How the Pandemic Will Change Multifamily Real Estate

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Many people believe that violinists hold the violin up with their left hands. That may have once been the case, but as violin music became more virtuosic, it became necessary that violinists’ left hands be free to move up and down the fingerboard to play different pitches. Now, violinists hold the violin against the shoulder with the weight of the head/chin resting on a chinrest.

Some violinists have short necks with adequate flesh to support the violin this way, using only a chamois to keep it from slipping from their shoulders. But many violinists use a shoulder rest to fill in the space between the shoulder and the violin. The combination of chinrest/shoulder rest

Shoulder rest designs vary by materials (plastic, metal, wood, or carbon fiber), height, and adjustability. But most shoulder rest designs consist of a padded bar that has metal clips covered with rubber, which attach to the violin to elevate the violin from underneath.

Yet, many violinists believe that shoulder rests dampen the violin’s sound. And as I learned with my long-necked son, violinists with very long necks needed more elevation than shoulder rests alone usually allow.

So, the art of the violin “setup” evolved once more, as violinists started elevating their chinrests to fill the space above the violin so that the violin could sit directly on the shoulder. Frisch and Denig sell customized elevated chinrests. But for my son, we settled on a common setup for violinists with long necks: a SAS chinrest with a 35 mm elevation and the nonmusical shoulder rest adjusted to maximum height. This combination provides him with close to three inches of elevation (compared to the approximately one inch I would use).

Like violin setups, housing must be “set up” to meet the residents’ needs. Although a couple might be happy in a one-bedroom apartment, a family of four might want two or three bedrooms. This article discusses how the COVID-19 pandemic has changed multifamily real estate. The article also discusses how multifamily owners may need to change their properties and business models to meet the needs of future tenants.

How Multifamily Living Has Evolved

Early New York apartment buildings, known as tenements, were cramped quarters built starting in the mid-19th century. Occupied mostly by poor immigrant families, those tenements lacked heat and indoor plumbing and toilet facilities and fresh drinking water.

The early 20th century brought apartment buildings with shared amenities, such as elevators, central heat, and indoor plumbing for the middle class. Around the same time, some multifamily owners added luxury amenities, such as doormen, laundry, dining rooms, and gardens to attract wealthy residents.

Multifamily amenities continued to evolve to meet resident needs. Today’s apartment complexes boast amenities such as business centers, playgrounds, fitness centers, swimming pools, wiring for cable TV and Internet, and dog parks.

Until now, multifamily properties and amenities experienced a gradual evolution. However, in 2020, the COVID-19 pandemic abruptly changed how people use their homes. The demand for Internet bandwidth has increased rapidly. More people are telecommuting. And most people have cut back on movie and concert attendance–whether it be due to money, safety concerns, or venue closures–in favor of movie streaming.

Gathering areas like business centers, fitness centers, and clubhouses now are empty. And home delivery of groceries, restaurant food, and household items has increased exponentially. Many of these changes are here to stay and will shape future demand in the apartment market.

Rental Unit Changes

Tenant demand for rental unit amenities is likely to increase. With the pandemic, the tenant will want their home to be a private oasis that can support all of their needs.

Dedicated Workspace

The pandemic forced businesses to develop telecommuting infrastructure and forced colleges and some public schools to move, at least in part, to distance learning. As I discussed in How the Pandemic Will Change Office Leases, employers will seek to reduce their office space and move to a hotel model where employees don’t have their own offices. Between the new telecommuting infrastructure and less office space, many employees may never return to full-time work in the office. I believe that many secondary and university students may never return to full-time in-person learning.

Therefore, tenants will want rental units to have dedicated workspaces. That workspace may be a small nook with a work surface, electric outlets, lighting in front of the worker, and a plain background suitable for teleconferences. Rental units designed for multiple residents might need two dedicated workspaces in separate locations so that two residents can telecommute in relative silence.

Home Entertainment

When movie theaters, concert halls, sports arenas, restaurants, and bars closed due to the pandemic, people had to look to their homes for entertainment. Large-screen smart TVs and streaming services replaced live entertainment, and food delivery replaced restaurant dining. Many movie theaters, restaurants, bars, and arts organizations are struggling. Many may not return after the pandemic now that patrons have found an alternative.

Tenants will want rental unit amenities such as dimmable lighting to mimic theater lighting and pre-installed TV mounting brackets. And instead of social events in common areas, landlords might have community watch parties on social media.

Self-Contained Living

Modern, luxury apartments already boast in-unit laundry facilities. In the future, in-unit laundry will become standard, as employees want to do a load of laundry while they are teleworking or watching a movie at home.

The delivery of food and household items has increased. As local stores close and tenants come to appreciate the convenience of delivery, they will want apartment amenities that make deliveries easier. More apartment complexes will install storage lockers like Amazon Hubs, which can accept and securely store most packages (whether or not they are from Amazon) and allow for pickup at the tenant’s convenience. Similar systems for centralized meal or grocery delivery with temperature-controlled areas to keep restaurant deliveries warm and grocery deliveries cold may be standard in the future.

