict, and usually 2-3 years behind when people decide that they should change due to project timelines, but it's always something to keep an eye on.