More apartments equal more money?
Dear developer friend,
Let us help you make money by doing our job and spending time in what we do best; using design to solve problems.
Over the years working with private developers in multi residential developments we frequently come across the same brief and the same approach.
Developers come to us with a site, a maximum GFA and the minimum apartment sizes described in the regulations and ask the same question, how many apartments can we fit on this site?
While we could simply do some preliminary studies and answer your question, but we believe there are some other questions that should be answered first and that would help you maximize your return on investment.
So before we start doing site and yield studies, let’s spend some time talking with you about the project to see how we can maximize your return.
Do you know who your potential buyers are?
The first question should be, who is your audience? Are you targeting a specific demographic? Would it be families, bachelors, retirees, investors, downsizers, locals, visitors, holiday goers, business executives?
What user profile do you have in mind? Have you done a demographic research of your locality? Is your ideal buyer looking to buy in your area or do you want to bring a new profile to your location? If so why?
Are your buyers buying based on location, price range, views, neighbourhood character, proximity to a specific programme like a university?
What can you offer that will appeal to that specific demographic? Bigger balconies for claustrophobic bachelors?, study areas for teenagers that secretly want to play the PlayStation, more generous bedrooms for shared houses where 3 is the norm, eat in kitchens for students who never cook, separate living and dining rooms for divorced couples that like to outdo each other with parallel dinner parties?
All jokes aside, what are the preferences of your ideal user? What type of apartments would this user like? What do you have to offer for this user to buy in your development? Why would they buy an apartment at “The Rudolf”?
What style of development will provide you the highest Sales price?
The second aspect to consider is the apartment mix and typology based on the sales price structure, your potential buyer, your location and the market conditions.
Would you get a bigger overall sale price with fewer, bigger apartments or would it be the opposite and you would be better off doing a lot of studios and 1-bedroom units?
Within your target demographic there will probably be a preferred type of apartment that will appeal to a majority of them. However, this type might not be the one that gives you the highest overall sale price.
There might be a lot of people looking for 3 bedroom apartments that will pay an average price because there is a lot on offer, whilst maybe there is a smaller pool of people that would pay a lot of money for a 1 bedroom apartment because they are hard to find. Can you find the people looking for those premium 1-bedroom apartments while everybody is catering for the big apartment buyer?
In this case, as the sales price per sqm is higher for smaller apartments, you might want to provide an apartment mix focused on that typology and minimize the number of larger apartments.
What is the construction cost for each of your options?
The last item to consider is the construction cost.
Sometimes given the same overall GFA different options and typologies have different construction costs. If you build smaller apartments you are increasing the number of kitchens and that might be an expensive item in your area. If you are trying to provide dual aspect apartments you need to increase the number of lift cores and that might have a cost implication.
So even if some options give you the highest sale price, they might not be the most profitable due to the construction cost.
Once you have looked at these 3 items, you can put them together and compare which one offers you the best outcome. It will be a combination of product type, demand and construction cost.
With that information in our hands we can now proceed and start looking at how we can design a building for your site that responds to that information and makes the most of it.
However, instead of spending time and effort in this crucial part of the process, the industry tends to just follow “common knowledge” or “market trends” and do what everybody else is doing. At the end of the day, it is just apartments, and there is a lot of demand for them. Well, that might be true, but you might be missing a good opportunity to make the most of your project.
At TAMOSPAYA we try to encourage our clients, friends and acquaintances to work together and do some preliminary studies. We recently worked on a project where we had this in-depth discussion with our client and at the end of the process he chose 10 generous 3-storey townhouses over 20 apartments. This is a brief summary on the process behind the scenes.
Based on our client’s brief we initially explored 4 different directions for the site. These included variations in the building type from apartments to affordable housing and townhouses. Each option had different requirements for basement and parking, different circulation, landscape and communal space strategies, and had to address different local regulations. Notwithstanding the differences, each option maximized the development potential of the site.
Once the 4 options had been developed we liaised with real estate agents to get sales price estimations and we had workshops with our client’s builder in order to develop construction costs estimations for each option.
The result was that while we could fit 20 apartments (10 1-bedroom plus 10 2-bedroom) the profit was bigger if we could have 10 generous townhouses. The apartment option had a bigger sale price, but it also required 2 basements and had a higher construction cost due to circulation cores and fire separation requirements. The townhouses on the other side were simpler to build and required only 1 basement, providing a higher profit.
Here is a summary of the two options
We combined these numbers with the local knowledge from our planners of what our potential buyers are looking for. A market study showed the area was projected to perform better for rentals. Therefore, the buyers would most likely be investors that after buying the house would put them out for long term leases.
Ultimately investors (our buyers in this instance) will buy opportunities that appeal to their own potential markets. In this case, the project was located near a university campus under expansion and it was perceived as an opportunity to provide housing to both professors (and their families), and students looking to live near the university but outside the student housing complexes.
The townhouses provided a great offering for students wanting to rent a house with their friends and enjoy their own backyard. Professors would also be interested in renting in the development as they could have their families with them in a nice house near the university without having to commit to buy a property in the area.
A development mix based on maximizing apartment yield would have been less likely to appeal to the end user, resulting in further costs such as a slow and protracted sales period, loss of rent and at the end of the day less profit.
In the case above, a well-researched background study and a thorough preliminary study of the different options yielded an additional half a million. The study took between 2 and 3 months and the cost was approximately $50,000.
So, before you start going down the rabbit hole, consider your options, and use your architect to be sure you’ve thought of everything. No matter how many projects have come before, each new development is a unique case and it is worth making sure you make the most out of it.
Your faithful architect,