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Do Social Amenities Hurt Your Community’s Value?

Social Amenities

A study says that too many social amenities could be a drag on a community’s sales price. But it’s not a good idea to give up those offerings altogether.

Conventional wisdom says adding more social amenities, such as party rooms and rooftop lounges, in an apartment building raise values. More of these features attracts more residents, which lead to higher rents and better retention.

But a recent study from Newmark Knight Frank disputes the value of social amenities. The commercial real estate advisory firms studied the 124 apartment buildings delivered in the D.C. metro over the last three years and all 26 communities that have sold over the last five years 

What it found was that social amenities, which include fitness centers, pools, dog runs, fire pits and indoor and outdoor athletic courts, were a drag on a building’s value. The Newmark report found that buildings with five or more social amenities sold for $31,867 per unit less than projects with four or fewer social amenities. 

“What we attempted to do was to quantify the impact of amenities on absorption pace and rents and to discover if there was an impact on sales price,” says Gregory Leisch, senior managing director of market research for Newmark Knight Frank. “The surprising finding was that too many social amenities were beginning to impact the sales price.”

But not everyone agrees with the findings.  “We do not agree with the study but are happy to let our competitors believe what Greg said is true as it will just help us competitively even more going forward,” says one prominent developer who preferred not to be identified for this story.

Service amenities, such as package delivery, front desk concierges, pet services and valet parking had the opposite effect. Projects with four or more service amenities had a 4.5 percent premium over those with three or fewer. 

Social amenities generally take up a lot of space (that could be used as for more apartments) and require maintenance, while not always yielding ancillary income. Service amenities, on the other hand, often take up little space and add additional income.

“A lot of those service amenities, such as pet walking, plant watering and concierge services can be passed through to a resident, so they don’t affect the bottom line of the apartment community,” Leisch says. “With social amenities, it is much more difficult, and in some jurisdictions illegal, to pass through the cost and the benefits of those amenities.”

Despite the findings of his study, Leisch does not recommend that developers should stop building social amenities, particularly those who plan to hold a building for the long term in high-rent cities, such as Boston, New York, Washington, Philadelphia, Miami, Chicago, Los Angeles, San Francisco and Seattle.

“A long-term holder should load up on social amenities because they will dramatically improve your rents in your lease-up phase,” Leisch says. “If in 15 to 20 years, the property sells for $30,000 less per units, that’s going be a rounding error in terms of how much more the property would have leased for.”

However, developers with a shorter hold time should approach social amenities cautiously. “If you are a merchant builder and you are going to sell the property within 18 months, you need to very carefully consider which three or four social amenities you need to optimize lease ups, optimize rents and optimize how well the property shows,” Leisch says.

The Newmark report was met with some skepticism from the development community. 

“It has been our experience at Wood Partners that amenities [the quantity and quality] do have an impact on leasing velocity, resident retention, higher rents, lower cap rates and better IRRs,” says Steve Hallsey, Director of Operations for Wood Partners. “So, if you quantify a portion of base rent to amenity value then I think a well-thought-out amenity package has tremendous value and attracts more buyers.”

NAA’s amenities report, released about a year ago, certainly mirrors the observations of Wood Partners,” said Paula Munger, Director of Research. “We also found that the amenities residents wanted most, and were thus willing to pay more for, were the social ones – those that fostered a sense of community. In subsequent analyses, we observed that while social amenities are valuable, amenities which provide convenience are essential. And some of those would certainly fall into the service amenity category presented in the NKF report.”