From co-working spaces to roof decks and bike parking, there are a
myriad of ways for older buildings to creatively use common areas to
attract tenants at higher rents.
Over the past 10 years, the San Francisco market has seen an influx of new construction apartment units. Many of these have substantial amenities that older rent controlled buildings cannot provide because of a variety of structural and physical limitations. Typical new building perks include workout facilities, swimming pools, front desk concierge and common area work spaces. So how do owners of older buildings compete for—and win—new tenants for their properties? To answer this question, I visited a few properties managed by Brick +Timber and talked with Thomas Ghaney, their Director of Property Management, and rental specialist Danny Liu, a lease specialist in San Francisco.
Terrence Jones: What is the first step you take to help clients improve their “rent-ability” appeal?
Thomas Ghaney: We do a site assessment for our owners to see what factors can be improved or modernized. During this review we look for underutilized areas like backyards, roof decks and common areas, and work through scenarios that we think drive value.
In the television shows about flipping houses they often refer to what a buyer sees as “curb appeal.” We like to call what a prospective renter sees as “rent appeal” or “rent-ability.” With older rent controlled buildings, owners typically focus on spending money on the renovation of units only at turnover. We have seen a positive return when improving both the units and the common areas. It is a longer term, more sustainable program that increases the value of the underlying building.
Jones: What seems to be the lowest hanging fruit or easiest option you see your clients implement to get results?
Ghaney: Not every building has a back yard, but when there is one, we have found that improving this space for tenant use has the most impact. At a building on Grove Street in NOPA, we took a large cluttered back yard, cleared it out, and added a clean brick paver pattern with a large area of artificial grass. The net result was a very appealing space for tenants to work from laptops at home, have BBQ gatherings with friends or sunbathe.
Jones: Do you have other value-added common space strategies?
Ghaney: We had significant success at a property on Scott Street in Pacific Heights where we improved an unused roof deck. We added a guard rail and artificial grass that made it very appealing. Before the renovation, the roof deck felt dangerous and uninviting. Now, when we show a vacant unit, the first stop is a trip to the roof to see the view of the park across the street. The building shows so well, we have a waitlist for renters. In other words, there are tenants who want to live there so much, they are willing to wait for the next vacancy.
Jones: Many of the buildings in San Francisco do not have a back yard or roof deck option. In those cases, what can you do to the common areas to enhance the “rent-ability”?
Ghaney: We like to start with the floors. Many of the buildings our clients own or buy have loud and unfriendly ceramic tiles from the 1970s. We found success replacing those tiles with modern, patterned carpet. For example, in Nob Hill at a Sacramento Street property, we used a hexagon-patterned carpet which gave it a modern feel. Tenants and prospective tenants have commented on how it provides a calming, quieter entryway. Another example is replacing older tile with engineered wood or quiet tiles. Clean, quiet and interesting seems to be what today’s renter is seeking and we deliver that to them.
Jones: What are some other touches you find tenants like?
Ghaney: We have an in-house designer who comes up with decorative wall options that have proven popular. Our designer will present several ways for the owner to add color, mixed materials and art to the walls. Depending on the building, we have had success with artificial grass walls, individual walls with wood, interesting paint patterns and, in some cases, new art in existing Victorian frames. It really depends on the owner’s taste and budget. The mix of modern and classic seems to bring in the best rents for owners.
Jones: What is a common area improvement you find to be the most surprising?
Ghaney: San Francisco has grown in many ways over the last 10 years. One unfortunate side effect of its success is the increase in crime. We find the installation of a modern entry system has a surprisingly high return on investment for owners when it comes to attracting renters. With the newer entry systems, tenants can grant access to Amazon, for example, while at work and they can allow their guests in through the main door using their mobile phone while they are still in their unit. It is amazing how many older entry systems in San Francisco do not have this ability. Put simply, tenants do not like walking down three flights of stairs to let friends into the building.
Jones: What are you seeing in the market when it comes to common areas and shared space?
Danny Liu: One area that seems obvious, but many owners miss, is the creation of an onsite laundry facility. In today’s fast paced San Francisco life, time is valuable to tenants. If they can get their laundry done in the building without having to go to a laundry facility or drop off and pick up laundry, it is a great use of an underutilized common area. This convenience translates to higher rents.
Jones: What are other good uses for common space?
Liu: Although it is not quite common space, we are finding owners in bike friendly areas that are getting more rent-ability by offering bike storage. In some cases, they are offering this at no additional charge. It is amazing to see a culture at a building emerge around not having a car. Of course, this is not practical at every building. This tends to be a phenomenon in the Mission where commuting down Market Street and back does not mean cycling up a big hill to get home at the end of the day.
Jones: You rent both older and new units. Where do you see the biggest difference when it comes to shared space.
Liu: As you may know, older San Francisco buildings were built before the advent of WIFI and cell phones. New buildings were designed to accommodate new technology and that is a big factor in what is available to convert to shared work space. A new building can have significant work space that feels like a coffee shop with WIFI and an espresso coffee bar, but an older building often has nothing more than a small lobby. Older buildings were built at a time when maximizing the square footage within the units was the goal of the architect, not creating co-working space. That being said, we do see some older buildings providing building-wide WIFI. That WIFI can be used in backyards and on roof decks and that can create versions of co-working spaces.
Jones: Do you see any areas where older buildings beat out the newer buildings?
Liu: That may be one of the biggest secrets of older buildings—the common areas that tenants share outside their buildings. If you notice, many of the newer buildings in San Francisco are in areas like South of Market and Mission Bay. One thing that is missing in these new mega buildings is a lack of access to public parks. How can you beat Mission Dolores Park on a sunny day, or seeing Alamo Square’s postcard houses every day, or walking your dog at Chrissy Field, or checking out Huntington Park across from the Fairmont with an out-of-town guest, or …the list goes on and on. With an iPad or a computer and a cell phone with a hot spot, the space across the street from your building is a great common area where much of San Francisco life exists.
If you can evaluate with a creative eye, you can see there are many options for common shared spaces in older buildings in San Francisco.
Terrence Jones is a Senior Broker Associate at Zephyr Commercial and specializes in the marketing and sale of investment properties. His business specialty is San Francisco rent-controlled apartments. He has extensive experience with sale of properties and 1031 exchanges purchases. He can be contacted at 415-786-2216 or by email at terence@TerrenceJonesSF.com.