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Apartments Tailor-Made for Generation Y

There can be no doubt what type of renter the Ellington, a new apartment building in Washington, D.C. is trying to attract. The complex features a billiards room and fitness center, and residents can socialize by watching sporting events in the building's media room.

The building's Web site touts “The Lure of the U,” the “U” referring to the street address of the Ellington. On the U, the Web site boasts, residents can head to nearby coffee shops, restaurants and theaters, and hear the pulsing beats of hip hop and jazz from bars.

Of course, none of the residents pictured on the Web site look older than 30. Donatelli & Klein, the developer of the Ellington, built the complex to cater to the age group known as Generation Y, loosely defined as children born between 1977 and 2000, the oldest of whom are now in their late 20s. The Ellington is hardly alone in trying to reach the Gen-Y crowd. More building owners are focusing on young people and designing units to their tastes.

“We are seeing more developers aiming at young people by offering billiard rooms and other amenities,” says Michael Cohen, senior real estate economist with Boston-based Property & Portfolio Research. “As the number of young people increases, we will likely see more efforts to reach them.”

Simple demographics explain the growing appeal of the young market. Of the nation's 110 million households, only 19 million are currently headed by people aged 25 to 34, the prime group of apartment renters. But during the next decade (from now through 2015) the number of young households is expected to rise sharply, climbing an average of 290,000 annually, according to Celia Chen, director of housing economics for, a consultant in West Chester, Penn.

Gen Y, the children of the Baby Boomers, should bring welcome relief to apartment owners, says Doug Bibby, president of the National Multi Housing Council (NMHC), a trade group based in Washington, D.C. The industry has been feeling the impact of the so-called Baby Bust, which started after 1964 and resulted in a declining number of young households from 1995 to 2004.

Rent incentives for Gen Y

To catch the eye of Gen Y, developers are building units with moderate rents. While some young lawyers and accountants can afford a life of luxury, most recent graduates have limited budgets. The Ellington has kept costs down by offering some apartments with small floor plans, including 580 sq. ft. studios. Another cost-saving technique is to eliminate features that young people don't value such as phone jacks.

In a building that targets young renters at 320 East 22nd Street in Manhattan, Mann Realty Associates does not pay to install phone jacks. Most of the young tenants arrive with their own cell phones anyway and have no use for telephone land lines. Mann Realty's building also does not offer a Manhattan staple, the doorman. Providing 24-hour staffing would raise rents by 7%, says Maurice Mann, CEO of Mann Realty.

To hold down a tenant's initial expenses, some buildings are turning to companies that help reduce the cost of security deposits. The niche is dominated by Livingston, N.J.-based SureDeposit, a company that is now facing competition from SecureALease in Chicago.

Under the traditional system, a tenant with a monthly rent of $1,000 has to pay a security deposit of the same amount. The security deposit is returned to the tenant when he vacates the apartment, provided there are no damages. But that cash outlay can be a formidable cost for a young person who also faces moving expenses and the price of furnishing a first apartment.

With SureDeposit, a new tenant provides no security deposit. Instead, a tenant pays a 17.5% nonrefundable premium, or $175 for a $1,000 apartment. If the tenant causes damage, SureDeposit covers the losses and chases the deadbeat to cover the cost of repairs.

No tenant is required to use SureDeposit, but in projects where the feature is offered, more than 80% of residents choose this option. “This really helps young people move into quality apartments at a time in their lives when they don't have much to spend,” says Paul Kaliades, president of SureDeposit.

Some apartment owners feature SureDeposit prominently in their marketing campaigns, advertising that tenants need not worry about hefty deposits.

In markets with higher vacancy rates, such as Houston and Atlanta, some landlords have lowered security deposits as an inducement. In a typical promotion, apartment companies advertise $99 security deposits for apartments with monthly rents starting at $500.

Amenities for computer geeks

While young renters may have limited budgets, they are sophisticated consumers of technology. To appeal to this computer-savvy generation, many landlords are providing high-speed Internet connections. The Shoreham, a new building in downtown Chicago developed by NNP Residential & Development, offers Wi-Fi — wireless connections to the Internet — in its swimming pool area. Installing the system cost the developer $15,000, but it enables residents to use their wireless laptops while lounging by the water.

