Multifamily Rent Per Square Foot vs. Rent Per Unit
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.
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!).
Yep. $/SF is an industry metric. The brokers will care, but apartment renters only care about what they're paying per month and price per unit is how your management staff will compare itself to the competition.
Edit: Obviously on similar units, guys...
I've always looked at how big a space is and comparing it to other comps in a neighborhood before being okay with a price. How else can you compare two identical 1BR (or any sized-BR unit) without knowing how large it is? It's the best way to common size the spaces to be 'equal'.
This is not to say I'm any more savvy of a renter, I just wouldn't completely brush it aside as an invaluable metric.
Agree with this, I wouldn't just brush it aside and something I'll typically look at. The average renter will not really care but keep in mind rent/sf does have a pretty big impact on an appraiser's valuation.
People like you (and me) are the exception to the rule. I've had this argument with my wife like three times, and she and other no n-real estate wonks just don't really care about unit size differences like I do, and that is the norm. The reason model units are so important in small unit size properties is to show residents what a small place could look like so they ignore that the unit is 30% smaller than the late 90's deal next door.
My operations folks all deal in chunk rent (until they don't want to buy a deal with small units and then they get all into PSF rents... another story).
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.
Easily the best answer here. It'll be readily apparent whether or not PSF may be a particularly useful metric against the competition. Dig deeper, you guys are all playing checkers right now debating this.
Nobody but excel jockeys, brokers, and appraisers give a shit about psf rents. Chunk rents on comparable unit types (studio vs studio, 1br vs 1 br) is all that matters. Obviously there are outlier buidongs that are effectively micro units or condo units but 99% it doesn't matter.
With Retail (sales area), industrial (capacity), and less-so office (worker capacity/ability to configure), the square footage directly correlates to the functionality/profitability of the space to the tenant. With MF the beds/baths is more of the direct correlate, and honestly the quality/thoughtfulness of the layout is far more important than the SF. A well laid-out 650 SF apartment can feel considerably larger than a 700. So because straight SF is driving your achievable rents/attractiveness to your tenant base far less directly, its a much more imperfect metric. Still something that should be on the dashboard though.
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