Unique Multi-Family Value-Add

Hi guys,

What are some unique value-add strategies you've implemented in your multi-family assets? I am talking beyond the typical lipstick on a pig upgrades. Some things I've experimented with lately are minor technology upgrades such as Nest thermostats, built-in wall USB plugs, and digital locks. Typical cost of an upgrade like this is $500 and will get a $30/month premium (72% YOC).

Also interested in hearing about any unique common-area value-add people are doing.

Comments (33)

 
8/18/17

A few unique things I have noticed:

  • Installing wifi in each unit - charging premium to tenants that is below comcast/verizon rates
  • Package concierge and dog washing stations are great amentity upgrades
  • For garden style: fence in yards and charge a premium for that - people like having a private yard
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8/18/17

Nest isn't exactly a minor upgrade, but USB outlets are pretty standard in new construction so that's a good one. Digital locks have given me more issues than they're worth, so if you have a good company let me know.

Package concierge is huge. Not sure if you really get a premium for it but it makes the leasing staff happy.

Honestly though, upgrading kitchens and baths is the standard because it works and people care about them.

 
8/18/17

People still care way more about in-unit washers/dryers and dishwashers than a lot of the other "cool" upgrades being built into new product. A certain cohort of tenants won't bat an eye at paying an additional $200/month in rent for an in-unit washer and dryer.

Something that worked well for us on a recent acquisition was installing under-sink dishwashers for 1 bedroom and studio units where kitchen space was at a premium. These are about half the size of a normal dishwasher but hold ~75% of a full-size unit.

 
8/18/17

I've done 18" dishwashers, but those are expensive. Is this what you're talking about?

It's also nearly impossible to get a nice looking 30" range and impossible impossible to get a "matching" builtin microwave.

 
8/25/17

Agreed. From personal experience, my company offered me a deeply discounted unit in a nice (A-) location and I politely declined because it had no W/D. I was like, "There's no way in f*ck I'm driving to a location to hang out in for several hours to do my laundry."

 
8/18/17

Agree with the packaged washer dryers. A few more that I think are differentiators:
--mini undercounter wine fridges
--sonos built in speakers (maybe on premium units only if you're on a tight budget)
--second the schlage digital locks, love not having to take keys with me when leaving the house and not driving
--adjustable closet shelving/rack system that lets the tenant customize their closet as opposed to being stuck with a fixed rod
--showerhead wireless blue tooth speaker insert for an incredible wake up

 
8/25/17

What are the costs for each, incl instal labor?

 
8/25/17

Also, are you responsible for replacing/repairing the blue-tooth speaker if it goes out/malfunctions?

 
8/27/17

Can't comment on pricing as I am only echoing my current living experience and have found the amenities to be a pleasant surprise. Bluetooth speaker is certainly on the landlord and the showerhead itself is designed for it to pop into. Labor would be nothing over installing a standard showerhead.

I can't imagine the wine fridge is a big difference assuming you already run electrical stub outs to your island millwork--you save on not providing cabinetry/shelving where the wine fridge goes and it sits on the floor just like a dishwasher.

Of all the items, the Sonos is certainly the most expensive but probably the coolest. You have an instantly house party/cocktail hour/dinner party at the palm of your hand (cellphone) and guests don't have to provide their own surround sound even though most already may have it.

 
9/7/17

I hear you. So, theoretically, does management fix/replace the speaker if it goes out? Only asking because I think it's a good idea, just not sure how much costs are involved with it down the line as opposed to upfront.

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8/24/17

I think Nest systems and digital locks are great ideas. USB plug in technology is changing as we speak so I would say install them in a way that retrofitting new inputs won't be a hassle. Nest systems also really improve energy efficiency, so I wonder if that kind of upgrade would make a property eligible for green program financing. Rainfall shower heads I would imagine would be attractive.

Common area amenities I think that get overlooked for apartments but are staples in new student housing developments are game rooms. I have a client that builds game rooms on his conventional deals and the tenants love them. They typically have a bar area, pool table, juke box, pinball machine, stuff like that. In one of them, he built a separate small stadium sized movie theater that sits roughly 15-20 people with a projector screen. Tenants use it like crazy.

