Gafcon has teamed up with economist Alan Nevin to form a new venture to help apartment building owners determine if it makes sense economically to renovate their property.
Nevin and Gafcon’s Multifamily Renovations team will give owners an estimated cost on renovations, present options on various levels of renovation and actually do the work if desired.
Their analysis is meant to help property owners determine which upgrades and repairs will produce a return on investment in the form of rent increases, lower tenant turnover, reduced maintenance costs and lower utility bills, according to Ron Takaki, vice president of operations for Gafcon.
“This service takes existing C and B-level multifamily properties with about 75 to 250 units and improves them to a class level that achieves an optimal return on investment without substantial modifications or renovations,” Takaki said.
By serving as a one-stop shop, the idea is that Gafcon and Nevin will allow landlords to hire a full renovation team under one contract instead of having separate contracts with architects, financial estimators, builders and project managers, Takaki said.
“My role is when they find a project, to determine if it’s appropriate for renovation, to the extent that it may or may not be in a neighborhood that could justify major increases in rent,” Nevin said.
With renovations typically costing $50,000 to $100,000 per apartment, “You have to be able to raise your rents rather substantially,” Nevin said.
“If you put that much money in, are you going to be able to get it back? Then you have to figure out exactly what you’re going to do to that project, what level of quality you have to put in and whether you can add things like a washer/dryer or a garage or others that have a very good payback. Then, once I come up with what I think would be an appropriate remodeling, then they go ahead and cost it out. From there, we’ll know if the remodeling makes sense.”
Location is a key factor.
“What you want to be is in a neighborhood where they’ve built some new projects and they’re getting very high rents,” Nevin said. “You want to be coming in right behind them.”
Among projects under way is the $30 million renovation of Mission Ridge Apartments in Encinitas.
The 35-year-old complex with 196 apartments is being upgraded in response to the demand for luxury housing in the area.
Gafcon and Nevin have estimated that the improvements will result in a 30% increase in revenue for the owner of the complex, Urschel Development Corp.
“They hadn’t done any significant renovations to the property since it was built in 1985,” Takaki said. “Basically, they did enough to rent the properties. They upgraded some of the appliances, they did some renovation work with new carpets, nothing significant.”
Nevin pegged the apartments as a C-level complex that could be brought up to an A-minus level to lead to the substantial improvement in revenue.
Recommended renovations included adding garages, improving amenities and upgrading bathrooms and kitchens, new roofing, upgrading the sewer system and installing new fire protection systems, adding air conditioning, and reconfiguring floor plans to provide built-in office space, Takaki said.
“We’re replacing all the appliances and cabinetry, new doors, new windows,” Takaki said.
“Gafcon has been beyond successful in getting our plans started the right way, leading us through a pre-construction phase that has built a solid foundation for our project’s success,” said Bill Schott, vice president of operations for Urschel Development.
With demand for apartments soaring, more and more property owners are looking to renovate, and most of the apartment complexes in San Diego are ripe for renovation, Nevin said.
“The average project in this county is 50-years-old,” Nevin said. “There are dozens, maybe hundreds of projects that need renovation.”