When analyzing the opportunity for your next rental apartment community, if you are not doing a Stripped Rent Analysis, you could be leaving money on the table. In short, a Stripped Rent Analysis is one that begins with asking rents at each comparable development and then “strips” those rents of all upgrades, amenities, premiums and other factors to arrive at a true base rent for a given home size. These “deconstructed” rents allowing for an accurate “apples to apples” comparison (particularly for markets in which comparable product does not exist), that ultimately result in the ability to maximize revenue through highly granular research. As summarized by our Consultant Taylor Chapel, the steps involved in this type of analysis include:
- Adjusting the effective market rent for all unit and common amenities, based on national apartment resident surveys. These amenities include, but are not limited to, countertop material, flooring material, appliance packages, cabinetry finish, building design, demonstration kitchen, fitness center, pool design, pet amenities and parking. The apartment is stripped of all unit and community amenities until it is a single dot on the stripped rent trend line with only four walls. This process is performed to determine an amenity package value at each community, and arrive at a “stripped rent” for each utilized floor plan.
- Adjusting the Stripped Rent for age, so that it will reflect a rent level typical of a newly constructed property. The premise of the methodology employed, based on a study performed by Marshall & Swift, is that depreciation is not linear and that the aging process is minimal at first and then accelerates as the property ages.
- Adjusting the Stripped Rent for premiums and discounts, which are established by using the comparable properties’ weighted average position to the trend line by floor plan type (see illustration below). This methodology implies that when stripped rents are compared, the differences in position relative to the trend line reflect location and other non-quantifiable factors such as property management and unit mix.
- Arriving at conclusions for the Subject Property. Meyers’ approach and pricing recommendations incorporates planned amenities for the Subject, the site’s location premium or discount, concessions offered in the market, views and floor premium potential for the development, and parking options. After making all adjustments, an estimate, based upon the Subject’s unit mix, is used to arrive at an indicated market rent by floor plan.
This type of analysis proves critical when a certain product type does not exist in a particular market. For example, OneC1ty, a proposed high-rise within a mixed-use development, in Nashville used the Stripped Rent Analysis methodology to determine that their rents should have been 29% higher than existing product in the market which consisted primarily of a mix of wrap and podium construction with the exception an older high-rise built in 1998. When it comes to stripping your rents or stripping your profit margin, the former must be done to avoid doing the latter.
Contact us to learn more about how we can help maximize value and minimize risk in your next rental community.