Category: Thought Leadership

Luxury Living Chicago Realty (LLCR) analyzed data from the first and second quarters of the year within its portfolio of 18 Class A rental properties where the brokerage firm is the exclusive leasing provider to better understand the dynamics and demographics driving Chicago’s Class A renters.

The data set included demographic information from 936 Class A renters and revealed that Chicago’s Class A renters are 51.7% male and 48.3% female with an average income of $108,214. The top industries of employment include Financial Services, Healthcare, Management Consulting, Technology and Marketing & Advertising. The average apartment in the portfolio is 856 square feet at an average price-per-square-foot of $3.35, up from $3.14 (on an average 821 square feet) in the same period last year. The data also highlighted unique renter profiles, including those relocating to downtown Chicago for new jobs and how couples moving in together are driving rent growth across the city. In addition, the data showed interesting insights by unit type for various demographics.

Relocating to Chicago

Of the 936 renters, 30.4% were moving into Chicago from one of 36 states. Some of the nation’s largest states, California, New York and Texas, brought the most renters to Chicago followed by neighboring midwest states Indiana and Michigan. The average income for all people relocating to Chicago was $132,372 per year a 22% increase, or $24,215, more than the portfolio at large.

“We are frequently asked about who is renting these luxury units and how they can afford them. People moving to Chicago for high paying jobs in the urban core are driving this absorption,” said Aaron Galvin, Founder/CEO of Luxury Living Chicago Realty. “As long as jobs continue to abound in Chicago and companies keep investing in this world-class city, we are going to continue to absorb the Class A apartment inventory.”

Collective thought has always been that “Big 10 graduates” and other Midwestern schools are a large population of renters in Chicago. While that is true, this data shows trends where other large metros such as Los Angeles, San Francisco and New York City are relocating talent to Chicago.

“In comparison, rents are still attainable here compared to the coasts and Chicago has nearly everything you can get in those other major cities,” said Galvin.

Couples Renting Luxury Apartments

Couples occupy 61.1% of the apartments in the data set compared to singles at 26.3% and roommates at 12.6%. More notably, couples also rented 66.5% of all of the one-bedroom units in the 18 properties.

“Couples are driving the rents in Class A apartment buildings as their combined income can afford the largest units with the best views,” said Mark Ziemke, Leasing Strategy Manager at LLCR. “Moving in together is an exciting step for couples coming together. More often than not, they start their search looking for a two bedroom apartment but quickly realize they are not going to save money if they go that route. Instead, selecting a one-bedroom unit with enough living space and storage is the better choice.”

The average rent for a one-bedroom apartment in the LLCR portfolio is $2,587 as compared to a two-bedroom unit at $3,663 per month.

“On average, selecting a one-bedroom apartment saves couples over $1,000 a month. Couples combined incomes average nearly $200,000,” said Ziemke. “They are choosing to live in smaller, brand new units in the most prime location with the best amenities and views.

The LLCR data shows it’s essential for developers to build a healthy mix of unit types. Couple-friendly one-bedroom units featuring walk-in closets and double sinks in the bathroom are vital to attracting the large base of renting couples.

“Combined incomes will allow for higher rent prices and increases upon renewals,” said Galvin. “Couples are also more likely to remain in their unit versus an individual renter.”

Unit Type Demographics

The gender wage gap also plays a part in how Chicago Class A apartments are being rented. While the average income of renters in the data set is $108,214, there is a significant difference between the income of male and female renters. The average male renter earns $125,096 a year, while the average female renter makes $87,948. The income disparity leads to more females leasing studio units (57% female versus 42% male) and more males leasing two-bedrooms (62% male versus 38% female). The data has many implications for how to market specific unit types to the right demographic.

“Understanding who is renting our apartments is crucial to our marketing efforts and helps us inform our developer partners.” said Kaitlin Brewer, LLCR Director of Marketing. “This insight is a key differentiator in our process from the beginning and carries through online with messaging and imagery that speaks directly to our renters’ values”

In 2019, LLCR will help over 3,000 Chicago renters find a new home in the newest Class A apartment buildings, nearly 40% market share of all new construction leasing in downtown Chicago.

A condo deconversion is a real estate transaction in which a savvy investor acquires an entire condo building through a bulk sale to turn into rentals. This investment trend has been seen in Florida and California for a number of years and is picking up steam in other coastal metros and even in the Midwest. In Chicago, where my firm consults, markets and leases condo deconversion transactions, we have seen an increase in international investor groups exploring these opportunities. Condo deconversion is a great alternative to ground-up new construction or repositioning an already existing multifamily asset.

The majority of condo deconversions are in prime locations with great access to neighborhoods, nightlife, dining and cultural attractions.

