What’s the Rent? HartfordBusinessJournal.com

Published June 30, 2014

Photo | Steve Laschever

Photo | Steve Laschever
TRIO Properties LLC in Glastonbury manages hundreds of apartments and other properties in and outside Connecticut, an edge in helping landlord-clients fashion rents in the downtown Hartford and suburban markets, Executive Vice President Jeffrey T. Ferony says.
Developers of the 193-unit On The Plaza apartments, background, at what used to be a hotel relied on Jeff Ferony’s firm, TRIO Properties, to compute its rents.

Apartment development is a high-level transaction in which most vendors involved can easily value their products and services, from the interest rates and fees charged by lenders to architects’ and contractors’ commissions and municipalities’ building and permitting fees.

Not so clear, and more difficult, is the landlords’ task of computing a reasonable rent. Before the units are ready for occupancy, landlords huddle with their property managers and financial advisers to calculate rents that won’t overprice their units yet maximizes cash flow to cover carrying costs and other overhead, plus a reasonable profit margin.

The explosion of new apartment development in the Hartford region and statewide is creating a fresh wave of demand for realty experts who can help developer-landlords price their product for maximum return.

And the financial stakes are significant.

Rents too high could force urban and suburban renters to look elsewhere, sticking landlords with vacant units that eat away at cash flows and take time to fill. Price too low, and owners leave money on the table, ebbing their ability to maximize investment returns, landlords and property managers say.

Take TRIO Properties LLC in Glastonbury, the firm redevelopers converting downtown Hartford’s Sonesta Hotel into On The Plaza hired to consult — and perhaps eventually manage — the 193-unit, mid-rise apartments when the first units go on the market later this year.

On The Plaza’s New York co-developer, Jeff Ravetz of Girona Ventures, says he and his Wonder Works Construction partner, Joseph Klaynberg, know precisely what investment return they need and expect from their project but are holding that close to the vest.

But Ravetz says his team hired TRIO to advise them in setting Plaza’s rents. Plaza’s units are tentatively priced, Ravetz said, at about $2 a foot, making one of its 650-square-foot studios set to come on the market at $1,300 a month. Downtown Hartford apartment rents average $1,005 per month for a one-bedroom to $1,972 for a two-bed unit, according to ApartmentGuide.com.

TRIO is expert at managing multifamily housing that individuals and investors own — about 1,700 statewide, mostly in the Hartford area. To calculate rents for On The Plaza and other apartments, TRIO takes that projected rent and surveys it against what others are charging for comparable space and market conditions and likely demand, to get a realistic rent with which landlord and tenant can live.

Jeffrey T. Ferony, TRIO’s executive vice president, says the method for calculating an ideal rent rests somewhere between art and science.

“You’ll know, if you show that unit 10 times and you don’t secure a lease, then you’ll know the unit is priced too high,” Ferony said. “But if [units] go too fast, then you’re probably priced too low. It’s really not a guessing game.”

To calculate rents for On The Plaza and other properties, TRIO takes into account factors such as the number of units in and rents for neighboring apartments, and comparable amenities like a pool, washer-dryer connections and garages, Ferony said.

Typically, newly built or renovated apartments command higher rents than older complexes. Proximity to transportation arteries, schools, cultural amenities and employment centers, too, are other pieces to the pricing puzzle, he said.

In today’s tight apartment market, Ferony says TRIO and other property managers may survey market rents weekly, sometimes daily, to fine-tune pricing.

Landlords also weigh, among other things, how many tenants intend to move in within 30 days, the number of renewals coming due, and the volume of inquiries from tenant-prospects vs. current vacancies. Special software lets large-scale property managers track those elements and churn out sophisticated pricing models for their holdings. TRIO doesn’t use such software, Ferony said.

Another of TRIO’s clients is Farmington Valley developer Ron Janeczko, who earlier this year opened the 88-unit Mill Commons Apartments, where rents run from $1,700 to $2,700 for its one- and two-bedroom units.

The same deliberative process went into setting Mill Commons’ rents, Janeczko said Chris Nelson have developed.

“It’s a little bit of experimentation that’s involved,” Janeczko said.

Yet, with all but one of Mill Commons’ units leased, he admits to a bit of nagging concern that perhaps the units were priced too cheaply, and that Janeczko may have “left money on the table.”

“I don’t think anyone can answer that question, if you’re doing it right,” Janeczko said.

In downtown Hartford, the Hartford 21 apartment high-rise presently is the rent pacesetter for existing units as well as the 750 units being carved out of space in some of the center city’s oldest office buildings, Ferony said.

The reasons, he says, are obvious: Not only are they relatively new, but a 24-hour concierge service, covered parking, and big footprints to go with their scenic vistas — amenities being replicated in only a handful of the conversions downtown, he said. Hartford 21’s owner Northland Investment Corp. didn’t respond to requests for comment.

Ferony said all of TRIO’s apartment-landlord clients are experiencing some of the highest occupancy levels in recent years, in the 94 percent to 96 percent range — considered “full occupancy” in most U.S. markets.

Yet, when all is said and done, the laws of supply and demand still have the greatest bearing on what landlords can collect in rent, experts say. For now, landlords enjoy the upper hand as demand rises for rentals, brought on by record foreclosure levels in Connecticut and nationally, and an aging populace’s desire for a lifestyle without mowing or shoveling.

“When demand outpaces supply, there will always be upward pressure on rents,” Ferony said.

CORRECTION: Developer Chris Nelson’s first name was incorrect in an earlier online version of this story.