New Era for apartment buidling?

[Vincent Chen]

If the coronavirus kept in longer time, how does this change the apartment building investment? 

1. Location. For all the location category, A,B,C and D might be changed. Since easy to commute, easy access to life style might be not so much important if work from home is more like routine choice, so maybe we should define A,B, C and D otherwise?

2. Rent Growth. For many industries/companies are expected to be hit, most of high rent market should be correction heavily?

3. Amenities or layout of Room. May need add office room in the house for more attractive?

I think A class apartment building or new building might be hit a lot? So what is best type to survive, B or C? 

[Enrique Huerta]

That is a great question. It is too early to tell but there will certainly be some changes.

1. I agree. People may choose more suburban or less dense locations. Also, BTR communities may be more in-demand given their lower density but similar amenity packages to a traditional garden-style apartment product. The flip side of the coin is many people will still want to be in walkable areas...especially the younger demographics and up-and-coming professionals. Too early to tell.

2. I'm in the camp that rent growth will soften. We've already looked at Yardi, CoStar, Greenstreet, Witten, etc. and have a general agreement with some of the data they've provided. Value-add will be difficult to execute in a flat rent environment. HOWEVER, the caveat is that not every industry or market is going to be impacted equally. Some areas will continue to see rental appreciation if their job market is less impacted. Again, too early to tell.

3. I do think larger floorplans might become more popular. Co-working and co-living may be impacted as people prefer to spread out a bit more. 2 Bed & 3 Bed floorplans should certainly be more attractive for folks looking to add a home office. I love how you're thinking about it.

I've actually seen A class collections remain very strong. You would have to assume that white-collar, work-from-home workers would be less impacted but that is not necessarily the case. Again, I think it is too early to tell which class will benefit most. In general, A seems to be holding up a bit better. We'll have to see some turnover to see if people downgrade their living quarters, etc. to see how the impacts play out. This also ignores the supply issue, concessions, higher marketing costs, or class A so it's not a cut and dry answer.

Lastly, consider the potential distress in office, retail, and hospitality assets and that PE funds and developers are foaming at the mouth to get a piece of the pie. I do think some slices of that market will be re-developed and re-purposed for housing. This may be another impact to supply in some markets...

Just some thoughts but a great topic and i look forward to hearing what others see on the horizon.

[Taylor L.]

A, B, C, and D are more than just location relative to work and nightlife.Amenities, age of the property, construction style, and other such factors come into play. The quality of the neighborhood comes into play as well.  Lifestyle-type amenity needs will still remain whether people are working from home or office buildings.

Working from home is not really going to make unsafe neighborhoods safe, it's not going to turn underperforming schools into good ones, it won't update roads & sidewalks, and so on. The "A" properties are already wired for fiber internet, and retrofitting low end properties comes with considerable cost. In addition to updating fits and finishes.

As millennials age we will probably see migration to the suburbs anyway, but Gen Z is right behind us to continue to rent in the more trendy areas.

New construction at the higher end may have more offices incorporated into them, it's difficult to say.  Office will still require square footage, which means cost. I'd still rather advertise my 2 bedroom units as 2 bedrooms, rather than one bedroom plus an office. The tenant can decide if it's an office or not, and I expect the market will still be willing to pay more for a bedroom than an office.