Repositioning involves transforming an existing multifamily property to better meet current and future renter needs and preferences. The goal is to overhaul the community inside and out to boost rents, occupancy, branding, operations and overall asset value.
Done right, repositioning allows owners to maximize returns on their investment in the long run. This guide will explore emerging trends shaping renter demands as well as proven strategies to successfully reposition multifamily assets.
Why Reposition? The Ongoing Evolution of Renter Preferences
Apartment living is not a static business. Renter preferences, demographics, and market forces continually evolve over time. A community that was highly desirable a decade ago may now seem outdated and less competitive if unchanged.
Repositioning allows owners to keep their properties relevant in an ever-shifting landscape. Through renovations and operational changes, they can cater to new amenity expectations, technology needs, layout preferences and sustainability values.
Some emerging trends driving the need to reposition include:
- Remote workforce flexibility requiring home office spaces
- Focus on multifaceted health/wellness offerings
- Desire for smart home technology integration
- Rising demand for flexible unit types and shared amenities
- Growing importance of eco-conscious living features
The communities best meeting these modern renter expectations will win out. Repositioning allows owners to stay ahead of trends to attract residents willing to pay premium rates.
The Core Goals of Repositioning Projects
While the specific strategy will differ for each property, repositioning projects generally aim to accomplish:
1. Increased Rents: Upgrading amenities and finishes allows owners to command higher monthly rents from new and renewing residents. Premium offerings support rent growth.
2. Boosted Occupancy: A repositioned community with contemporary aesthetics and on-trend amenities will lease faster and achieve lower vacancy than outdated competitors.
3. Stronger Brand Image: Repositioning allows a property to differentiate itself in the market through elevated design, unique amenities and marketing. This signals a high-end, premium status to prospective renters.
4. Operational Improvements: Strategic operational upgrades like new systems/equipment and building reconfigurations can also streamline management and lower operating expenses.
5. Enhanced Asset Value: Achieving higher income combined with lower expenses results in increased net operating income (NOI). Higher NOI directly translates to higher asset valuation. This makes a future sale or refinance more lucrative.
Conducting Due Diligence Before Repositioning
Prior to investing in a repositioning project, conduct thorough due diligence to assess the potential return on investment. Key steps include:
Market Study: Analyze current demographics, psychographics, demand dynamics and competitive offerings in your specific submarket. Identify where there are gaps among competitors or undersupplied resident profiles.
Property Assessment: Review the physical condition and layout of the existing community. Determine feasibility and costs of upgrades. Assess opportunities to right-size unit mixes, improve layouts and expand amenities.
Financial Modeling: Project costs vs. expected boost in rents and value. Confirm the investment pencils out based on reasonable assumptions. Calculate how long until the project reaches stabilization and profitability.
Brand Strategy: Outline the target market and branding, including renaming, logo, messaging and style differentiation. Will this attract the desired renter profile?
This legwork is crucial to craft a data-backed business plan and determine if the project merits the required capital investment.
Primary Strategies for Repositioning Success
If pursuing a repositioning project, incorporate these key strategies:
Market-Informed Design: Let your market research guide aesthetic and amenity decisions. Cater to current renter psychographics and competitor gaps rather than personal tastes. Lean into what modern renters in your specific area value most.
Right-Sized Unit Mixes: Assess your ideal unit mix based on market demand rather than existing configurations. You may require more smaller units and fewer large 3+ bedroom layouts. Right-sizing for your area’s typical household sizes is key.
Tech-Forward: Smart home tech, fast WiFi, and cell reception boosters are now expected rather than perks. These conveniences attract tech-savvy residents.
Future-Proofed: While current trends guide decisions, also ensure flexibility for future modifications. For example, basic structured wiring allows for bandwidth increases down the road.
Purposeful Branding: Repositioning allows a full rebrand, from renaming to interior design to marketing. Your branding should be emotional and convey the lifestyle, status and values offered by the community.
Phased Strategy: Minimize lost rent by strategically phasing upgrades. Keep leasing other wings or floors amidst construction. Plan smartly to limit disruption and returns.
Beyond the Unit: Repositioning is more than interior unit upgrades. Equally important are public spaces, amenities, curb appeal, and sustainability initiatives.
Operations Focused: Seek improvements that not only impress residents but also streamline operations. For example, upgraded access control systems reduce staff oversight needed.
Maximizing Returns Through Repositioning
A successful repositioning project requires an initial capital investment—potentially significant depending on property size and scope. However, the monetary returns over the long-term make the upfront costs worthwhile.
Immediately, the upgraded community can achieve higher rents, lower concessions and vacancy. Increased NOI occurs right away. But the largest financial impact comes through increased asset value from higher projected income and lower expenses.
For example, a 201-unit community with a $14 million valuation has the potential to increase its value to approximately $20.5 million through a repositioning project achieving:
- 10% increase in effective rent
- Reduction of 5-7% in operating expenses
- Increased occupancy from satisfied tenants
If this results in an additional $350,000 in annual NOI. Using a 5% cap rate, the value boost is $6.6 million, or approximately 45% over pre-repositioning value.
The increased valuation directly benefits the asset’s equity position and facilitates more favorable refinancing and profitable sale opportunities in the future.
Implementing the Vision
Repositioning requires extensive planning, resident communications, phasing and budget oversight. But the financial upside makes the effort worthwhile. With the right vision and execution, repositioning allows multifamily owners to maximize returns on existing assets.
This requires staying keenly aware of market trends and renter needs. A community refreshed and relevant to its residents will thrive both now and for years to come.