“How do you compete [with larger assets] on a smaller deal?”
Investors who own multifamily properties of 50 units or less often feel “out-classed” by larger local competition. This can lead to poor decision-making when “keeping up with the Joneses” extends to “keeping up with the mega mixed-development.” During a panel hosted the by the IMN Middle Market Multifamily Forum in Orlando, Florida, a combination of lenders and owners of multifamily properties with 50 units or less discussed competition in their market sector.
One of the biggest issues multifamily investors with 50-unit and smaller properties encounter is larger assets offer better amenity packages.
How do Owners of Smaller Multifamily Properties Stay Competitive?
Moderator and Managing Member of EQUIS Residential Benjamin Inman asked panelists, “How do you compete [with larger assets] on a smaller deal?”
Divya Tandon, Owner of SJI Properties, observed that in her buildings, the idea of competing is relatively moot. “We compensate with lower rents,” she said bluntly. “Unlike larger buildings, we don’t have to maintain bigger grounds, pay doormen, or maintain a swimming pool.” As a result, their operating costs are lower and their rents tend to be more affordable. Jesse Shemesh, a portfolio manager at Point Acquisitions LLC, elaborated on the topic of affordability. “Affordability has far more [competitive value] than amenities,” he said.
Low-Cost Options for Investors
Inman observed there are many lifestyle-based improvements that can be made at a relatively low cost. This is especially true on smaller properties, in which one can make a property more attractive by adding amenities without breaking the bank. “We might add cornhole or bocce ball, outdoor fire pits, etc.,” he said. Inman added indoor amenities like Alexa, smart thermostats and locks, and other smart-home amenities may boost a competitive edge. “I’ve seen full-size theaters and bowling alleys in some of the bigger properties. We’re not doing that necessarily, but you do have to find a way to differentiate yourself,” he said.
Senior Vice President at Pinnacle Financial Partners James Vestal noted, “From a financing perspective, we are not taking your amenities into account. One thing that a smaller owner could do is make sure your access to capital is as affordable as possible.”
Head of Commercial Real Estate Lending at Lima One Capital Andrew Shook agreed. Shook noted later in the discussion, “We’re very comfortable in the smaller space. That’s why we prefer to be there.”