Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wis Tracy. You know, we did a recent
Speaker 1: episode on rent and whether the price of rent is
Speaker 1: ever going to go down? And I asked the question, like,
Speaker 1: why don't they ever build new apartment buildings for families?
Speaker 1: Totally un self interested questions from now from here on out,
Speaker 1: Now that our years of just doing supply chain episodes
Speaker 1: are going to come to an end, let's just do
Speaker 1: episodes about our own personal ground, our own personal frustration
Speaker 1: of the economy. All right, where are all the dog
Speaker 1: amenities for apartments? That's my question. That's the thing. Like,
Speaker 1: there's plenty of buildings with dog amentities. And as a
Speaker 1: you know, I have two kids, and sometimes we look
Speaker 1: at like new apartments and they're like, I want like
Speaker 1: a building with dog amentities and billiard rooms in gyms
Speaker 1: and dorman and all that stuff. But they don't make
Speaker 1: those buildings for like the actual units. And my kids
Speaker 1: don't play pool. Well, you got to teach them, no.
Speaker 1: But I think you're right. It seems like a lot
Speaker 1: of apartment buildings are geared towards young professionals. For the
Speaker 1: most part. It's studios, it's one bedrooms. Here in New York,
Speaker 1: it tends to be larger apartments that have been cut
Speaker 1: up at one point in time, and you end up
Speaker 1: with these really weird floor plans where like the bathroom
Speaker 1: is right next to the kitchen. Yeah, and it's it's
Speaker 1: not a very pleasant experience for anyone. But I think
Speaker 1: there is there is this overarching question of why are
Speaker 1: these decisions being made in the way that they're being made, right, Like,
Speaker 1: there must be some reason, And the people who are
Speaker 1: building these buildings, you know, obviously they have, you know,
Speaker 1: presumably some good business reasons, but I don't know what
Speaker 1: they are, and I find it frustrating, And I guess
Speaker 1: I'd like it to change, but I don't know, like
Speaker 1: if any like developers are going to like change their
Speaker 1: business models. For me, I think the expectation is, like,
Speaker 1: I just got to move out to the suburbs. My
Speaker 1: kids are really tired of sharing a punk bit. Okay.
Speaker 1: What I will say also is I think this is
Speaker 1: a peculiarly American problem because having lived in many other places,
Speaker 1: apartments are well designed, even in Hong Kong, where the
Speaker 1: average size of apartments tends to be incredibly small. They
Speaker 1: are designed for that tiny square footage, and so they
Speaker 1: tend to be quite functional even for families, and certainly
Speaker 1: in Europe there's much more of a culture of renting
Speaker 1: versus ownership, so that you do have families who spend
Speaker 1: decades in the same apartment building. I think you're totally
Speaker 1: right here. The basic idea is that if you live
Speaker 1: in the city in an apartment, you're young, you're single,
Speaker 1: and then if you have kids at some point, then
Speaker 1: you move out to the suburbs, and the housing stock
Speaker 1: is not made for people who would say like to
Speaker 1: stay in the city and maybe be a renter in
Speaker 1: one unit or one building for twenty years. Yeah. I
Speaker 1: think that's exactly right. All right, So what explains the
Speaker 1: state of affairs? Is there any reason to change it?
Speaker 1: We're going to be speaking to two guests I think
Speaker 1: they were both heard our last episode and then spend
Speaker 1: a couple of days sort of debating it on Twitter,
Speaker 1: and so it's like, well, why debate on Twitter when
Speaker 1: you can come in. So we're going to come talk
Speaker 1: to us. Yeah, just come talk talk to us. Rather
Speaker 1: than wasting get all in tweets. We are going to
Speaker 1: be speaking with Stephen Smith. He is the executive director
Speaker 1: at the Center for Building in North America, I think
Speaker 1: tank around construction policy. And we're also going to be
Speaker 1: speaking with Bobby Fian. He is a real estate developer
Speaker 1: and he there's all about apartment floor plans and the
Speaker 1: thinking behind the business reasons behind these decisions. So, Bobby
Speaker 1: and Stephen, thank you so much for joining us. Very
Speaker 1: glad to be here. Yeah, thanks for having me so, Steven,
Speaker 1: I'll start with you, but really, are we right? Like,
Speaker 1: let's start with is the premise that we're talking about
Speaker 1: that a lot of these new developments really aren't geared
Speaker 1: towards families? Is that correct? Yeah? I mean the typical
Speaker 1: new apartment building in the United States, the developer will
Speaker 1: try to cram in as many studios in one bedrooms
Speaker 1: as they can. You know, I think it's mostly driven
Speaker 1: by policy. You have a lot of there's a lot
Speaker 1: of planning policy that tries to encourage more family sized units,
Speaker 1: but they're really pushing against some more fundamental regulations that
Speaker 1: make it quite difficult to build family sized apartments in
Speaker 1: any sort of affordable way in not just the US,
Speaker 1: but also Canada, North America. Stephen can I ask you
Speaker 1: a quick follow up before we bring in Bobby, But
Speaker 1: why does it matter? Do we need to have families
Speaker 1: in apartments? Why can't everyone just move out to the suburbs.
Speaker 1: I mean that, you know, that's the that's the safety valve.
Speaker 1: As you know in America, you can just move out
Speaker 1: to the suburbs, and we make it quite easy to
Speaker 1: build family sized houses. So I mean, you know, does
Speaker 1: it matter? I guess you know, if you want our
Speaker 1: cities to thrive, if you want, you know, people to
Speaker 1: be able to raise families in them, you know, for
Speaker 1: environmental reasons or you know, even for some social reasons. Yeah,
Speaker 1: I would say it matters. I don't want to live
Speaker 1: in I don't want to live in the suburbs. I
Speaker 1: didn't either. I like living in Manhette. I don't want
Speaker 1: Joe to have to live in suburbs. Point. Thank you,
Speaker 1: thank you for recognizing that. All right, Bobby, all right,
Speaker 1: let's bring you in. So you come from it from
Speaker 1: the business perspective, What is like the sort of like
Speaker 1: big picture math in your view of someone builds a
Speaker 1: new apartment, they have an opportunity, they get the approvals
Speaker 1: to put down apartments on a plot of land. Why
Speaker 1: is it better to target young professionals and the types
Speaker 1: that don't need that space for children. Well, it is
Speaker 1: simple math in that smaller units generate higher rent per
Speaker 1: square foot, and that is the primary driver of returns
Speaker 1: for ground up apartments in the way that we finance
Speaker 1: them here in the United States, which is, you know,
Speaker 1: through private market capitalism, unlike other parts of the world.