Private Outdoor Space

Due to social distancing, tenants have basked in private outdoor spaces. Balconies and enclosed patios can help an apartment feel like a personal oasis. Telecommuting employees will use these spaces for telecommuting. And essential workers may welcome a private area where they can safely relax in the fresh air at the end of a busy work shift.

Some apartment properties may not be able to easily provide each tenant with private outdoor space. Those properties may retrofit existing common areas to create numerous small outdoor oasis areas that tenants can reserve for their use, much as they now can reserve clubhouses.

Common Area Amenity Changes

In the fall of 2019, CBRE published a Multifamily Innovation Watch listing innovative amenities for the 2020s. In February 2019, Multifamily Executive magazine published a similar forecast. Those publications focused on the needs of a changing apartment-dwelling demographic. Although the pandemic has changed some things, the demographic of the future apartment dweller has not.

In addition to dedicated workspaces and private oasis areas, communities may attract tenants with soundproof podcast recording rooms. High-quality grab-and-go meal vending machines, meal delivery subscriptions, and on-site coffee shops (leased to a local vendor) might replace the old-fashioned coke and snack vending machines.

As car ownership declines, excess parking areas may become dedicated areas for Uber or Lyft pickups and drop-offs, and ZipCar, bike share, and scooter rental areas. Since zoning laws may be slow to change, landlords will need to pay close attention to local off-street parking requirements when modifying parking lots. Tenants who do have cars may require electric vehicle charging stations.

Fitness areas might include only a handful of socially distanced Peloton bikes, which tenants can sign up to use, instead of the ubiquitous treadmill and elliptical machines, which were always available but seldom used. Outdoor yoga or meditation classes might replace seldom-attended happy hours.

Leasing and Policy Changes

The pandemic has changed how tenants find their apartment homes. The Sunday afternoon excursion from one apartment community to another in search of the perfect home is over. Many community websites offer an on-demand virtual tour of the common areas and models of individual rental units. Tenants also can experience a live virtual tour of living spaces, where they can ask the leasing agent questions.

Rental rate structures may change also. Rent structures might move to a model used in some senior and student housing, where monthly rent includes an allocation of “points” that can “spent” on amenities, such as Peloton usage, yoga classes, meal delivery, or charging station use.

Or, tenants may be required to select from several amenity packages when they sign their leases. In jurisdictions where rent control limits landlords’ ability to increase rent, separate charges for amenities and rent may help landlords segregate payment for optional services, such as exercise classes and meal delivery, from actual rent. In some instances, landlords may only provide sign-up materials for food delivery and other amenities to tenants and not collect payments at all.

Landlord attorneys also will need to update lease forms to address these changes:

Amenity Change Provisions

The pandemic has taught us that amenities may need to change due to health concerns. For instance, tenants may be disappointed that their on-site pool or exercise facility now is closed. Landlords should include a lease provision in which the tenant acknowledges that current amenities are not guaranteed and may change at any time. Otherwise, tenants might claim a breach of lease or entitlement to a discount due to changes in amenities.

Email Communications

Although may landlords communicate with tenants via email already, some still deliver notes to the tenants’ rental units. The pandemic has taught us that email communications not only save time but also reduce personal contact and facilitate employee telecommuting. Although in some circumstances (such as eviction notices), laws may require that the notices be hand-delivered, leases should allow landlords to deliver all other notices via email.

Additional Charges

Landlords should review their leases to assure that they can charge usage fees to tenants for some amenities, similar to how a landlord might charge a tenant to reserve exclusive use of a clubhouse. For instance, if the landlord offers Internet or group fitness or meal delivery service, that may require payment of an additional charge. If the landlord receives compensation from the vendor or takes an override on charges passed through to tenants, the lease should disclose this possibility.

Policy Changes

Landlords should review their policies and procedures and confirm that they include appropriate language requiring government social distancing and masks requirements. Leases usually require the tenant to agree to abide by the landlord’s policies, now or in the future. Frequently, those policies are attached to the lease. Landlords should review those policies to confirm they address current needs. Landlords also should include language that specifically allows the landlord to update the policies.

Waiver of Liability

Leases should include a tenant waiver of landlord liability for COVID-19 and a tenant assumption of risk. Although tenants haven’t yet successfully sued landlords after catching COVID-19, a waiver and assumption of risk should be a deterrent to litigation.

More Customization Options

Today’s generation of violinists has dozens more chinrest and shoulder rest options than I had to customize violin setup. Likewise, tomorrow’s apartment dweller will require more amenity options to customize their living environments. The most successful landlords will anticipate what their tenant demographic wants and serve as a one-stop lifestyle provider, as well as a real estate owner.

This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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