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Apartment Developers Capitalize on Demographic Niches

In July 2003 occupancy at Arbor Mill Apartments in Norcross, Ga., hit 85%, a 10-point drop after a wave of lease expirations struck the 274-unit property. Worse, a drop-off in the number of potential renters contacting leasing agents provided scant hope that occupancy would improve anytime soon at Arbor Mill, which is owned by Atlanta-based multifamily development and management firm Lane Co.

Until then, Lane had employed a traditional leasing program after paying $14.2 million in 2000 to acquire Arbor Mill, a 25-year-old, Class-B property. But after the vacancies began to mount, Lane officers studied the surroundings and discovered that a predominantly Hispanic population and blue-collar businesses had replaced a more diverse base of residents and companies. Consequently, at the end of 2003 Lane hired bilingual leasing agents, advertised in local Hispanic publications and created brochures in Spanish.

The adjustment worked. Arbor Mill's occupancy rate has rebounded to 95%. “What we usually do with all our properties is look at the census information, the new businesses coming in and the traffic [potential renters] flowing into our properties,” says Jared Miller, marketing director at Lane Management Corp., a division of Lane Co. that oversees some 30,000 units primarily in the Southeast. “We realized we weren't hitting the target market.”

Digesting Change

Lane's approach promises to become standard operating procedure within the multifamily industry. Apartment experts have long anticipated three distinct groups — Hispanics, aging baby boomers and waves of echo boomers born between 1977 and 1994 — as the fastest-growing rental populations over the next several years.

The U.S. Census Bureau projects that the Hispanic population will grow 34% between 2000 and 2010 and another 25% in the ensuing decade. Meanwhile, the population of baby boomers hitting retirement age is projected to rise by 10.8% between 2000 and 2010, and then spike nearly 40% between 2010 and 2020. Additionally, the number of echo boomers reaching the prime rental age will grow by more than 30% in each of the next two decades.

“There's no question there is a strong demographic shift taking place,” says Constance Moore, president and COO of San Francisco-based BRE Properties. The real estate investment trust (REIT) owns 85 properties comprising 25,800 apartment units. “Are there unique characteristics that define a certain segment of the population in terms of what they want or don't want in an apartment? Those are the type of questions being asked right now.”

Demographics by Design

Multifamily investors, developers and marketers increasingly are studying ways to capitalize on those demographic niches. Those strategies range from how developers design and market communities to how management firms staff their companies, adds Moore, who took part in a panel discussion at the National Multi-Housing Council's board meeting in May in Colorado Springs, Colo.

More than one generation of Hispanics, for example, often live together, which could lead to the development of communities that have larger-than-usual kitchens and open-air living spaces. It is anticipated that aging baby boomers will downsize into either luxury rentals or condos to simplify lifestyles while pursuing other interests such as travel. Echo boomers, on the other hand, are likely to want contemporary spaces with high-tech amenities.

“In every single development, we have to match the design and amenities to its immediate demographics,” says Paul Marshall, senior vice president for Southern California for Opus West Corp., which has 1,000 multifamily units in various stages of development in the region. “It doesn't matter whether it's age or ethnicity.”

A Targeted Approach

Like Lane, other apartment owners also are tailoring efforts to the immediate population. Houston-based Camden Property Trust, a REIT that owns 144 apartment communities comprising 51,344 units, is assembling a program to target Hispanics in Las Vegas.

Camden manages 17 Oasis apartment communities in the gambling mecca, and a high number of Hispanics live in those communities. (Camden also owns 20% of the communities with an unidentified fund partner.) Under the plan, Camden will identify and meet with Hispanic community leaders, including ministers or managers in the service and retail sectors, and generate ideas about how to better communicate to the ethnic group, according to Trish Hoffman-Ahrens, Camden's vice president of marketing.

Camden will then implement those ideas, which could include extending leasing hours or expanding the number of leasing offices or creating an interactive Spanish language Web site that incorporates audio content, she says. “We saw a gradual shift in the population, and we need to be smarter in how we support and service that group, and at the same time make sure we're getting the most qualified applicant possible,” says Hoffman-Ahrens, who expects to roll out the program late this year or early next year.

Camden is setting up a similar program to target echo boomers who will begin to enter the rental market en masse in 2006. That plan could include hiring college students to represent Camden on campus and act as the company's spokesperson, according to Hoffman-Ahrens. The program also could feature a Web site that educates graduates about how to live on their own.

Striking a Balance

The formula for designing product to target a demographic niche, however, is hardly as cut-and-dry — or as obvious — as marketing guidelines. In fact, trying to design properties to appeal to one demographic group could render the communities obsolete, if developers miscalculate demand or the preferences of its target market.

“Flexibility is the key,” says Bruce Dorfman, a principal with Thompson Dorfman Partners in Sausalito, Calif., which is developing some 1,700 rental units and 300 condos in Southern and Northern California. “Whoever we're designing the unit for today is not the renter who's going to be living in it 10 years from today, or sometimes even 12 months from today.”

Still, Thompson Dorfman is developing two different product types to specifically appeal to baby boomers and echo boomers. North of San Francisco in San Rafael, for example, the company is in the preliminary planning stages to develop for-sale condominiums for empty nesters. The proposed 80- to 100-unit community, which is in the entitlement process, will feature two floors. The lower level will include a master bedroom and essential living space, such as the kitchen, living and dining rooms. Located upstairs are bedrooms for visiting kids that also could serve as offices or studies.

In the southern part of the state, Thompson Dorfman is developing a complex in Irvine in conjunction with Opus West that is tailored for echo boomers, as well as singles and couples up to the age of about 44. The two companies are marketing the 341-unit project, known as Campus Center, as an upscale urban dwelling with open floor plans. However, the complex is located in a suburban area surrounded by high-end — but more traditional — suburban-style apartment houses.

Dorfman and Opus West officials declined to reveal the project's cost, but the developers are building 233 flats on the first three floors, while 85 of the units on the fourth floor will include a second- story loft that overlooks living space. “We're leaning toward creating a cool and funky urban environment, even in suburbia,” Dorfman says. “It's something that's not currently offered in Irvine.” The project is expected to open in 2006.

Block by Block

How much differentiation multifamily developers need to incorporate into their properties and marketing programs will vary by neighborhood, say experts. But in the red-hot market of Southern California, where land is scarce, developers are more concerned about finding opportunities to build than they are about differentiation.

The state's No. 1 ranking in projected population growth through 2025, coupled with its physical barriers to expansion — the Pacific Ocean and mountains, for example — are forcing apartment investors toward infill locations in densely populated areas. Ultimately those conditions, along with the high cost of housing, give an edge to developers.

“We have an embarrassment of riches, if you will, from the standpoint that there's a chronic shortage of housing in California,” BRE's Moore says. “So perhaps we haven't had to be as creative as developers in other areas.”

In particular, Moore points to markets in Texas, which generally experience more boom and bust cycles than California. Though Texas lags only California in projected population growth through 2025, it hardly suffers from a housing shortage or geographic barriers to expansion. Thus, developers in the state are under more pressure to be creative.

Texas isn't alone. Developers everywhere need to become more innovative as the traditional family structure becomes less common, says Eric Langford, a senior vice president for Texas at Opus West. Indeed, the proportion of families fitting that structure, which is defined as a married couple with children under 18, fell to 24% of all households in 2000 from 40% in 1990, according to a Census Bureau report released in February 2002. “There are all kinds of groups looking at different kinds of products,” Langford says. “The challenge is to create environments that will be appealing.”

Joe Gose is a Kansas City-based writer.

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