Speaker 1: So in those places, someone will look at the building
Speaker 1: in their spreadsheet and they'll look at or comps from
Speaker 1: the market, and the primary way that they compare units
Speaker 1: to other units that they say, here's the rent, here's
Speaker 1: the size, here's the number of bedrooms. I want to
Speaker 1: try and make it slightly smaller. So like it's like
Speaker 1: the power of diminishing marginal turns like in reverse, right,
Speaker 1: a five hundred ninety nine square foot one bedroom will
Speaker 1: get basically the same right in a six hundred square
Speaker 1: feet So that dynamic ends up pushing all units to
Speaker 1: being smaller. That's the basic math for why realistic developers
Speaker 1: are incentivized to try and put as many of those
Speaker 1: types of units they can into the building as possible.
Speaker 1: There's a host of other things that I'd say have
Speaker 1: to do with the different timeline of incentives, but that's
Speaker 1: the largest driver. So walk us through as a real
Speaker 1: estate developer. You know, when you are considering a potential
Speaker 1: investment or a potential new project, what are the things
Speaker 1: on your spreadsheet that you're looking at? How are you
Speaker 1: making those calculations? While I like to think that I
Speaker 1: make them a little bit differ than other people, but
Speaker 1: I would say in general, what I and other people
Speaker 1: are looking at is the trends in the market to
Speaker 1: see which unit types are getting the highest rents. Those
Speaker 1: obviously are going to be within the class a new
Speaker 1: construction sub market, so you're not going to compare yourself
Speaker 1: to a pre war building unless it's been heavily upgraded.
Speaker 1: And well, i'd say it really is ends up being
Speaker 1: that simple. If there's a large problem that we have
Speaker 1: within real estate, which I hope to like advance in
Speaker 1: the future, and I hope like our industry advances, it's
Speaker 1: that the real estate data is very simplistic. Rents are
Speaker 1: extremely opaque, and things get i'd say reduced down to
Speaker 1: different unit types. There's a lot of different i'd say,
Speaker 1: like data on new housing inventory that gets added individual
Speaker 1: markets and that's almost never broken down into type, and
Speaker 1: even when it's broken down into type, it's definitely never
Speaker 1: broken down into is this three bedroom, four family or
Speaker 1: is it essentially three one bedroom suites? Those kinds of
Speaker 1: nuances are always lost in data. Yeah, that's something that
Speaker 1: came up in our kind of in our last episode
Speaker 1: on rent, which is that you know, we talk about
Speaker 1: like multifamily, et cetera, but like it's kind of meaningless.
Speaker 1: What city are they in, how many you know whatever?
Speaker 1: It is like that sort of drill down is like,
Speaker 1: you know, desert. It's not all fungible, it's not all
Speaker 1: the same. I just realized we should probably talk about
Speaker 1: what we mean by apartments meant for families, Like what
Speaker 1: exactly is it that families would like to see here?
Speaker 1: I mean, I would say fundamentally, what families want is
Speaker 1: a lot of bedrooms. And you know, Joe, like when
Speaker 1: you think about like what would you like, you'd probably like,
Speaker 1: most of all, you'd like just one extra bedroom. You
Speaker 1: don't need an extra walking closet, you probably don't need
Speaker 1: an extra bathroom. You just want one extra bedroom. So fundamentally,
Speaker 1: I think, you know, a family sized apartment might be
Speaker 1: a three bedroom, one and a half bath, maybe a
Speaker 1: three bedroom, two bath, but the second and third bedrooms
Speaker 1: they don't need walking clos that they don't need on
Speaker 1: suite bathrooms. And that's what you get in the US.
Speaker 1: And that's maybe it's not by design, but it is
Speaker 1: in some sense mandatory based on the building and zoning codes.
Speaker 1: I think we should have this. It should really just
Speaker 1: be Tracy hosting this and I should just be like
Speaker 1: the third guest. That's I have all these complaints. But clearly, Stephen,
Speaker 1: like you must view this question somewhat differently than Bobby,
Speaker 1: to identify zoning and codes as being a driver rather
Speaker 1: than this simple unit math. Yeah, I mean I would
Speaker 1: say in the United States to add an X. You know,
Speaker 1: let's say, let's imagine your typical new construction apartment. There's
Speaker 1: a long hallway in the middle of the building, and
Speaker 1: then perpendicularly a rate off of it, there's apartments, and
Speaker 1: you enter one of the apartments, and if it's a
Speaker 1: two bedroom apartment, it's designed in what someone wants called
Speaker 1: a bowling alley configuration. So you enter it, you enter
Speaker 1: in the kitchen, you're about I don't know, thirty feet
Speaker 1: from the window, probably, and there's not actually a whole
Speaker 1: lot of window space in the apartment, and it's you know,
Speaker 1: thirty feet away from you. So on the left you
Speaker 1: have a bedroom, so you know, you enter in the
Speaker 1: kitchen and then you go then you go forward and
Speaker 1: then you see like a living area, and then on
Speaker 1: the left you have a bedroom. On the right you
Speaker 1: have a bedroom and those are by the window. But
Speaker 1: what do you fill all that other space with. There's
Speaker 1: a ton of this space that would not exist in
Speaker 1: Europe or in Asia, mostly because the building is much
Speaker 1: much thicker than it would be in another country. So
Speaker 1: you know, when we think about what a family wants,
Speaker 1: they want another bedroom. In a bedroom typically you know,
Speaker 1: by codes and customs has to have a window, so
Speaker 1: you know, you want to capture that extra window space.
