Interview with Aaron Galvin: Lease Up Strategies
November 22, 2019 | By Aaron Galvin
real-estate-addicts

Aaron Galvin, Founder & CEO of Luxury Living Chicago Realty (LLCR) joins the Real Estate Addicts Podcast to discuss how LLCR is transforming the way luxury apartments are being leased.

Read some of the highlights from the transcript:

HOST(S): So tell us about your firm, ya know, who you are, how you got into real estate, kind of the general background.AARON: Sure. So the name of our firm is called Luxury Living Chicago Realty. We are what I would refer to as a development-focused brokerage working with really two different audiences of people in the multifamily apartment space: so that first audience is people who are looking for apartments in downtown Chicago. So downtown Chicago has a tremendous number of brand new full-amenity high-rise buildings and really has in the entire part of the 12-year history of LLCR and my 16-year career. The other piece of what we do is we work directly with developers to plan and execute marketing and leasing strategy. So that’s become the bigger part of our business over the last 6 years with the proliferation of brand new buildings that have hit downtown Chicago and really hit all the different parts of the country.We get the true renters perspective that we’re able to layer into the development work that we do, you know, we work with people very early on in the cycle of when they’re looking at development deals, looking at pieces of land, and trying to decide if an apartment building or a condo building will work there, and what kind of units they want to put in there. We’re talking about, you know, studios, one-bedrooms, two-bedrooms, what’s going to be the best fit for that demographic. We do a lot with marketing, so we have a fully comprehensive digital and full-service marketing portion of the business where we will do branding and creative services, we create logos, we do identity suites, we build websites, and then that all translates into planning and executing lease-up strategies wherein a typical world, within the apartments space, you’ve seen that people hire a property management property. Typically in some of the larger-scale buildings, you’ll have a property management company on-site, and they’ll have a team of people that are managing the property, and then they’re also leasing the property. In our world, what we do is we work with developers, we work with capital partners, and we partner with property management companies where the property management companies are handling day-to-day operations, so they’re handling tenant requests, they’re coordinating move-ins, they’re working on long term profitability if you will for those assets, and we’re charged with creating a marketing strategy and actually staffing the buildings to be able to lease up those apartments. It’s a very different kind of model, one of the only other places that it actually exists is in New York City. We started this part of the model about 6 years ago and have been able to establish about 40% market share of all the new construction leasing that’s happening in Chicago, so we’ve really carved out a niche within this space.Wwe think it provides incremental value to developers, especially in lease-up, and we’re looking to continue to grow that certainly in Chicago and on a national basis.

HOST(S): What’s the smallest building you will take on or do you typically work in?

AARON: So you know, we have done everything from a nine-unit building, and we’re about to launch a 698 unit building, so it really spans the gamut. Our sweet spot up to this point was really that we’ll call 100-250 unit buildings, in large part because there really wasn’t anyone else who was providing the highest level of service in that asset class. It’s really challenging from a budget standpoint to have enough staff, enough people to handle the amount of demand that comes with what is oftentimes new construction, especially in that lease-up world, when that building is first coming online. So that’s really where we’ve been able to carve out that niche and provide that higher level of service, which is really the foundation of what LLCR was built on. When we started this it was about providing a higher level of service experience for those who were seeking luxury apartments, because it just didn’t exist in the marketplace, and I think you know going all the way back to 2007 and even 2003 when I started in the business, it was all condos, all sales, all the time. Because if you remember the mid-2000s before the world changed in 2008, this was a condo purchase world, and apartments were second fiddle. That is no longer the case, that cache, that stigma, if you will, from renting, is long gone and we’ve been fortunate to be in the right place at the right time. I believe wholeheartedly that luck is where preparation meets opportunity, and that’s how we’ve been able to carve out this niche.

HOST(S): One question – a big feature of a pro forma or underwriting a rental deal is lease-up, so assumptions run about how long we’re gonna hold it for before we reach full occupancy. Can you talk about those timelines, maybe when you start marketing ah as the new construction is evolving, and how long you usually figure before you have the building stabilized?