The biggest hurdle in converting a current condo building to an apartment building is securing enough votes from a condo association to approve the conversion. These are complicated and challenging deals, often taking years to close. However, the payoff can be significant with a sound business plan and team to help execute.

Here are five key elements to consider when planning a condo deconversion leasing strategy:

Respectfully Rebrand

Often, a large-scale condo has a storied history, possibly involving a notable architect, recognizable exterior or catchy name. When rebranding and repositioning the property, it’s important to find a balance between the old branding and new identity. For example, at one well-known property in the growing South Loop market of Chicago, we kept the original building’s name but modernized the logo. The property’s branding and messaging were far ahead of its time, and we wanted to honor the original vision. This kind of acknowledgment is well received, especially if your building’s current residents take great pride in their home and never planned to be tenants. Having them as allies through the process is helpful. By not changing the name or identity too dramatically, you will have a better chance of helping current residents feel like they are part of the process.

Build Excitement

Once you have rebranded, it’s important to build excitement with the right audience. This includes the current residents who may become your long-term tenants as well as potential residents who are often looking for an alternative to a cookie-cutter new apartment building. It’s important to find the unique features of the property: larger square footage, unique duplex layouts, custom finishes. Renters do still gravitate toward renting a condo over an apartment because they want something unique; however, when renting from an individual landlord, the level of service is an unknown. A condo deconversion provides renters with the best of both worlds. They can enjoy the size and location of a deconverted condo building with a professional multifamily management company. Capturing this audience early in the process with sneak peek renderings or a “VIP resident event” will get the buzz going slightly ahead of leasing.

Developers are always looking to maximize the price per square foot of each apartment unit to strengthen their multifamily investment. This is one of the reasons why micro units are so appealing to developers, as they command a very high price per square foot in many markets across the country. Larger, ultra-luxe units also command a similarly high price per square foot, yet are less frequently deployed in new developments. To know which is a better unit to build, we must first look at the renter profile of each apartment type.

Who is renting micro units?

As rents have increased in metropolitan areas, renters are making a conscious choice to live in smaller apartments to be in the most desirable neighborhoods. Being centrally located to work, restaurants and nightlife is important to luxury apartment renters. Typically ranging from 250-400 square feet, a micro unit lifestyle is not for every renter. This renter profile is often a business professional who is splitting their time between cities and who prefers not to stay in hotels, or someone looking to pare down and live clutter-free. Budget-conscious renters who value location above all else are also attracted to micro living.

Often, for the same rental price in an alternative location in a city, a micro-unit renter could live in an updated, larger apartment. However, the mindset of a micro-unit renter is quality over quantity, and community-building amenities are crucial to micro apartments. When units get smaller, the common space becomes more important. Micro renters are seeking spaces to work and socialize. The most successful micro-unit developments offer great community-building amenities like full-service gyms, on-site food and beverage and co-working spaces.

Who is renting large, ultra-luxe units?

These apartment units range from 1,800 to 3,500-plus square feet and have a unique renter profile. The most common renter demographics for this unit type are empty-nesters coming from affluent suburbs, high-end professionals who want to retain anonymity by renting versus owning or families looking for larger space in an urban environment. Regardless, income levels are high, and this is a renter by choice.

To appeal to these renters, minimize the need to “upgrade” upon move-in. White-glove service is essential, along with custom-designed finishes, high-end chef’s quality kitchens and abundant living space. The empty-nester renters are typically coming from 5,000-plus-square-foot homes. Developers need to utilize the space to amplify the living room with dining area and include a master suite. The master suite must accommodate larger-scale furniture and provide impressive closet space and a “wow” factor master bath. Ideally, at least two bedrooms will comfortably accommodate a king-size bed.

This renter will pay for curated programming and service that allows them to have a hassle-free living experience. Building amenities are important, but the service provided by the management team, including concierge, resident service coordinator and highly professional door staff, is an attribute this renter demographic seeks.

In the multifamily industry, marketing and leasing are typically executed by two different teams from two different companies. With advancements in digital marketing and customer relationship management (CRM) tools, taking a lead through the sales funnel to a signed lease is much more effective when marketing and leasing are under the same roof. Multifamily developers need to modernize their marketing and leasing to improve an apartment’s overall leasing success. From brand consistency to lead generation to workflows, multifamily developers can integrate marketing and leasing from before construction begins through after a property is fully stabilized.
Brand Consistency

Luxury apartments are a competitive asset class, and today’s renters have more options than ever when selecting an apartment. Whether the prospective renter is visiting the property website, looking at Instagram posts, being greeted by the leasing team, smelling the signature scent of the lobby or selecting a snack from the model unit kitchen, it is critical that everything connects and reflects the same messaging, tone and other brand characteristics.