Speaker 1: But then you need to fill all this space, at
Speaker 1: least in the United States, and you know, this is
Speaker 1: square footage. It costs money to build, it cost money
Speaker 1: to maintain. You have to fill it with something you're
Speaker 1: probably going to fill it with, you know, bathrooms, which,
Speaker 1: as you know if anyone's ever done at home renovation,
Speaker 1: they're the most expensive part. So in the United States,
Speaker 1: when you add an extra bedroom to a two betterom
Speaker 1: apartment or a one bedroom apartment, you typically have to build,
Speaker 1: you know, just within the apartment about three hundred square
Speaker 1: feet of extra space. The bedroom itself is only about
Speaker 1: you know, ten by ten, one hundred square feet, but
Speaker 1: then you need to you know, fill all that space
Speaker 1: in the middle, whereas in other countries in Europe, Latin America,
Speaker 1: or Asia, to add the extra bedroom you might need
Speaker 1: an extra I mean, in some cases you can just
Speaker 1: add an extra hundred square feet, but maybe you'll add
Speaker 1: another one fifty two hundred, but you're adding much less
Speaker 1: space to add that bedroom. So, you know, buildings cost
Speaker 1: money based on the rent per square foot. When you
Speaker 1: rent an apartment or buy an apartment, you're probably not
Speaker 1: looking at it based on a you know, you're not
Speaker 1: looking for a number of square foot if you're looking
Speaker 1: for a number of bedrooms. Bobby, you mentioned the lack
Speaker 1: of floor planned data. What do you mean by that exactly?
Speaker 1: Because when I think of floor plans, I think that's
Speaker 1: like the one thing that is potentially available and kind
Speaker 1: of standardized across every apartment building in America. Certainly, Oh Tracy,
Speaker 1: where to begin answering that, Yes, so I'd say this
Speaker 1: is the that question has been driving me in my career,
Speaker 1: I'd say for the last like seven years and bothering me.
Speaker 1: I'd say in looking at my own Excel models, like
Speaker 1: when I've built ground up apartments, it always intensely bothered
Speaker 1: me that in Excel there was no differentiation between square footage.
Speaker 1: It's always a multiplier, like a base rent per sure
Speaker 1: multiplier depending on type, right at just like a little
Speaker 1: pivot table. If if one bedroom multiply by four square
Speaker 1: four dollars to square foot if two bedroom multiply by
Speaker 1: usually less three fifty, right, and there's no differentiation between
Speaker 1: those two. So I'd say that is something that has
Speaker 1: bothered me for a while, given that anyone who walks
Speaker 1: into a unit knows that there are seven hundred squarefret
Speaker 1: one bedrooms that are great and seven hundred squarefret one
Speaker 1: bedrooms that are a piece of junk. Right, But it
Speaker 1: has to be captured like in data somehow or else.
Speaker 1: It's like the qualitative difference. I would say, yes, qualitative,
Speaker 1: but like you have to use some sort of data
Speaker 1: analytics or some sort of data columns just to say, well,
Speaker 1: how large is I get similar things like we all
Speaker 1: know that height matters, height should increase rent. But what
Speaker 1: would be the only way to prove that, Well, you
Speaker 1: would have to go through and measure the height of
Speaker 1: every place, then equalize for all other like real estate
Speaker 1: type attributes, and then say, aha, now we know that
Speaker 1: height matters by this much, when in fact every person
Speaker 1: knows that to be true, we just don't know exactly hownswer.
Speaker 1: So I would say that the difficulty on that has
Speaker 1: been driving me and my career for a while. It's
Speaker 1: why I left a real estate development for a little
Speaker 1: while to start two different sort of technology ventures and
Speaker 1: now am in, like i'd say, the software data business
Speaker 1: around floor plan data. I was just about to ask,
Speaker 1: could you create an algorithm that takes in like data
Speaker 1: inputs and then tries to spit out I don't know,
Speaker 1: like a livability score. Well, I was just gonna say,
Speaker 1: you know, Bobby, in your Twitter bio, you have quote
Speaker 1: I don't know who made this quote, maybe you even
Speaker 1: made it up Bill James of Apartments, Bill James, of course,
Speaker 1: being the moneyball guy who famously took baseball and tried
Speaker 1: to get it out of pure sort of like subjective
Speaker 1: like yeah, that guy, that guy is good hustle and
Speaker 1: tried to put nu miracle, you know, really quantify the
Speaker 1: speed that someone could go, or how all these other things.
Speaker 1: So how do you go about sort of like taking
Speaker 1: these things that seems subjective, Yeah, that seems like good,
Speaker 1: that's nice an area, it's roomy, and try to put
Speaker 1: some like hard math behind it. So that is a
Speaker 1: self that is a self chosen moniker, and it is
Speaker 1: it is an homage too, I think like the mathematical approach,
Speaker 1: and it is also meant to me to be a
Speaker 1: reminder of how long it takes you that for those
Speaker 1: people who remember the story of Bill James, he was
Speaker 1: doing this by manually calculating things from box scores that
Speaker 1: he got in newspapers thirty forty years ago, and it
Speaker 1: took at least twenty five years for the general approach
Speaker 1: to move forward. And the other thing that I also
Speaker 1: greatly admire about that approach is that none of his
Speaker 1: particular algorithms or that meaningfloor that that good anymore. But
Speaker 1: it was the approach of saying, we're going to go
Speaker 1: through and turn the sweet science into something slightly analytical.
Speaker 1: So for me, how that works in floor plans is.
Speaker 1: As you mentioned, Tracy, there are a tremendous number of
Speaker 1: floor plans. Every apartment has one. The dimensions on them
Speaker 1: are nearly always useless because it's not always clear whether
Speaker 1: it's putting into a wall or whether it ends in
Speaker 1: the middle of the room. Sometimes the dimensions just incorrect.
