Northeast Real Estate Business

NOV-DEC 2015

Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.

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46 • November/December 2015 • Northeast Real Estate Business www.REBusinessOnline.com MULTIFAMILY MARKET RESEARCH A more intelligent approach to development yields successful real estate projects. By Michael A. Kehl F or a real estate project to reach its full investment potential in today's economic environment, development decisions must be based on skilled interpretation of data. Time- ly analysis derived from independent market research is vital to assisting multifamily developers, lenders, in- vestors and municipalities in making the best strategic decisions for their companies and communities. Despite increased demand for mul- tifamily housing, not every project is guaranteed to become a success. If used strategically, market research — the in-depth analysis of data — can guide a builder in deciding what and where to build in order to mini- mize risk and maximize proft. This research can identify a target market of consumers for the housing to be built and determine how to best cap- ture these consumers, as well as drive decisions for competitive pricing and positioning of new housing product as it comes out of the ground. Millennials Boost Multifamily Market The trend toward building multi- family projects has gained strength over the last seven years — and cur- rently is at its highest level in 28 years — due in part to a proliferation of millennials in the marketplace. "Mil- lennials" is a hot real estate buzzword today, and this segment of the popu- lation (those ages 16 to 36) primarily comprises renters as well as buyers of entry-level priced housing stock. Decreasing vacancy rates, job growth, favorable economic conditions and increased demand for rental housing also have facilitated a boom in mul- tifamily starts and completions — a trend that's expected to continue for the next several years. In fact, as millennials start getting married, having families and advanc- ing in their careers, we may have a very competitive environment be- tween apartment complexes and for- sale townhomes or condominiums as these millennials face the age-old "rent vs. own" decision. And many millennials' decisions will depend on interest rate escalation in the coming years and how the costs of owning compare with escalating rents. Local Focus Market research to support multi- family developments typically focus- es on understanding local and region- al demographics that may infuence the marketability of a project, as well as the competitive and overall real es- tate environment. If a new housing community is not positioned correctly, one of two sce- narios is likely to occur. If a product is priced too low, it will leave a lot of deserved income on the table. Al- ternately, if a new housing project is over-priced, it will languish on the market and the builder/developer will have to feld very low offers. Or, the builder/developer will have to lower product pricing, which es- sentially tells the marketplace that a real estate product isn't worth what the developer originally thought. You only get one chance to make a great frst impression, and in this case, that means coming into the real estate mar- ket with great product acceptance. Data Interpretation Market data is readily available to anyone these days, but without a clear understanding of this data, it virtually is useless. The ability to un- derstand and interpret data is critical. Developers and other stakeholders in multifamily projects beneft from partnering with a frm that has the ex- pertise to offer time-intensive analysis that extends beyond the capabilities of a traditional appraisal or data- based research frm. Such analysis includes market and feasibility stud- ies; highest, best use and ROI (return on investment) analysis; subdivision and land improvement evaluation; product design, size and feature rec- ommendations; project and dwelling design consultation; absorption and sales pace forecasts; comprehensive marketing reviews; demographic, tar- get buyer and prospect analysis; and foreclosure and asset recovery evalu- ation. Lenders and municipalities use this type of this analysis, too. Financial in- stitutions need to minimize their risk and uncover the unknowns before funding a development project. Mu- nicipalities also beneft from under- standing the dynamics of their respec- tive housing markets, local housing demand and location quotients that would compare a specifc municipal- ity's housing composition to that of a larger, yet similar, area. Municipali- ties also want to know if a particular proposed multifamily or other hous- ing project is going to be a good ft or a mismatched eyesore for the com- munity. Added value of a residential product can, and should, mean added ratables for a town. Michael A. Kehl is president of Marketlogics. Formed in 2012, Marketlogics provides inde- pendent real estate market advisory services focused on property development, new-home product analysis and evaluations. Marketlog- ics evolved from the market research division of Builder Marketing Services. A sample map by Marketlogics showing median household income and competitor locations. A sample chart by Marketlogics showing household income by bracket in the Gold Coast compared to the inland area of New Jersey. A sample regression analysis by Marketlogics, showing recommended single-family and townhome product size and pricing.

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