AARON: That’s a great question. That’s where we provide the most value. It’s about the strategic way in which we’re going to lease-up that building when marketing starts, and when can ultimately plan for stabilization. my sense is that it starts the moment you are thinking about building an apartment building, so so the sooner we can get involved the better, so we can identify things that developers and architects aren’t necessarily thinking about as they’re planning those buildings but pragmatically speaking what we find is that as soon as a building starts construction, and you’re actually moving dirt and you know, for the most part, inconveniencing people around the area, it’s really important to start that messaging so that the neighborhood can become an advocate in what you’re actually building to better that neighborhood, so we believe that as soon as you start construction, the ideal setup is that you actually have signage on the property that’s driving to a what we refer to as a pre launch page or a splash page to gather information on interested stakeholders in that deal because there’s a number of different audiences that are interested when you start building an apartment building, certainly perspective renters are one of them, the neighborhoods another, the media’s yet another, and then there are people who are just interested in real estate that are going to become again social media advocates evangelizing what you are building there. so we have a pretty structured program in the way that we roll out that part of it, we refer to it as our awareness phase, and then the nurturing campaigns that go on throughout that you know we’ll call it 6 months to a year ideally 2 year period to get to where what we call the pre-launch phase. that pre-launch phase is equally as important, you know hopefully you’ve been having conversations with the interested parties and stakeholders along the way and you are now able to create some kind of environment where you’re gonna give VIP access to people who want to actually engage in that apartment. people love behind the scenes looks, they love seeing construction happening, you know we live in this HGTV million dollar listing world where there is a real interest in residential real estate and when you can help people be a part of that story that’s gonna become their story early on, you’re gonna get them very early and that’s really important in a compelling way. so we will create the right kind of questions within that VIP form, we’ve created many different programs for how we can execute that VIP launch strategy to the extent that our goal is to be able to pre-release at least 25% of a building before it opens, and we’ve been able to achieve upwards of 100% of preleasing if executed the right way and done in a line strategy. and you know from a stabilization standpoint, it’s gonna depend on the goals of the developer. it’s one of the most important things that we look at and it’s one of the first things that I mention when first talking to developers is that we’re trying to align renter insights to maximize your goals and understanding your clients goals when looking at these properties is of the utmost importance because this is gonna ebb and flow throughout different cycles. you have merchant builders who want to lease up as fast as possible and offer max concessions and get out, you have longtime holders whose speed is not as important but they want to maximize those rents and manage concessions really well and make sure they have the right tenants who are going to stay and that’s going to dictate unit mix, so understanding those developer goals is really really crucial and we’ve been able to adapt our business to have different kinds of lease-up services to match the goals of our developer clients.

HOST(S): one other question that I would have, you’ve kind of mentioned it already is the stigma of an apartment is past us. it’s the late 90s early 2000s, oh you don’t wanna rent, but obviously through both market changes and things getting better just in general with construction, do you think that, and because housing affordability is obviously an option, do you think that the demand has shifted, and I guess another aspect of it is people just don’t want to own things because they want to be more mobile talking about this whole attention lack of attention to anything, people don’t want to settle down anywhere, so do you think that apartments will continue to be dominant and that’ll just continue to grow?

AARON: yes. you nailed it. people want that mobility. nobody who is certainly in that younger generation wants to own anything. they want to rent their clothing, they don’t want to own a car, so that renter mindset is very much here and I think that there is a place for homeownership in this country, no doubt about it, I own my home, I own investment property. I think there’s definitely a place for that and I think that homeownership will continue to ebb and flow as different economic cycles happen, but that’s still the American dream and I think people really want to work towards that, and there’s a real value in homeownership. I think that what renting does is it allows us to have that mobility, it allows you to try different things, and allows us to have different dynamic life experiences. back when I was a broker, and that was my roots, and I was starting this business, i would say “”listen, if you have an opportunity to move to a major metropolitan city and experience what’s it like to live in a full amenity building and have everything that comes along with that in the apartment, in the building, right outside your door, you have to do that at least once in your life”” and that really resonated with people, and i think what you’re seeing now is because there are not so many condo options and the kind of options at least in Chicago are uber-expensive options or they are 15 years old and need a lot of work, so we used to get the person at the end of their rental cycle and their rental cycle has continued on and on and they’re moving into newer and nicer building in multiple neighborhoods around Chicago. and I think that’s happening from what I understand around the country as well, that as the apartment market continues to grow, there are so many neighborhoods that are coming, giving people the opportunity to live in different neighborhoods if you will.

HOST(S): so you seem to primarily work with class A buildings. if for our listeners out there who invest in real estate, rentals, etc, that might have class B or class C building that they’re looking to make upgrades to either get them up to that next level, push their rent, etc. what are some of the things that you know a developer an investor can do to significantly create value in their building and maybe bring them to the next level that’s not going to cost an arm and a leg and they’re not going to have to gut the units etc?

AARON: that’s where service comes in. let’s talk about the units first right, you have to get the units to a place where they’re going to compete with the class a market. it’s not tremendously expensive, I mean it’s definitely a capital improvement, don’t get me wrong, but it is not tremendously expensive these days to put LVP flooring instead of carpet, put a quartz countertop in, and do some stainless steel and refinished cabinets. those costs have come down so dramatically lately, we see it in the condo deconversion space, there are ways you can do that where you can at least play ball and if you’re not doing that right now, you’re going to get stuck being the sea and never come back. so you have to be willing to do that within a certain subset of units and be able to invest that kind of capital. when it comes to the amenities, that’s really about service and technology, because again those are things that are we’ll call them aspirational for that demographic that wants to rent those kinds of apartments, so they can live in a building that has a nice kitchen, a decent bathroom, but has all the same kinds of tech that a brand new class a does, because that’s not hardware, that’s software, that’s app, that’s you know, can be keyless entry, nest thermostats, if you’re able to make those kinds of changes, they’ll go a long way. and we talked about 1g internet before, you know to upgrade the internet, those are the things that are most important to people when it comes to the aspirational renter who isn’t going to you know to afford the full class a and spend that kind of money but they do want to live in a prime location and have a nice apartment to call home and feel like they have the latest and greatest when it comes to technology.

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