Speaker 1: Sometimes they've taken room names and change them from something
Speaker 1: useful to something useless, like from bedroom to dream and
Speaker 1: some other some of the ridiculous things which so which
Speaker 1: confuses people. But my basic approach has been to build
Speaker 1: some software tools to take essentially these low resolution image
Speaker 1: files and turn them into a lot more usable pieces
Speaker 1: of data. So instead of a room or a unit
Speaker 1: being described as a seven hundred and seventy five score
Speaker 1: foot one bedroom, it would be described as there is
Speaker 1: a room that has dimensions X and y. It may
Speaker 1: or may not have a living room, it may or
Speaker 1: may not have direct access to a bathroom, and it
Speaker 1: has a closet with linear feet hanging of Z. And
Speaker 1: by breaking things down into some more pieces, then you
Speaker 1: can do some of the fairly straightforward statistical analysis on
Speaker 1: apartments to say, in an area, do people want like
Speaker 1: a kitchen that's fourteen feet or are they okay with eleven?
Speaker 1: Does someone prefer that extra foot in their bedroom or
Speaker 1: in their living room given like a fixed space. So
Speaker 1: I'd say that's where it initially started. The family oriented
Speaker 1: aspect of those apartments kind of came out of the
Speaker 1: data and saying they're all lot of apartments and many
Speaker 1: of them are not being built to these sorts of specifications.
Speaker 1: Stephen touched on some of them, which is that the
Speaker 1: size of closets in the United States is at least
Speaker 1: two to three times what is in Europe, and I'm
Speaker 1: not they're huge in Europe. We still use wardrobe, yes,
Speaker 1: like a piece of furniture that acts like, yeah, Joe's
Speaker 1: looking at no OA, I had a studio or I
Speaker 1: had a loft in the financial district. Right, So you
Speaker 1: have a rail that we're just like, we just bought
Speaker 1: this like huge sort of yeah wardrobe from Ikea that's
Speaker 1: dood like next to our TV. Basically, Stephen is absolutely
Speaker 1: right that our building form does drive a lot of
Speaker 1: this stuff. Right. So the general process for real estate
Speaker 1: development is that a developer is going to go identify
Speaker 1: piece of land and then first say go to the
Speaker 1: city and say I would like to build this approximate
Speaker 1: footprint with this many units, this money, parking spaces, this
Speaker 1: amount of like mixed use. It isn't until after the
Speaker 1: building is approved that then they'll go through and configure units,
Speaker 1: because you're not going to spend money on full architecture
Speaker 1: when you don't know the general layout. So once the
Speaker 1: building footprint is defined, then it's a matter of how
Speaker 1: do you shift around walls? How do you chop up
Speaker 1: that space into a unit mix and type that maximizes
Speaker 1: your returns. And that's why almost always small ends up
Speaker 1: like driving small, and deep ends up like really pushing
Speaker 1: them forward. And once the building is set at being
Speaker 1: like sixty five feet wide in the long direction, well,
Speaker 1: now we know the simple math, like your units are
Speaker 1: going to be about thirty feet deep. Well, then that
Speaker 1: means your smallest studio can be four hundred and fifty
Speaker 1: feet a two bedroom. You need to be what what
Speaker 1: does deep mean? Deep? So the difference the distance between
Speaker 1: one window to the other window on the other side
Speaker 1: of the Oh, so you're looking at it from the street,
Speaker 1: how far back does the whole apartment go? And it
Speaker 1: goes In the United States, it typically starts at about
Speaker 1: sixty five feet. I would say, right, well, yeah, well
Speaker 1: it depends, it depends on what market, but that is
Speaker 1: that is quite typical. That is quite typical, I would say.
Speaker 1: I mean when when we talk about you know, Bobby
Speaker 1: was talking about the built form of the building, we
Speaker 1: don't typically think about real estate as a field like
Speaker 1: education or healthcare where there's like a lot of government
Speaker 1: intervention because you know, it is all owned and developed privately.
Speaker 1: But I think we probably should. I mean, the regulatory
Speaker 1: burden is quite high in modern day society, even even
Speaker 1: outside the United States. The architect isn't really designing the building,
Speaker 1: you know, the codes are designing the building. So this
Speaker 1: this form is sort of set from the start, so
Speaker 1: there's not a ton of flexibility from the architect. And
Speaker 1: a lot of cities they put out these little diagrams
Speaker 1: of how the building should look and it's it's very
Speaker 1: very close to how it actually works. And the architect
Speaker 1: can do the finishes, they can do the interior layout
Speaker 1: of the building, but the fundamental form that is pushing you.
Speaker 1: You know, Bobby mentioned a seven hundred square foot one bedroom.
Speaker 1: I mean, that's a concept that just doesn't exist in
Speaker 1: other countries another countries, a seven hundred square foot apartment
Speaker 1: would be a two bedroom apartment. And it's not just
Speaker 1: because you know, our bedrooms are a little wider. They're
Speaker 1: a little wider. It's not just because we have a
Speaker 1: lot of more closets. We do have a lot more closets.
Speaker 1: It's because that's really the only way that you can
Speaker 1: design the building. If you want a window in the bedroom,
Speaker 1: at least that's exactly right. Right, So once the building,
Speaker 1: once the unit is thirty feet deep, having a window
Speaker 1: in the bedroom means the unit is going to meet
Speaker 1: at least be like twenty three twenty four feet wide. Right,
Speaker 1: So then basic geometry just tells you how your different
Speaker 1: units step up in size as you had bedrooms. Just
Speaker 1: to play Devil's advocate, and I know Joe says he
Speaker 1: doesn't like the suburbs. But setting Joe aside, what evidence
Speaker 1: do we have that families, you know, assuming that there
Speaker 1: were good sized apartments designed for families, what evidence do
Speaker 1: we have that families would want to stay in that
Speaker 1: kind of presumably more urban environment. Are there other factors
Speaker 1: at play where maybe people want to buy a house
Speaker 1: and build up equity. May be they want different schools,
Speaker 1: Maybe they want a garden for their kids to play in.
