A Student of the Real Estate Game

(ASotREG)

Viewing Apartments as a Consumer Product

Nov 14, 2021 | Development, Innovation, Multifamily

Real estate is a massive and surprisingly complex business (just ask Zillow). Innovation is relatively slow and certain aspects of the business have been done a specific way forever. The challenge when attempting to innovate is deciphering whether things are done that way for a good reason, or just because no one’s attempted to disrupt the status quo.

I believe multifamily properties should be viewed as a consumer product, designed with specific customers (residents) in mind. The unit mix, unit layouts, amenity set, branding and marketing, and operational approach should be tailored to the prospective resident.

This mindset is relatively unique in the apartment industry, especially within ground-up development, an arena flooded with short-sighted merchant builders. If you’re not designing a project to your target renter, you’re designing to no one (h/t Bobby Fijan).

I’m surprised that more projects don’t offer fully furnished units. It’s on the residents to furnish and design the units which leads to poorly designed units, furniture that’s unfit for the space, and a heavy upfront expense on the resident due to purchasing, moving, and storing furniture.

Here’s how the process works today:

  • We lease our first apartment and buy furniture (new or used) that’s ideal for that space and the design aesthetic of the building and area, at that time. We do our best and the space looks ok. It’s not Dwell magazine worthy, but we make it our own.
  • We eventually move to a new apartment, pay way too much to move that furniture, and shoehorn it into the new space and design aesthetic. This isn’t ideal, but we already paid a bunch of money for that furniture a few years earlier so we’re going to use it.
  • Over time, the furniture gets worn down to the point where it needs to be thrown out or donated.
  • If you buy a home, the cycle of utilizing furniture bought for a different space continues.

The experience is generally awful and expensive.

For apartment owners, it doesn’t show your product in the best light. There’s a reason many developers take a prime unit, furnish in beautifully with their interior designer, and show it as a model unit. I remember walking into the model unit in my last apartment wishing I could just lease that space, fully furnished, and designed as is. Wouldn’t that be great?

If you think about rental apartments as a consumer product, it’s crazy not offer an end-to-end solution for your customer. Wouldn’t it be better experience for renters if developers/operators delivered units with furniture that’s ideally designed for each specific unit type and resident with optional design packages to meet different aesthetics? Residents could still make spaces their own by adding their personal design touches, but the major furniture and design aesthetic would be driven by a professional interior designer.

The best comparison I can think of is the configuration process of a new car. Out of personal interest, I’ve been reading about the Rivian electric SUV and pickup truck. Their initial model is designed for a narrow niche of adventurous affluent who care about the environment.

When configuring a car online, you can choose your package (Adventure/Explore), paint color, wheel size, features, interior trim, and add-ons such as bike mounts, ski racks, and even a roof-mounted cargo tent. With each selection, perfectly curated for their target customer, the total price and estimated monthly payment changes.    

How cool would it be if you could do the same thing virtually with apartments? You could select from various design packages, see the space virtually, and make decisions based on your design preferences and budget? You’d have 3-4 options with select add-ons such as high-end coffee machines, California closets, stand-up desks, or a Peloton/Mirror.  Prior to move in, the furniture would be assembled and placed in your unit.

This would be cool, but it’s also a logistical nightmare. It’s essentially operating a separate business in addition to owning/operating a traditional apartment community. There’s no shortage of potential issues that jump out to me:

  • Who incurs the upfront cost of the furniture and how is it financed?
  • How do you carry large enough inventory to provide several design options?
  • Where is the furniture stored and how is it transported and installed in units ahead of move in?
  • How are damage and wear & tear issues handled? How is it insured?
  • Would residents be willing to pay the monthly premium needed to make the model pencil?
  • Would residents be ok renting used furniture?
  • Will lenders/buyers underwrite the additional income generated?  

The list goes on, but that doesn’t mean it isn’t viable. Plus, why can’t apartment owners simply partner with any of the emerging furniture rental companies providing this service?

Furnished units are the norm in short-term rentals, corporate housing, and co-living, and companies such as Feather, Fernish, and Conjure have emerged as DTC furniture rental brands. These are relatively niche segments of the rental housing pool, but as renting becomes more flexible, I expect to see more traditional apartments come fully furnished.

This may be a niche opportunity today, but as a developer building luxury communities and delivering into a competitive leasing environment, I’d love to offer custom designed spaces perfectly suited for the unit type and ideally positioned toward my target renter.