The next big thing in apartment living may be very small – that is, micro. But for the real estate owners who develop them, the returns the may be huge.
Buildings in some of the most expensive cities in America now offer units so small that ordinances had to be waived just to allow them.
In New York City’s Kips Bay, a development called Carmel Place opened in November offering 55 studio units renting between $2,540 and $2,750 per month. In a neighborhood where studios can go for as high as $4,000 per month, that can seem like a bargain.
Except the units at Carmel Place are smaller than 400 square feet, the minimum size allowed by New York City regulations since 1987. Some apartments there are just 265 square feet. To put that in perspective, a full-size mattress is 28 square feet.
The developers of Carmel Place received a waiver allowing these apartments, which were prefabricated in Brooklyn and trucked to Manhattan, to be built.
Despite the high rents these micro-apartments command, their business model can be found on the opposite end of the income scale. Single room occupancy (SRO) housing provides similar living space for those who are just barely getting by and nearly homeless.
But in these new micro-apartment buildings, renters are lured to live in such tight quarters with luxury amenities, including gyms, spas, swimming pools, roof decks, and lounges. A concierge service provides hotel-style housekeeping, food shopping, and dry cleaning pickup and delivery.
“What sets them apart from regular buildings is that you can leave your apartment – as tiny as it is – and have a lot to do without leaving the building,” said Constantine Valhouli, founder of real estate data firm NeighborhoodX.
And what makes them very appealing to real estate developers is the amount of money that can be squeezed from such a small space. The average rent for all of Kips Bay comes out to $58.29 per square foot annually, according to NeighboorhoodX. But the owners of Carmel Place are seeing rents at $106.67 per square foot—“more expensive than the nicest neighborhood in Manhattan, the West Village,” Valhouli notes.
Tiny living isn't just in New York, either. Boston also has a spate of micro-apartment developments commanding rents that are more than 50% their neighborhood average on a square-footage basis.
“From a development perspective, you couldn't be happier,” said Valhouli, who sees the trend expanding elsewhere. “Anyplace where developer can get that waiver put through,” he said. “Cities like Los Angeles, San Francisco, Washington D.C., and Chicago, at least. And I think it will actually take off a lot more from there.”
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