Speaker 1: What evidence do we have that families actually want this?
Speaker 1: Just to add on today, and I agree with I,
Speaker 1: you know, even though Tracy started at Devil's advocate question,
Speaker 1: I do wonder like, do people go to the suburbs
Speaker 1: because the houses are ye or do they go to this,
Speaker 1: you know, or do they go to the suburbs because
Speaker 1: they want the suburban lives? I mean, the rent shows
Speaker 1: you that there's the demand for it. The rent and
Speaker 1: the prices, you know, like a typical you know, family
Speaker 1: family housing unit in New York might be a townhouse,
Speaker 1: and I mean the prices are extraordinary, so you know,
Speaker 1: I would say the demand. The evidence of the demand
Speaker 1: is there is the very low vacancy rate in our
Speaker 1: cities and the high price. And you know, you look
Speaker 1: at other countries that simply allow this kind of family
Speaker 1: this you know, family oriented apartments, and you have a
Speaker 1: lot more of a culture of families, you know, living downtown.
Speaker 1: Just on that note, can you give us some examples
Speaker 1: of how other countries handle this, because I often think
Speaker 1: with the US housing market, it's really helpful to look
Speaker 1: at how other places do it because there's often such
Speaker 1: a big contrast. Yeah, So the design of a North
Speaker 1: American apartment building is very globally unique and it is
Speaker 1: what in other countries they might think of as a hotel.
Speaker 1: So you enter the building, um, you might remember it
Speaker 1: from the movie The Shining. There's a big law hallway
Speaker 1: and there's you know, there's there's apartment. Great description of
Speaker 1: American apartments. It's like The Shining. Yeah, and I mean
Speaker 1: they all look like this, and maybe the hallway will
Speaker 1: twist and turn a little, but it's going to be
Speaker 1: a long hallway. There's going to be units a rate
Speaker 1: to the left, rate to the right. On the end
Speaker 1: of the building, there might be some you know, three bedrooms,
Speaker 1: sort of reasonably sized departments because they're on the corner.
Speaker 1: In the rest of the world, let's use Europe, because
Speaker 1: the people have a lot of familiarity with it. Typically
Speaker 1: there will not be as much of this hallway space,
Speaker 1: if at all. So typically what it'll be is it'll
Speaker 1: be you'll enter the building, there'll be a single staircase
Speaker 1: till you know, if there's an elevator, it'll probably be
Speaker 1: a little smaller. It'll definitely be a little smaller and
Speaker 1: it'll go you know, you'll so you'll have this vertical
Speaker 1: core of the stair case in the elevator and then
Speaker 1: a raid off of it. There will be likely between
Speaker 1: one and four, but probably two apartments on either side,
Speaker 1: left and right. So each building, or at least little
Speaker 1: core of a larger building, will you know, let's say
Speaker 1: it's a six story building, pretty typical height, there will
Speaker 1: be you know, twelve apartments in the building. There will
Speaker 1: not you know, it's not going to be a you know,
Speaker 1: one hundred unit building. There's not going to be a
Speaker 1: long hallway and these units If if you're an American
Speaker 1: or if you're familiar with New York, I'm really describing
Speaker 1: a tenement, so you know, these units still go from
Speaker 1: the front of the building to the back of the building.
Speaker 1: In the rest of the world, the building will typically
Speaker 1: be maybe forty five feet deep and the apartment will
Speaker 1: go from front to back. So in general, there will
Speaker 1: be a much higher ratio of surface area to volume,
Speaker 1: which is to say, you're going to have more windows.
Speaker 1: So in seven hundred square feet you're going to have
Speaker 1: two bedrooms. In nine hundred square feet you're going to
Speaker 1: have three bedrooms, whereas in the US those are one
Speaker 1: and two better apartments. In the rest of the world,
Speaker 1: you're much more likely to have windows in the kitchen,
Speaker 1: windows in the bathroom. You just have more windows generally,
Speaker 1: and much more flexibility with laying out the laying out
Speaker 1: the plan. It's funny because if someone asked me what
Speaker 1: the differences between a European and apartment building in the US,
Speaker 1: apartment building is like, I don't know what I would
Speaker 1: have said, But then the moment you said, like, oh,
Speaker 1: those tiny elevators and that single central core staircase, I
Speaker 1: was like, oh yeah, and I haven't spent that much
Speaker 1: time traveling in Europe, but I like immediately got that.
Speaker 1: It's like random Arabians have stayed in like Italy or Paris.
Speaker 1: It's not just Europe, it's every you know from you know,
Speaker 1: Daka to Switzerland, you know, from Bladesha, Switzerland. This is
Speaker 1: this is how an apartment building is built. And this
Speaker 1: was how an apartment building was built in America too.
Speaker 1: If you think about like a Chicago three flat, or
Speaker 1: in New York City tenement, or you know one of
Speaker 1: those little two story four unit buildings in Los Angeles,
Speaker 1: this is how apartment buildings by humans are designed. It's
Speaker 1: just in North America we've taken it a different direction. Well,
Speaker 1: can I ask why has that happened? It's a combination
Speaker 1: of I would say two things. It's a combination of
Speaker 1: our very very unique approach to fire safety rules, which
Speaker 1: are in turn driven by our obsession with building buildings
Speaker 1: out of lightwood frame. And then it's also, I would say,
Speaker 1: our obsession with the way our society looks down on
Speaker 1: apartments and confines them to very small pieces of the city.
Speaker 1: So let's take the second one. First. To have an
Speaker 1: apartment that has a lot of windows, you tend to
Speaker 1: need a little bit more land. And in America, you know,
Speaker 1: we have these competing planners, have these competing mandates. On
Speaker 1: the one hand, there's clearly a housing crisis, and you know,
Speaker 1: especially in our cities, we need to allow more apartments.
