May 2016 — Multifamily Properties Quarterly —
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appliances, you have more plumb-
ing fixtures being fed into the units,
you’re creating more units in a
denser footprint,” said Meylan. “So
naturally your cost per square foot is
going to go up.”
The cost per sf is driven so high
that it scares many. “You literally look
at it and you’re like, ‘We can’t make
this work,’ ” said Schmidt. “But then
you look at the price per foot that you
get in rents; you can then justify it
very quickly.”
At Tennyson Place, the all-in price
per foot is $526, Meylan said. But the
units end up costing under $300,000,
which makes it more appealing
because there isn’t much available in
that price range in the market, espe-
cially not in urban locations, he said.
Investors see the appeal of
microunits because the properties
provide a very high price per sf, while
the check residents write remains
very tolerable, said Hunt. Also, inves-
tors are attracted to the strong
occupancy, although that comes
with a higher turnover rate. About
40 percent of micro renters renew
versus 57 percent of conventional
renters, according to a 2013 national
ULI report, The Macro View on Micro
Units.
During an April CREW luncheon,
panelists discussed the backlash
against the term “micro” they are
witnessing in some cities.With this
in mind, many of the smaller units in
Denver are being coined “affordable,”
“efficient” and “boutique” instead of
“micro.”
“What we’re finding is that
microunits tap into a general aver-
sion to density that you see in cities,”
said Kim Duty, senior vice president
of public affairs and industry ini-
tiatives with National Multifamily
Housing Council. “The concept of
densifying neighborhoods often gets
neighborhood objections, so people
are seeing the microunits as an even
more intense densification.”
Predictions
At the moment, fears of overbuild-
ing microunits are minimal. As down-
town continues to grow, the niche for
microunits will remain strong, said
Hunt.
From a lending perspective, the
micro market is not overbuilt but –
citing examples she’s seen over the
past two years of the transition to
smaller units – it is something lend-
ers should be aware of and remain
conservative about, said Piper Pierce
with Great Western Banks.
While the ULI national survey was
conducted in 2013, StocktonWilliams,
executive director for the ULI Terwil-
liger Center for Housing within Urban
Land Institute, said he’d expect a cur-
rent survey to reveal similar findings.
“Even if it remains only 3 percent
of the market, or whatever it may be,
it’s clearly more than a fad,” he said.
“I think, whether its microunits or
some other kind of smaller proper-
ties, we will continue to see a lot of
demand in places all over the coun-
try.”
Bruteig expects the trend of
decreased apartment sizes to con-
tinue. “We’re working our way down
with smaller and smaller units and
they continue to rent well,” he said.
“So that could be the next step – the
drop under 300 square feet.”
s
Market Trends
Rendering courtesy Allante Properties
Tennyson Place will be 85 percent studios and micros, with the average unit size of a
little over 500 sf.
Photo courtesy Boutique Apartments/Nichols Partnership
Built-in storage in the unit is crucial for making the spaces work for renters.
