Curious to get thoughts on how to look at multifamily rents. I find that rents per square foot per month aren't always the best when comparing assets. I find comparing per unit rents is more informative. What do people think about this? I definitely do not feel this way when it comes to commercial or industrial obviously. But for multifamily it seems that looking at rent PSF does not really give much insight into which properties are superior/inferior.
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Rents psf seems like something the commercial guys tried to establish in resi and it just doesn't suit. From a consumer perspective (and also having worked in resi lettings for 10+ years) no one has ever walked into an apartment and went "this place is 5% bigger than the last I viewed so I'm prepared to pay X+5%". No...more realistically people see what other comparables are renting in the market (like for like, forget services) and say rent per month in this area is circa 2,000 for a two bed, that's what I'm willing to pay...they don't have surveyors come in, like commercial tenants, and measure up the exact efficiency of the floor space and what exactly they can use. You are renting to the average Joe Soap, not Joe CEO (the business and real estate guru).
Pricing on a unit basis is the way to go, back of the napkin then ppsf is fine but if I am looking at something seriously, I want to see that your top floor unit is trading at 10-15% premium over your carbon copy unit on the 1st/GF (granted you have an elevator!).
I don't necessarily agree, I think both are equally important. The nominal/whole dollar rent per unit doesn't tell you anything about comparative unit sizes. If you are comparing a 550 SF studio vs an 700 SF JR 1 BR and both are $2000, there is clearly a substantive difference between the product the end user is getting. Have never worked with an equity partner that did not want to dial in on this comparison point and make sure the rent comps to our project were selected not just on relative nominal rents, but relative nominal rents for similarly sized units.
I did acquisitions for a large owner/operator and the answer is you absolutely look at both. Cmon people. I totally agree that to the renter, the dollar price for the unit is what matters most. However, you'd be ignorant if you thought renters can't distinguish a 600 SF 1BR from a 700 SF one at the same price - this is why $/SF is also essential to look at. Another important thing to analyze is unit mix of your acquisition vs. the competition - one might have 80% 1BRs vs your property's 40% 1BRs - this will skew not only the avg. rent but also the rent/SF. Don't be lazy and just do your hw folks (aka do a comprehensive market survey on deals you're really digging into). Thanks for coming to my ted talk.