Speaker 1: On the other hand, you know, the local politics are
Speaker 1: such that nobody wants to live near an apartment. Nobody
Speaker 1: wants it near them, so we confine them to these loud,
Speaker 1: polluted arterial streets. So if you think about a new
Speaker 1: apartment building, it's probably not being built on a leafy
Speaker 1: side street. With a lot of land. So all you know,
Speaker 1: most of our land is locked up in single family
Speaker 1: houses and it would be pretty trivial to demolish them
Speaker 1: and build something new, but that's not really allowed. So
Speaker 1: in this attempt to try to fit so many apartments
Speaker 1: on such a small piece of land, the buildings just
Speaker 1: get like really thick, really deep. And this is a
Speaker 1: good way of cramming in a lot of square footage.
Speaker 1: It's not a great way of cramming in a lot
Speaker 1: of bedrooms. Then, on the other side of things, the
Speaker 1: United States has a very unique approach to construction. Something
Speaker 1: that foreigners are very surprised about when they watch American
Speaker 1: TV series. Is you punch through the wall and I
Speaker 1: mean yeah, drywall. Yeah, you punch through the wall and
Speaker 1: there's nothing there. It's built out of wood and drywall.
Speaker 1: So we've traditionally allowed people to build out of lightwood frame,
Speaker 1: whereas in the rest of the world, again from Bangladesh
Speaker 1: to Switzerland, you build the building out of concrete. So
Speaker 1: as a result, the buildings traditionally have been quite flammable.
Speaker 1: America has a very high rate of fire deaths. You're
Speaker 1: much more likely in America than in any other advanced
Speaker 1: country in a lot of far less advanced countries to
Speaker 1: die in a building than in other countries. So we
Speaker 1: have all these mitigations. One of the mitigations, probably the
Speaker 1: most important one in driving apartment design is two interior staircases.
Speaker 1: There has to be two ways to get out of
Speaker 1: the building by staircase. This is very unique globally in
Speaker 1: other countries. This is really reserved for skyscrapers. So if
Speaker 1: you need two entrances and since nine to eleven, in
Speaker 1: most of the country, except ironically New York, they have
Speaker 1: to be the term is remote from each other. They
Speaker 1: have to be at a distance. So if every apartment
Speaker 1: needs to get out two ways and they need to
Speaker 1: be a distance from each other, well, the most logical
Speaker 1: thing to do is have this long haul hotel light
Speaker 1: corridor in the middle. So that's the simple version of
Speaker 1: what's driving all of this. So, Bobby, as a developer
Speaker 1: and as a floor plan expert floor plan knower, you know,
Speaker 1: how much does that resonate And when you're thinking about
Speaker 1: a new building, how much do you feel constrained ultimately
Speaker 1: in design by some of the rules that Stephen's been
Speaker 1: talking about. Oh completely, but I would say in sports
Speaker 1: the way that I sort of approach it as these
Speaker 1: are the stricters, like I want to try and make
Speaker 1: things as good as possible within within the bounds of that,
Speaker 1: within the bounds of those limitations. So Steven's absolutely right
Speaker 1: that those are the design limitations. I'd say that there
Speaker 1: were some other ones too that have to do with capital.
Speaker 1: It is much more efficient to build a two hundred
Speaker 1: and fifty unit apartment building double loaded, very quickly and
Speaker 1: inexpensive out of wood. And that is one thing that
Speaker 1: especially across the United States, we have done very well,
Speaker 1: very very very quickly in Texas in the suburbs, and
Speaker 1: those projects are the ones that institutional investors want to
Speaker 1: put their money and their tip. A large developer is
Speaker 1: typically not going to waste their time doing any project
Speaker 1: that's under two hundred two hundred and fifty apartments, both
Speaker 1: from the equity side and just it is just as
Speaker 1: complicated to build ten as it is to build two
Speaker 1: hundred and fifty. So I think you mentioned before we
Speaker 1: started recording this, but that you yourself are investing in
Speaker 1: more projects that are explicitly designed for families. How is
Speaker 1: that process like, how is it in terms of identifying
Speaker 1: those projects, how common is it that they're being proposed?
Speaker 1: And then secondly, what are the different calculations that you
Speaker 1: would make for a family oriented project versus something you know,
Speaker 1: I guess more normal for an apartment building. Well, I
Speaker 1: think about it from a product perspective, which is another
Speaker 1: area where I believe that real estate is lacking. The
Speaker 1: product philosophy. Your most apartments, certainly in the United States,
Speaker 1: is to offend as few people as possible. That's why
Speaker 1: there's three different color or palettes of cabinet Country, and
Speaker 1: that's exactly right, right, everyone uses the same light. There's
Speaker 1: there's so that's a problem in general. So I would
Speaker 1: say the way that I start by approaching and is saying,
Speaker 1: I want to build something that is a product that
Speaker 1: will actually delight families, which to me means it's going
Speaker 1: to need to be a smaller project. A two hundred
Speaker 1: and fifty unite project with kids would be unpleasant for everybody.
Speaker 1: And I'd also say that I think there's a lot
Speaker 1: of diversity within family and family oriented, which is why
Speaker 1: I sort of use that phrase. I think that I
Speaker 1: think that it needs to be a product that is
Speaker 1: appealing to someone who doesn't not just people who have kids.
Speaker 1: If there was a problem that Another problem that I'd
Speaker 1: say within US apartments is that it's fairly monolithic. In turn,
Speaker 1: who goes after right? Like I like billiard rooms, but
Speaker 1: every building has, every rooming has a billiard room, Like
Speaker 1: everyone has like a rock climbing wall here in New York,
Speaker 1: they all have these. They all fit these same things.
Speaker 1: So what I want to do is build something different.