Young renters are shopping for their apartments on the Internet, and once they sign a lease, many tenants prefer to pay electronically. To meet these expectations, landlords are being pressured to offer services such as rent payment via the Internet.

And apartment companies are finding renters through the Internet. Mann Realty finds many leads through, a popular free Internet site where consumers can search for a variety of offerings in addition to apartments. “We get e-mails from Europe and Japan every week,” says Mann. “Students and young professionals are geared to using the Internet.”

Besides providing appropriate technology, some developers carefully design their projects to suit the particular tastes of Generation Y. The Ellington in Washington, D.C. has a media room where tenants can socialize by watching sporting events on wide-screen TVs.

The building provides a free fitness center, enabling residents to avoid the expense of joining a health club, which can cost $80 per month. There is a business center with computers and printers, and tenants who work at home appreciate the conference center. “People don't like to meet clients in their apartments,” says Maurice Walters, the Ellington's architect.

For hip, young residents who work downtown and don't own cars, the Ellington is ideal. Located at the corner of U and 13th Street, the 200,000 sq. ft. building is about two miles from the White House and built right above a Metro station. If a resident wants to take a drive, he can reserve a rental car on the Internet and pick up one of the vehicles parked in the basement of the building.

Eager to reach people ages 24 to 32, ParkCrest at Innisbrook, an apartment complex in Palm Harbor, Fla., conducts joint marketing campaigns with a nearby golf course. To suit the tastes of tenants, the apartment complex makes sure that each unit includes at least one large, bare wall. That is a change from the past when developers sought to add extra shelving. “Everyone seems to have a big TV or entertainment unit,” says Virginia Love, training and marketing manager for New York-based ING Clarion Realty Service, which owns 5,000 residential units, including ParkCrest.

“You can't break up the wall with bookcases,” Love says. “And if there is a fireplace, there had better be another big blank wall where they can put their TV.” Love notes that projects have long offered health clubs and common rooms. But these days, developers also are building media centers and cyber cafes.

Trendy design sells

Gen-Y renters tend to seek apartments that include hip design features. At the Ellington, apartment units have concrete floors that are stained to simulate the look of a loft. Modern track lighting contributes to the effect. The Shoreham in Chicago spent $30,000 on a billiards room and café.

But does the focus on young tenants drive away the older crowd? Not necessarily, says Robin Loewenberg Berger, executive vice president of NNP Residential & Development. While many of the apartment complex's tenants are under 40, there are also some older renters who appreciate amenities such as the steam room and business center.

As always, location is important to tenants. And more and more, young people want to be in active urban centers. The Shoreham is near the heart of Chicago's downtown Loop. The Ellington in Washington, D.C., even has a restaurant located on its ground floor.

“Young people are returning to the cities, and that is encouraging apartment development in many parts of Washington,” says Chris Donatelli, president of Donatelli & Klein.

For young people, the move back to cities represents a big change from the tendency of their parents, who preferred the suburbs, says Youguo Liang, managing director of research at Prudential Real Estate Investment in Parsippany, N.J. “My theory has always been that children do the opposite of their parents,” says Liang, a member of the Baby Boom generation. “We fled the city for better air and education facilities, so our children grew up in the suburbs. Now they are tired of feeling isolated, and they are moving back to the cities where it is easier to see friends and find dates.”

Gen Y's long-term impact

The growing number of young city dwellers may already be helping to lower vacancy rates, says Cohen. According to Property Portfolio & Research, the first-quarter vacancy rate registered 7%, down from 7.4% at the end of 2003. While the favorable demographic trend may be boosting the apartment industry, job growth and limited apartment supply also are helping to reduce vacancies, Cohen says. In the past year, 60,000 apartment units have been converted to condos, which removes units from the rental market and helps to limit the supply, he says.

Cohen forecasts that vacancy rates will dip below 6% by 2009 due in part to the increasing demand from Gen Y. “We should see a gradual and continuous decline in vacancies for the next five years,” he says.

Some industry executives believe that the strong demand can last for a decade or more. Besides the growing number of young tenants, the country is attracting an increasing number of immigrants, who are traditionally long-term renters. These powerful trends should prop up apartment markets for the next 15 years, especially for developers who understand how to cater to the customers, according to Bibby of the NMHC. “For the first time in awhile, the apartment industry will enjoy a huge tailwind.”

Stan Luxenberg is a New York-based writer

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