To help bring greater rent growth and to remain competitive in their markets, some apartment owners and management companies are paying greater attention to repositioning. Following are comments from three apartment executives about their plans and why.
Greg Lozinak, Executive Vice President
Waterton Residential, Chicago
“We plan to invest more, but it’s because of our value-add investment strategy, not as a result of the industry’s improving bottom line in 2011. We primarily intend to finish unit renovation plans already in place and execute renovation plans for newly acquired assets. Relative to our existing portfolio, we will plan for a ‘unit renovation 2.0’ for about 600 of our units—or maybe more.
“These will be performed on assets we previously renovated but could not exit from due to market conditions. The ‘2.0’ means it’s the second time we’ve renovated. Some market conditions have improved while we’ve retained the assets, so now we believe we can further upgrade our renovated units. For example, for units where we installed black appliances, we will now try stainless steel; where we installed new countertops we will now try granite.
“When looking to expand, we focus on the top 15 or so MSAs in the country, looking for a value-add play which, prior to the past 12 to 18 months, was on B to B+ assets in A locations. During the past 12 to 18 months, we have acquired newer assets with construction notes coming due, and where the value was below the face of the note. In these cases we negotiated a discounted payoff of the note and eventually took title to the asset.”
Mike Beirne, Executive Vice President
The Kamson Corp.
Englewood Cliffs, N.J.
“The year has seen a return to normalcy for most in the industry. After taking a gigantic dip, rents are coming back to levels of three years ago and occupancy is on the rebound. That being said, we are planning a heavy round of repositioning and renovation throughout the entire portfolio (15,000 units). Through cost assessment, we are targeting best uses for funds.
“All markets are experiencing more competitive atmospheres as well as more discerning consumers. To avoid allowing investments to slip into lower economic brackets, we must upgrade where we can across the board. Consumers today demand more and are willing to pay to have it.
“We are focusing on three areas: kitchens and bathrooms, amenities (fitness centers, playgrounds, business centers, services) and useful life/energy items. The more we can economize and save here, the more we can offer the resident and be prepared for the next rainy day.”
Zachary Maggart, VP Development
Berkshire Property Advisors
Dallas
“We are selectively re-engaging in the rehabilitation work that we stopped when the U.S. economy ticked down more than a year ago. Value-add, for the most part, no longer means deep rehabilitation. Of the 40 rehab projects we had stopped, we will re-engage in approximately 20 of them. We also will gear up to full rehab speed on four assets, representing 3,000 units. We plan to spend $20 million on these renovations over 2012 to 2013. We will also seriously entertain purchasing value-add opportunities representing $10,000 to $20,000 per unit in interior rehab value.
“We will continue to look for ROI opportunities on our existing portfolio through green or capital initiatives (lighting and plumbing retrofits, water-meter conversions, interior renovations). We remain sensitive to the fact that our competition has been in a stop or slow-go mode for several years and we are mindful that we do not want to over-improve versus our
competition.”