Speaker 1: How does that different differentiate from a typical building. It's
Speaker 1: going to be smaller, it's going to be about six
Speaker 1: two one hundred units. That is good for me, and
Speaker 1: that I am not competing with, say the Trammel Crow
Speaker 1: and Avalon Bays of the world, who would eat my
Speaker 1: lunch operationally? And the difference in the type again fitting
Speaker 1: within the double loaded quarter or means. One of the
Speaker 1: metrics that I track in floor plants is something that's
Speaker 1: called like bedroom ratio, which is the amount of square
Speaker 1: footage that is behind bedroom doors, and the other one
Speaker 1: is the ratio of the size of bedroom one to
Speaker 1: bedroom two or bedroom one to bedroom three. So for
Speaker 1: a family, the main thing that I look at is
Speaker 1: reducing the size of those second and third bedrooms. Yeah, right,
Speaker 1: because if it's like two roommates, then presumably they want
Speaker 1: like the same size, whereas like, well, if it's kids,
Speaker 1: they can have a small they don't need a masterom bedroom,
Speaker 1: and they don't need an on sweet bath. Yeah that
Speaker 1: might be nice, but when you're talking about like an
Speaker 1: urban or expensive suburban markets bases at a premium, and
Speaker 1: so it's all about making the best change you can.
Speaker 1: So this might be one for either Bobby or Stephen.
Speaker 1: But you know, Stephen talked a little bit about the
Speaker 1: regulations in the US and how that impacts building designs,
Speaker 1: specifically around fire safety. Are there additional regulations that kick
Speaker 1: in if you know you're going to be having small
Speaker 1: children living in a space. And the reason I ask
Speaker 1: that is because I know in New York if you
Speaker 1: live in an apartment, every once in a while you
Speaker 1: get a form from the city asking you to fill
Speaker 1: it out. If you have small children in that apartment,
Speaker 1: they need to put like bars on the windows so
Speaker 1: they don't fall out and other safety measures. Is that
Speaker 1: a consideration or a thing that comes into play generally,
Speaker 1: not with a new construction. Okay, so there are regulations
Speaker 1: for children around things like lead. For older buildings, owners
Speaker 1: have to continually certify. I don't have to have a
Speaker 1: higher level of certification if there are people under certain
Speaker 1: age living there. But for new construction those safety things,
Speaker 1: I'm not aware of any building regulations or construction regulations
Speaker 1: that are different for who occupies it. In fact, regulations
Speaker 1: like the FHA require that anyone be allowed to rent
Speaker 1: any unit that is there. Now, design will practically discriminate, right,
Speaker 1: Like if you were design a three hundred and seventy
Speaker 1: five square foot studio, a family I suppose could rent it,
Speaker 1: but they're not going to, right Yeah, I mean even
Speaker 1: for these big apartments. I mean the reason they don't
Speaker 1: build them is if they did build them, you couldn't
Speaker 1: afford it. Yeah, Like Joe, you know you're looking for
Speaker 1: a bitter apartment. I'm sure you're seeing them. They're just
Speaker 1: out of your price, right, Yeah, that's what we see
Speaker 1: is like, Okay, there would be the one bedroom, the studio,
Speaker 1: the one bedroom, maybe the two bedroom. And if you
Speaker 1: you know, I don't even need three bedrooms, I just
Speaker 1: need too But if you like go to that next level,
Speaker 1: then a balloon so like the unit to do theoretically
Speaker 1: exist they're just like so much more expensive. Well, you know,
Speaker 1: again this gets to some of these questions about families,
Speaker 1: like really want to live in cities, etc. But if
Speaker 1: there's one sort of like policy change or prescription that
Speaker 1: could really prove the family orientedness of the new housing
Speaker 1: stock in New York, what would it be. I'm gonna
Speaker 1: cheat and give you two. Okay, so well, actually in
Speaker 1: New York, I can just give you one. We need
Speaker 1: to zone more land for apartments. And I think when
Speaker 1: people think of land, they think of big corn fields.
Speaker 1: But most urban land is tied up in single family houses,
Speaker 1: so you know, a single family you know, including in
Speaker 1: New York City. So you know, we think about New
Speaker 1: York City as you know Brownstone, Brooklyn and Manhattan. But
Speaker 1: you know, the truth is a lot of New York
Speaker 1: is Staten Island out of Queens, out out of Brooklyn.
Speaker 1: So more of that land, more of those lots need
Speaker 1: to be zoned for you know, low and mid rise apartments.
Speaker 1: And then some things that need to be changed a
Speaker 1: little in New York in a lot in other cities
Speaker 1: is we need to change our building code so that
Speaker 1: you can build a building with a single staircase. New
Speaker 1: York you can in other places you can so maybe
Speaker 1: make the construction material more resistant to fire, and then
Speaker 1: if you do that you can achieve similar out with
Speaker 1: points of egress. You could do that. Although you know,
Speaker 1: a generation or so ago the United States started requiring
Speaker 1: sprinklers in all buildings, which is globally extremely unique. You
Speaker 1: won't find a sprinkler outside of a high rise skyscraper
Speaker 1: in Switzerland, so, you know, at least in theory, and
Speaker 1: I think in practice, a sprinkler should provide the same
Speaker 1: fire protection that you know, just building the whole thing
Speaker 1: out of concrete does. So I think, frankly, the buildings
Speaker 1: are already I mean, the real fire traps in America
Speaker 1: are the single family homes. You can still build a
Speaker 1: single family home pretty much everywhere out of lightwood frame
Speaker 1: and in most places, especially the places that actually build
Speaker 1: them without a sprinkler system. So in America we you know,
Speaker 1: we we we treat apartments as these you know, dangerous things,
Speaker 1: and you know single family houses you know this, you know,
Speaker 1: just a right and normal thing. But the truth is
Speaker 1: our single family houses are quite dangerous. So I think
Speaker 1: if we if we applied similar standards, either brought the
Speaker 1: standards of the single family homes up or I wouldn't
Speaker 1: do this, but you know, bring this the standards of
Speaker 1: the apartments down, then I think would make a lot
Speaker 1: more sense to build apartments. Like right now, it makes
Speaker 1: a lot more sense for families to live in single
Speaker 1: family houses, partly because they're you know, they're built as firetops,
Speaker 1: so they're a lot cheaper. Bobby, what would you like
Speaker 1: to see when it comes to maybe encouraging more family
Speaker 1: oriented apartments in the US. I think developers have the
Speaker 1: tools to do it. Currently. It is going to require
Speaker 1: creative partnerships with the right tent, with the right kind
Speaker 1: of capital. Short term private equity is going to be
Speaker 1: a lot more difficult in financing these kinds of projects,
Speaker 1: but they work, they pencil. Mainly, it requires, i'd say,
Speaker 1: developers being willing to do the chicken in the egg.
