Gables Sullivan: To Renovate or Not to Renovate
With competition fierce, owners and managers of the nation's aging apartment communities must renovate or face losing both existing and prospective residents. But when is the right time to renovate? How extensive should the upgrades be? How do you proceed with such projects while causing minimal disruption on-site? Cris Sullivan, Executive Vice President of Gables Residential, has had to answer all of these questions. She recently sat down to answer our questions:
NATIONAL APARTMENT ASSOCIATION: Could you please introduce yourself to our readers?
CRIS SULLIVAN: My title is Executive VP. I've been here for 26 years, so I'm not the new kid. I oversee all of the operations for Gables nationally. That includes everything that we own, JV, and third-party manage, as well as all of our marketing and facilities -- anything and everything that is operations.
NAA: Our focus today is renovating apartment communities. In general, what factors usually influence the decision to renovate?
CS: We have two different types of renovation programs that we are doing here at Gables. One is more of a standard renovation program, and one we have titled a "Super-Punch" How we determine whether we are or aren't going to renovate comes down to a couple of things. First and foremost is what is happening in the market. Is there any new competition coming into the market? Has there been a new high-water mark set because of the new product? Can we get more in rents if we renovate? Do we really think we can get the returns, and what is the long term plan for the asset?
NAA: What are some of the most important early steps that are taken when launching a renovation?
CS: The first thing we do is a full market analysis of what we currently consider to be the competition and what would be the “new” completion if we renovate. If you're lucky you have some other renovated properties to base it off of. But mostly it's figuring out where we fit in between the un-renovated and the new product in a given market. Sometimes the decision is NOT to renovate. The property may need to be renovated, but we don't think we can really get enough of an increase based on what the costs would be to really make a difference.
NAA: How often does a typical Gables apartment community undergo a renovation?
CS: Our portfolio is actually a pretty young portfolio. We like to call it "12 years new." So, we don't have a lot of older product. But, every year, we do look to see if there are any candidates for a full renovation or a Super Punch.
NAA: So, what is the difference between a standard renovation and a "Super-Punch?"
CS: [laughing] Yeah, we made up a word! The way we describe a Super-Punch is if there are some additional things we can do when we turn a unit to really that would allow for additional rent growth above the current market rent growth. The easiest way to explain is a full renovation is probably something in the neighborhood of $10,000 to $15,000 a unit or more. Our average Super-Punch unit is probably more around $2,500 a unit. We come in and we identify just a few key things that we can do without going into a full renovation. It could be a new backsplash or changing the knobs on the kitchen cabinets. We've gotten big returns on minimal dollars.
NAA: When you do launch a renovation, what kind of plan do you put in place to ease existing residents into it and get them on board?
CS: A mid-rise or a high-rise apartment building is obviously a lot different than a garden apartment community. It's a different level of inconvenience for the residents depending on what kind of building it is. In the case of a mid-rise or high-rise, what we've done in the past is we have done some test units and hosted an open house/reception cocktail party for the residents so they can see what the renovated units will look like. It lets them know that as their leases come up for renewal, that this will be an option for them. We try and get them excited about it ahead of time. We may offer some special incentive to existing residents to take advantage. And if they want to move out early and into a renovated unit, we certainly accommodate that. Some of the renovations have had common area renovations as a part of it. So, you try and make up for the level of disturbance by getting them excited about it, because it's going to be like they are living in a brand-new building. If at the end of the disruption, you get a brand-new fitness center or a new Internet cafe or whatever it is we're putting into them, they appreciate being told ahead of time. It's all about communication, communication, communication. Sometimes we're going to have to shut the water off or the power is going to go out. We try to minimize it as much as possible. But you have to stay in constant communication.
NAA: I take it renovations at a garden-style community aren't nearly as disruptive?
CS: Right. But we still try and do the same open house to let them know what's coming. But the day-to-day disruption is not nearly as intense.
NAA: What kind of design trends are you seeing? Are there some things trending right now like certain color schemes or flooring?
CS: It's interesting. One of the things that we have gotten the most bang for our buck in our late '80s/early '90s product that might have been last renovated 10 or 12 years ago are backsplashes. We went in and put backsplashes in, and it made such a difference especially in the smaller, older units. It cost around $400 a unit. In most cases, we didn't change out the cabinets, we left the laminate countertops, and we might have put in some nicer looking cabinet knobs. But the new backsplashes changed the flavor of each kitchen SO much. We were amazed! We also like to do some two-tone paint and update plumbing fixtures ... little things that people have in custom homes.
NAA: And what's trending now in terms of on-site amenities?
CS: Pets, pets, pets! We are building fabulous dog parks, grooming stations and areas for pet socializing such as “Yappy Hours.” People love their dogs and having great amenities for our four- legged residents are as important as the amenities for our other residents! Also, having some type of e-lounge. People want to have areas where they can sit around and use their laptops and use computers. They really like common social areas that are outside of their apartments. Making fitness centers as nice as any commercial gym is key. In the case of renovations, you typically can't increase the space, but you can make them feel more high-tech with the latest machines, bigger screen TVs, towel service, rubber flooring -- little things you can do to give the center a more upscale and contemporary feel.
By Teddy Durgin