June 7, 2019
By Terry Painter, Mortgage Banker
Member of the Forbes Real Estate Council
Micro Apartments are very small, high rent per square foot units most often found in large cities. They average 275 to 550 square feet and are comprised of a sleeping space, kitchenette and bathroom. They are usually studios or one-bedroom units.
Two of My Developers that Specialize in Micro Apartments
I have two developer clients that specialize in micro apartments. One builds in Seattle where his tenants are mostly millennials. They pay over $2,000 per month for very compact luxury units. These young people who have excellent professional incomes are living for today, not saving for tomorrow. They love the high-end amenities that these buildings offer and their proximity to a vast assortment of great eateries and boutique shops.
I have financed three large micro apartment buildings for a developer in Eugene all with 40 year fixed rate fully amortizing mortgages from HUD. They are located on or near the campus of the University of Oregon in Eugene. These are large $20 to 34 million dollar projects. Most of his tenants are students. These buildings are not considered student housing because anyone can live there. In the parking lot of his buildings you will see BMW’s and even Bentleys from some of the wealthy foreign students. These units average 400 to 500 square feet and do not lack for anything. They have beautiful teak furniture, granite counter tops, stainless appliances and washer and dryers. The units are designed with space saving features including pull-down beds, or futons, tables and desks that fold, and appliances that are hidden or very small.
More Features of Micro Apartments
Where are micro apartments starting to catch on? Larger cties in Hong Kong, Japan, Europe, and North America. They can provide a win/win for both renters as well as developers and landlords. Why? Well, the landlords get the highest rent per square foot and tenants that are more affluent and always pay the rent.
The renters usually win by getting an apartment with all the bells and whistles and comforts. They love that they can just go out the lobby door and within their own block find boutique shops, mini markets, fast food and gourmet restaurants. Even though the cost per square foot can be higher, quite often the units are small enough to still save renters money on utilities. More often than not, these units come fully furnished.
One development company that built a high- rise micro unit building in a high rent San Francisco sub-market says that his firm had a realization that it could offer lower priced apartments than the competition by building smaller. In exchange they obtained a much higher rent per square foot.
4 Benefits of Micro Apartments for Renters:
1. Can actually be more affordable than larger units in the same high end area.
2. Living in a micro apartment often means that you have a likelihood of lowering the negative impact environmentally.
3. You can usually walk or bike to what you need.
4. Public Transportation is right outside your front door.
Benefits of Micro Apartments for Developers:
1. Lowering cost of construction per unit
2. Also helping the environment
3. They potentially are providing a need to affluent young people
4. Much higher net income based on the size and location of the property
My client in Seattle also built a mid-high rise micro apartment building has 86, 276 square feet studio apartments that rent for $1,850 per month, as well as two bedroom apartments that are 550 square feet for $2,750 a month. This is such a benefit for Seattle that has a housing shortage.
History of Micro Apartments
The concept of micro apartments is not new. It has been a topic that has held attention for two decades. It is related to a movement referred to as the tiny house movement. It is also referred to as small-space-living. In these movements, people are looking to down size and believe in the philosophy that less is better.
Small space living is not exclusive to the United States. Hong Kong has experienced a rise of 52% of living units that are a maximum of 300 square feet. It is no wonder that apartment unit prices are rising, and the size of families is getting smaller there.
How big are micro apartments? There is no set number of square feet. But generally, micro apartments are around 250 square feet to 500 square feet. Some of the time even less. In San Francisco, Developers can build micro apartments as little as 220 square feet, but they must have a kitchen, bathroom and closet in the unit.
Cities vary in how density and living arrangements are regulated. But importantly, safety and health rules are applicable in all jurisdictions. An example of these safety and health regulations is that bedrooms must have legal air and light. This means that each bedroom is required to have a window that works and it faces an area of open space or a street.
Micro Apartments for Low Income Residents
In less affluent neighborhoods, micro apartments have been proclaimed as an answer to both the homeless crisis and the affordability crisis. One advocate of micro apartments says that rents are so high, and quite a few people cannot afford them. Thus, if you can design a living space that meets the needs of the tenant, and is smaller, you can bring the price of rents down so that more people can afford to rent.
And let’s look at the homeless problem. It’s irrefutably connected to affordability and vacancy level. Sadly, nightly there are greater than one half million people who don’t have their own home to go to. Some of these people are in families with children whose chief income earner lost their job.
This problem is not getting smaller. New York and California are states with the largest concerns. The state of California had the biggest rise in homeless population of 16,136 between the years 2016 and 2017. New York had the 2nd biggest rise in homelessness with 3,151. These are chronic numbers.
Hawaii is a state that is pioneering the affordable housing problem through micro-apartments. Per capita, the State of Hawaii has the greatest rate of homelessness compared to all states in the United States. July 26, builders initiated construction of the first affordable micro apartment complex in Honolulu. It has 110 units. Apartments will average around 300 square feet and rents will range from $500 to $995 per month. These are really low rents for Honolulu.
The great news for the homeless problem is shared by a developer who is New York Based. He says that an increasing number of cities are designing micro apartment buildings and tiny houses to help solve the homeless problem.
A developer in Brooklyn, New York built a 123 unit complex of micro apartments of which 40% of them are in the category of affordable housing. The studios range from 300 to 384 square feet having rents that are market-rate net-effective ranging from $2,175 to $2,600 each month.
The Most Expensive Micro Apartments
When it comes to micro apartments, they don’t always mean small pricing. There is a new micro unit property owned by BD Hotels which has units that are a sized on the larger side of the scale. This property commands prices that are not inexpensive. Rents range between $4,350 to $6,500, and depend on the length that the customer stays.
In this property, one bedrooms range between 421 to 624 square feet. Two bedrooms range between 556 to 758 square feet.
The rent average in Manhattan for a one bedroom is $3,529 and you get 739 square feet. But, there are some really good advantages of this BD Hotel property. A big advantage is that it isn’t a big issue to be able to get an apartment to live in. It’s easy to move in and out:
1. No credit check required
2. No letter required from a former landlord
3. You don’t have to stay more than 30 days.
4. There is no traditional lease.
5. A new tenant can go online, sign an agreement of 1 page, and with a credit card make a payment.
Furthermore, there are conveniences of not having to bother with utility, phone, and cable companies. It’s all included. You walk into your apartment and it’s all set up for you. These conveniences save time, and hassle.
And you could just open the door to the BD Hotel micro apartment building, show a credit card, and in a short time have your apartment. Having these conveniences is a new model for apartment living.
The price of rent is not inexpensive. However, for short term rent, it’s less costly than most options of extended stay.
Importantly, if you live in a micro apartment, it doesn’t mean necessarily that you are passing up building amenities, and in-apartment amenities.
The Brooklyn Caesura’s micro-units have complementary Wi-Fi and Cable, a 49 inch smart TV, convertible dining tables and media cabinets. You just plug and play when you walk into the building and move in to your apartment.
By Terry Painter/President Apartment Loan Store and Business Loan Store