Speaker 1: I fundamentally believe that families do want to live in cities,
Speaker 1: taking too sort of like product oriented approach to thinking
Speaker 1: about real estate and demand for like normal consumer goods,
Speaker 1: like it goes through fads and changes all the time.
Speaker 1: Is there do you perceive a fundamental change in demand?
Speaker 1: Are there more families like mine? That want to stay
Speaker 1: in the urban core, and is this something that's different
Speaker 1: in near twenty twenty three than might have been in
Speaker 1: the year, say, nineteen ninety three. It's not something that
Speaker 1: I can show yet, It's only something I can know
Speaker 1: as being someone who's lived in the city and knowing
Speaker 1: the number of people who are meeting people in the city,
Speaker 1: falling in love with the city, like they have kids here.
Speaker 1: They move after those things occur, So I would say,
Speaker 1: at the moment, the option isn't there for them to stay.
Speaker 1: So I mean, I believe and I'm willing to bet on,
Speaker 1: and I think other developers should too, that that will work.
Speaker 1: People in the United States are delaying having families or
Speaker 1: there are having fewer kids, but they most people still
Speaker 1: eventually make that decision, and that product is not being
Speaker 1: built at all, which to me is even just as
Speaker 1: an investor, is a compelling thesis. If even just a
Speaker 1: small percentage of people staying, then at the moment they
Speaker 1: have no new choices. Bobby and Stephen, I feel like
Speaker 1: we could get there's so many sort of branches of
Speaker 1: this conversation that we could take super fascinating. I'd love
Speaker 1: to have you both back on sometime. Got to leave
Speaker 1: it there. But seriously, like there's so many interesting like
Speaker 1: aspects of the housing conversation we could take this. So
Speaker 1: I appreciate you both coming on the podcast. Thank you
Speaker 1: for having me. Thank you. Yeah, that was great, guys,
Speaker 1: thank you so much. So Tracy, I mean, I know
Speaker 1: you really want me to move to the suburbisode that
Speaker 1: you can have more space in New York, etc. But
Speaker 1: maybe there's an option, maybe it could have it that
Speaker 1: we could both stay here. I just want more dog
Speaker 1: amenage department building. Maybe we could have both. No, you
Speaker 1: mentioned branches from that episode. And one thing that has
Speaker 1: always sort of confused me is why in the US
Speaker 1: the standard like building material is that yeah, that really
Speaker 1: thin like would framing. I've never understood that. And sometimes
Speaker 1: when you see especially single family houses going up to
Speaker 1: Steven's point and you see the framing for those, it
Speaker 1: really looks like nothing, and it does look like they
Speaker 1: could a either go up in flames very quickly or
Speaker 1: be just fall over with like one good gust of wind. Yeah.
Speaker 1: You know, another aspect of this that we didn't get into.
Speaker 1: It's just like you know, homeownership culture or rental culture
Speaker 1: and whether the perception that you don't need to build
Speaker 1: as well for rental. Maybe the problem is really just
Speaker 1: like you know, capitalism and this need for everyone to
Speaker 1: own a home, or the distortionary impacts of this idea
Speaker 1: that everyone needs to own a home. Yeah, there's that,
Speaker 1: But to me, the big like, yeah, the thing that
Speaker 1: resonates is this idea that choice of building materials leads
Speaker 1: to the need for additional regulation, which leads to design
Speaker 1: choices that are not necessarily optimal. Well, and then you know,
Speaker 1: you know, I don't know, I think we talked about
Speaker 1: this and I haven't found it. There's like this famous
Speaker 1: like post that someone put on medium about why like
Speaker 1: all cars will look this same Yeah, and I think
Speaker 1: it's just because they all have to design for the
Speaker 1: same safety and fuel standards rags, and so there really
Speaker 1: is like sort of one optimal design. And it kind
Speaker 1: of sounds like, you know, to some extent, that's the
Speaker 1: same thing that's happened with homes, which is that if
Speaker 1: mainly you're sort of like feeling like you're optimizing for
Speaker 1: one sort of set of regulations, then you do just
Speaker 1: get these endless gray buildings, and then the only places
Speaker 1: where you can exercise. Some creativity is in the rock
Speaker 1: climbing wall, and I want there too. I want to,
Speaker 1: you know, I also want to rock climbing ball. I'm
Speaker 1: not against these things. How regulation ruined design? That's a
Speaker 1: good topic. Okay, shall we leave it there. Let's leave
Speaker 1: it there. This has been another episode of the Odd
Speaker 1: Thoughts podcast. I'm Tracy Allaway. You can follow me on
Speaker 1: Twitter at Tracy Alloway, and I'm Joe Wisenthal. You could
Speaker 1: follow me on Twitter at the Stalwart. Follow our guests
Speaker 1: Bobby Fiance He's at Bobby Yon. Stephen tweets under the
Speaker 1: handle at market Urbanism. Follow our producers Carmen Rodriguez at
Speaker 1: Carmen Rman and Dash Bennett at dashbot. And check out
Speaker 1: all of our podcasts in Bloomberg under the handle at podcasts.
Speaker 1: And for more odd Lots content, go to Bloomberg dot
Speaker 1: com slash odd Lots, where we have blog posts, transcripts,
Speaker 1: and a news limb that comes out every Friday. Go
Speaker 1: there and side up. Thanks for listening.