Posted 11 days ago

Important Linkages to Understanding your Market (Multifamily)

In this second part, we'll discuss the important linkages for multifamily investors.  These linkages describe how a property is connected to the surrounding market and how those connections can make a property more or less desirable to prospective tenants.  

Due to the fact that everyone lives somewhere, some of the linkages are more or less common sense to most people.  There are linkages, however, that may not be readily apparent.  Almost all of them revolve around the idea that people want to live in a an area that creates the greatest quality of life for them and when given the choice, tenants will look for the greatest linkages at the most competitive price.  It's also worth noting that the importance of linkages will differ depending upon the demographics of the area.  For example, an apartment located in a college town will put more importance on access to nightlife than say an older, family-oriented demographic.  It then becomes important for the investor to understand their core tenant base and determine whether the linkages support them. Here are some of the most common linkages to consider for multifamily:

-Proximity to employment

-Proximity to good schools

-Access to retail services

-Access to some type of cultural enrichment (recreation, arts, entertainment)

Proximity to employment is likely the strongest driving factor for most apartment tenants.  Quality of life for most means less time commuting to work and more time with friends and family.  Therefore access to the job market also means access to commute arteries and public transportation.  Tenants favor a strong job market, with rising employment and wages that fall in line with cost of living standards.  Determining these linkages is the first step to evaluating an investment.

Proximity to good schools is typically always a good thing, but even more important for a demographic heavy on established families and working professionals (about to start a family).  Higher rents and land costs almost always correlate to good schools, while the opposite also remains true.  If you have a large percentage of tenants with school aged children or below, it is highly important to understand this linkage.

Access to retail services also refers to a quality of life standard, since most tenants don't want to travel unreasonable times to basic services, such as shopping centers.  Once again, if you understand your base tenant demographic, you can then begin to map and determine if the surrounding services support your tenants or not.

If all of the above remain equal, then the next important linkage is cultural enrichment.  This is more of a broad term encompassing everything from access to public recreation (parks, sports venues) to arts (museums, festivals) to entertainment services (movie theaters, bowling alleys).  A broader spectrum of these types of services means that an apartment can pool a broader tenant base in an area.  Doing a concentric circle entertainment search will help give a picture of what is available and appealing to your tenants.

There are a number of different location linkages that may be appealing to your tenants, but the key is understanding who would want to live there.  That means doing demographic and tapestry searches of the area and then determining if the linkages of the apartment support those types of tenants.  If vacancy in an area increases during a downturn, these linkages may be the difference between having happy tenants or "for rent" signs.



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