Marketing must share the brand guidelines and the development’s story and vision with the leasing team to create a consistent brand experience from start to finish. The leasing team needs to understand why branding choices were made, and the marketing team should share the process that was taken to develop the branding and how that connects back to the property. These details are what makes an authentic voice and identity that a prospective renter can align with. Similar keywords and themes must be shared across marketing and sales platforms as well. Consistency is critical for building a strong brand identity for the apartment.

Lead Generation

I believe there needs to be a shift in mindset about leads. Instead of asking, “How many leads were generated from the campaign?” strive to know how many qualified leads went through the sales funnel. It is important to set goals and strategies for both the marketing and leasing teams to generate leads. The leasing team should be converting a strong majority of existing leads, generated by marketing, instead of focusing on looking for more new contacts. Marketing should be developing a website that’s optimized for conversions, not only aesthetics. The integration with a CRM and ease of “”schedule a showing”” functionality contributes to a significant source of leads. Marketing should also be focused on driving traffic to the website by streamlining internet listing services (ILS). These platforms are huge traffic drivers, and the attention that goes into specific platforms and listing strategy is critical to lead-generation success.

As an example, the leasing team is usually present in directing photo shoots and then determines the order of the photos on an ILS sites. The marketing team should also be involved in this process to help keep the brand consistent and to optimize the listings. Marketing and leasing need to be on the same page about pricing and availability so that unavailable units are not being advertised. Marketing should also be optimizing paid search campaigns on Google and social channels to improve conversion rates. The leasing and marketing teams should also share information back and forth about what is driving leads and what features are closing sales to continue to improve on the messaging and effectiveness of both groups.

Once an apartment building reaches 90% occupancy, it is considered a stabilized asset and no longer in lease-up. Whether the investors who own the building are developers hoping to sell once it has been stabilized or long-term investors, renewal percentage and stabilized rent trends are key ingredients to the financial health of a building. One thing every investor has in common is that they are all looking to bump rents, and the renewal strategy sets the stage for how much the rent can be increased year over year. Investors should continuously evaluate their methodologies and consider the most innovative ways to manage the renewal process to bump rents and minimize vacancies. Following are the most effective strategies I’ve seen for renewal at a multifamily property.

Analyze The Lease-Up

Before venturing into renewals, take a step back and look at the lease-up. Which units were the hardest to lease? Plan to allocate concessions to these units and consider not bumping the rents as much on these floor plans as others. Then, ask what concessions really drove leases. Were renters more interested in a $100 “look and lease” gift card or one month of free rent? Knowing which concessions worked best will help you budget for concessions moving forward. Looking back at the lease-up process will help you better forecast and strategize how you will manage renewals.

Set Goals For Renewals

Are you looking for a 3% average rent increase? Are you hoping to never have occupancy drop below 95%? As the market continues to become more competitive and stabilized buildings compete with new lease-ups, understanding your goals becomes even more important.

Whether you need to lease-up a 100-unit building or 500 units of new construction, a successful preleasing campaign brings in more move-ins and revenue than the developer and owner may have originally projected. Preleasing helps a property lease units before they have “turned,” or finished with construction. And when managed properly, the leasing team can ensure heavy occupancy during a property’s first 30 days of operation to generate income much sooner and maximize revenue, in large part due to earlier compounding rent payments.

However, there is a balancing act involved in a rapid lease-up campaign. Accurate pricing and leasing strategy are critical. If preleasing is slow, it could mean the rents are too high, additional concessions are required or the team simply doesn’t have the tools to instill confidence with prospective renters. If preleasing is too fast, it could mean demand is higher than expected, pricing is too low, concessions are not necessary or the leasing team has everything they need to get the application submitted. It’s equally important to lease apartments as it is to ensure dollars are not being left on the table.

Developers and owners need to find the balance of achieving solid velocity while maintaining the highest possible price per square foot. Here are four tips to a more successful preleasing campaign.

Engage The Most Interested Renters

There is always going to be a group of potential renters wanting first access to the property and/or willing to apply for an apartment even before seeing it. This starts with a thoughtful and engaging preleasing marketing campaign seeding renderings, photos and insider information about the property. There is often an opportunity to launch a pre-leasing campaign with an event, especially for those who have shown their commitment and excitement for the property. This is also a great way to gauge potential tenants’ pricing tolerance and which units will be most in demand.

‘Seeing’ Units Drives Leases

The average renter is significantly less likely to sign a lease from seeing a rendering than they are from seeing high-resolution photography and/or a 3D walkthrough. If showings during construction are not possible, expedite at least one model for actual unit photography and 3D Matterport virtual-reality walkthroughs, replacing renderings. This gives prospective residents the confidence to lease an apartment without physically seeing the space. A rendering of an apartment does not tell the full story of the textures and finishes. It is critical that the leasing team has enough information to lease an apartment without a potential tenant having to set foot in the space.