Commercial Basis’ explores how technology, branding and demographic preferences are shaping office and retail real estate in New York City. As these forces break down the barriers from where we live to where we work and shop, Lead Commercial Specialist Alex Cohen will assess the impact on real estate values and opportunities.
Last month I explored why the millennial preference for urban lifestyle and this cohort’s general inability to purchase housing combine with a shortfall of rental housing production to present an ideal opportunity to invest in urban housing appealing to renting millennials. http://corenyc.com/culture/2016/05/commercial-basis-part-i-why-a-millennial-centric-investment-strategy/ Since that post I attended a lecture by Laurie Goodman, Director of the Urban Institute’s Housing Finance Policy Center and her research confirms my recommendations. Most fascinating was that even with the housing construction industry now largely recovered, net new housing units in 2015 represented only 75% of the number of homes demanded by new households in that one year.
Once you establish your own cap rate threshold, implementing a millennial-oriented real estate investment plan should incorporate these strategies:
- Invest through LLC entities in single family and multifamily properties in urban neighborhoods where new housing supply is constrained and where recent rent growth can be quantified. This doesn’t mean avoiding areas attractive to new development – as long as new housing development is a different typology –i.e., invest in existing single family and two-five family homes in neighborhoods where land values and construction costs only justify much larger multifamily condominium and rental apartment development.
- Select properties which combine architectural appeal with walkability to shopping and amenities and good access to public transportation. The average millennial drove 23% less in 2009 than in 2001 – the sharpest reduction for any age group. Lack of bike storage could be a deal breaker for a 2-wheeled commuter. Outdoor space – whether a back yard or roof deck is also an important amenity to attract tenants
- Don’t be afraid of neighborhoods in the midst of socio-economic transition – these may represent the greatest opportunity for future appreciation of value. However remember that for many millennials, safety is a top priority. 76% of millennials reported safe streets as the Number 1 priority for urban living. Install alarm systems and security cameras to enhance a property’s appeal.
- Be prepared to accept pets and alternative forms of rent payment. More than 76% of millennials own cats or dogs. And they rarely write a check. I always offer my millennial tenants the options of Quickpay, Paypal and my personal favorite, Venmo. In fact any of these payment systems give me greater piece of mind than hearing from a tenant that “the check is in the mail.”