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Tiny spaces capturing the attention of investors and lenders

by  | Corporate
Posted:     Updated: Oct 20, 2015  14:55 ET
 
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Micro apartments — small units, typically for single people — are a hot topic among housing officials, developers and some renters, although the tiny dwellings have yet to have a large impact in the commercial mortgage business.

We're talking about really tiny spaces. At 300 square feet and smaller, they're half the size of studio apartments. The hostel-style apartments, or “apodments” as they're sometimes called, typically feature a bathroom, microwave, refrigerator and a shared kitchen space. They're cheaper to rent, although still pricey in some cities, and can bring investors a better return per square-foot than conventional apartments.

Multifamily

The apartments are marketed primarily to young, urban adults looking for affordable places to live. Retirees are sometimes attracted as tenants, too, and some small-unit developments have taken root in suburban areas. Mostly, they're occupied by unmarried people living in one-person households, a demographic that grew to 27 percent of all households in 2012, up from 25 percent in 2000 and 17 percent in 1970, according to the U.S. Census Bureau.

Although housing officials promote the idea of the micro apartments as part of a solution to housing shortages and skyrocketing rents, the close-quarter living spaces are still relatively rare. The Wall Street Journal quotes research showing that about 2,000 micro-apartment-units were built in six of the nation's most expensive markets between 2011 and 2014.

Even in the nation's largest city, where local designers, developers and lenders took part in building New York's first micro-apartment complex, the concept initially required an assist from City Hall.

In 2012, then-Mayor Michael Bloomberg promoted a design competition for the city's first micro-apartment development, a $16 million, 55-unit complex in Lower Manhattan, where some of the apartments will be rented at below-market rates. A Brooklyn developer, Monadnock Construction, won the contest and landed $10 million in financing from a New York bank, which was supplemented by a loan from the city's Department of Housing Preservation and Development.

Micro- apartment developers have faced other roadblocks. In New York, for the Monadnock project, the city had to waive zoning regulations that prohibited tiny apartments. In San Francisco, Seattle and Portland, residents have complained that the complexes add to neighborhood overcrowding and parking problems.

Still, the economics of tiny apartments are appealing. In Manhattan, the units that were built before the city decided to prohibit new micro developments in the 1980s, rent for as much as $3,000 a month.

New York City rents are not the norm, of course, even for big cities. But Urbanation, a Canadian research firm, says overall per-square-foot rents for micro units are 15 percent higher than those for traditional apartments. That rental premium, reports National Real Estate Investor, combined with “deep, pent-up demand" for affordable urban living spaces, is making once-wary lenders more receptive to the idea of financing micro-apartment developments.

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Bill Lewis is editor of Scotsman Guide Commercial Edition. Reach him at (800) 297-6061 or bill.lewis@scotsmanguide.com.

Topics: Commercial business development | Commercial lending
More by: Scotsman Guide Media

 

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  1. Posted: Sep 18, 2015  17:39 ET    Updated: Sep 18, 2015  17:39 ET
    By: Rania Efthemes | Scotsman Guide Media
    1. 0


We definitely are seeing this trend in Seattle, where people are willing to rent micro-studios as small as 100 square feet just to be in the city.


 



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Tiny spaces capturing the attention of investors and lenders

by Scotsman Guide Media | Corporate
Posted: Sep 15, 2015  16:11 ET    Updated: Oct 20, 2015  14:55 ET

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