 
8/24/17

What about inhouse daycare? I think that could be a huge one. I assume maybe liability stuff with being responsibility for young kids but that could be an attraction considering the ridiculous prices of daycares nowadays.

 
8/25/17

I have been seeing this more in urban developments.

 
8/25/17

One our large properties has on-site daycare, but we lease space to a third party to take on the liability and operations, so it's not a free service. But it's definitely convenient for the tenants.

 
8/25/17

What you need to keep in mind is what class of multifamily your investing(A,B or C class), and based on that your tenants will have varying demand for the upgrades you are talking about.

Also, from my experience, there are simple things people miss out on e.g. water saving shower heads, green initiative interest rate discounts etc. Unlike other upgrades like fences etc., another advantage of the examples I just mentioned is that you don't have to bet on tenants valuing your upgrades and being able to charge higher rentals.

 
8/25/17
"fuzzybox" wrote:

from my experience, there are simple things people miss out on e.g. water saving shower heads, green initiative interest rate discounts etc. Unlike other upgrades like fences etc., another advantage of the examples I just mentioned is that you don't have to bet on tenants valuing your upgrades and being able to charge higher rentals.

low flow toilets, water saving shower heads, etc definitely pay for themselves with the green pricing you can get on agency debt. However they do not affect your terminal value, which is what I think OP is getting at.

 
8/25/17

Guys, please stop using low flow toilets and low flow shower heads. There was a whole Seinfeld episode about this in the 90s. People just flush more times and stay in the shower longer to get the soap off.

 
8/25/17

Maybe if you are taking a huge shit...but it saves a lot of pisswater.

 
8/25/17

Tell that to the agencies! (actually don't)

 
8/25/17
"C.R.E. Shervin" wrote:

Guys, please stop using low flow toilets and low flow shower heads.

Can confirm. Our suppliers say the same thing.

 
8/27/17

Second this--the quality of ones showering experience is noticeable and unless you are trying to score LEED points (or are going all out on sustainability / required by code) it only can hurt. Water is passed through to the tenant anyhow.

 
9/7/17

Not in NYC area

 
9/7/17

Totally with you. Low flow anything is terrible as a user. I literally test the shower before I rent any apartment. If the water is coming out weaker than piss out of an old guys dick, I'm out.

 
8/25/17

how much cost saving are you getting on low flow fixtures? showers and toilets... I've looked at this, and even with 'green financing' it does not appear to increase value, just costs more up front. Can someone walk through this?

 
8/25/17

When we underwrite opportunities where low flow systems can be implemented, we typically reduce the pro forma water bill by up to 20%.

 
8/25/17

are you using water flow meters? How do you get the 20%

 
8/25/17

I'm a broker so really it's client feedback. They tell us they're getting water savings up to 20% so we underwrite that into the OM if the opportunity allows it. That combined with shaving 20-30 bps off the rate with green program, it's hard to imagine how lower utility expenses combined with a lower interest rate wouldn't create value. Getting the reduced rate for green program financing for doing something like low flow systems which a new buyer should be doing anyway seems like a no brainer.

 
8/25/17

Maybe i need to revisit the numbers, but the 20% is simply not achieved. Does anyone on the principal side have input into the % savings actually realized?

 
8/25/17

The lender makes you hire a consultant to come out and do a study to find out what changes could reduce consumption by 20% (I dont think that it's looking at expense, just water/energy consumption). You then have to make the upgrades, some can be cheap but I think that at least freddie has a minimum $/unit you need to invest. You have to do the work to get the savings off of your rate, but I don't believe there is any follow-up/audit to prove that it saved 20% of anything.

$ savings is going to vary significantly by property. If you have massive lawns in southern california that you replace with zero scape, your water bill is probably going to go down a lot which would be a nice pop for noi. One thing to look out for is proformas that show big savings in utility expenses by making green upgrades to units, but don't decrease RUBS income at all. Probably not going to get that double-dip.

 
8/25/17

Touch-powered faucets, a free Echo with the compatible light-bulbs, etc

 
8/25/17

Common area upgrades such as LED lighting and converting landscaping into Xeriscape can help save on utility expenses. This will also help with acquiring "green initiative" financing and attracting impact investors.

 
8/25/17

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