3-2-1: How To Build A New Village Center, A Chain Retailer That Plays Nice, An Idea To Reduce Rents, & More
Week #14
Happy Thursday —
Here are 3 things from others, 2 things from me, and 1 picture related to incremental real estate development.
Enjoy!
3 THINGS FROM OTHERS
I.
The 6,500-person town of South Hill, NY recently embarked on a journey to establish a new village center and neighborhood. And, man, is their vision compelling.
A few days ago, the designers of the effort led a community-wide charrette where they presented the initial plan and solicited public feedback. Driven by principles of walkability, attainability, and connectedness, the new village center plan meshes retail, office, areas with varying housing densities, municipal buildings, a museum, and many types of missing middle housing.
The road to get here though has taken time, starting in 2014 with the adoption of a comprehensive town plan. Then, there was the long process to develop the form-based code adopted in 2020. This latest village center concept is the culmination of 10+ years of community-driven change and planning.
The charrette was recorded and uploaded to YouTube (see below). It’s a long watch but it contains valuable insights into the process of creating a new village center that are relevant to anyone interested in incremental development. I’d recommend skipping to the 30-minute mark where the designers start to dig into the intentionality and rationale behind every nuance of the proposed plan—including street curvature and width, the creation of terminating vistas, and placement of small retail enclaves throughout.
As one of the designers succinctly puts it:
Our goal is not to be a place where people are driving through, but to be a place worthy of driving to.
II.
I never thought I’d give props to a chain retailer, but Kinney Drugs really deserves a shoutout here.
Tucked in cozily on the main corridor of downtown Montpelier, VT, the store (above) somehow—as if a trick of the imagination—seems to willingly collaborate with its surroundings.
With only 100 stores, Kinney Drugs is small compared to the other members of the dollar mafia that seems to pervade every rural community. They’re a traditional drugstore that seems to target a similar audience by selling less expensive, more attainable household goods. They do, however, also integrate a pharmacy into their stores—an invaluable service to the community at large.
That said, the typical Kinney Drugs architecture is styled in a manner similar to what we are graced with locally in Bradford, VT (below)—a soulless box reminiscent of some perverse Dollar General fan club.
Good for Kinney, though, for showing us that good design by chain retailers is possible. Sure, they probably didn’t build that beautiful old building. But, more importantly, they found a way to successfully do business within the context of the surrounding built environment and add value to the community without constructing a 15,000+ SF monstrosity.
I’m sure much of their decision to play so nicely within the historic district was more a reaction to zoning restrictions than it was placemaking aspirations. But, hey, if that’s what it takes, then so be it.
III.
👇 It made my day that the leadership of a visionary $140M development to create a new car-free community uses the same low-tech Powerpoint method that I do for drawing out preliminary site plans.
2 THINGS FROM ME
I.
I’ve spent several days now at 61 N Pleasant with a chainsaw pretending to be a logger while cutting down trees and overgrowth around the building. It’s amazing what 15 years of neglect can do to a property—I’ve already hauled 22.5 cubic yards of brush off site and I’m not even halfway through taming the jungle.
But, after weeks of sitting behind a laptop building financial models, writing grants, and discussing plans, it’s been great to be able to get outside and actually do some real work.
While I was there, I took some pictures of the interior. I uploaded them to G-Drive but here are a few teasers:
TLC absolutely required. And a lot of it, at that.
As a part of the renovation process, I submitted an application to the planning board to convert the existing 3-family building into seven apartments. Here are the proposed floor plans:
The smallest apartment (Apartment 1) is 300 SF and actually exists in that configuration today. I know there are critics out there (likely some folks reading this) that think 300 SF is an abomination of an apartment—too small and not rentable. But I’m just not sold.
Apartment 1 is currently rented (it was at the time of purchase) and it apparently has actually been the easiest unit to fill since it was created years ago. And that’s despite its mediocre condition. Sure, the smaller size is not everyone’s cup of tea but where else are you going to find a $600 apartment? With construction costs where they are today, the predominate path to providing (non-subsidized) affordable housing is always going to be via units with smaller dimensions.
Not that I’m justifying the mediocre conditions of the unit. It blows my mind that the previous owner rented the building out in its current state. I’m more so pointing out that the demand for small units is there regardless of the quality of the unit. And, if the quality of the unit is improved, then you’d expect the demand to only increase.
Quick side note that the existing tenant won’t be displaced. We’ll work with them based on their needs and renovate when possible, perhaps even relocating them into one of the same-sized units on the second floor if approved by the planning board. Also, the photos above and in the link are of vacant units.
I’ve lived in several 300 SF apartments now and have nothing but good things to say about the experience. There are plenty of creative ways to make them work (taller ceilings, built-in shelving, supplemental storage, etc.). Again, not everyone’s preference. But if it’s a way to house people more affordably, then it’s absolutely worth a shot in my opinion.
If you’re not convinced that it can be successful and pulled off in an elegant manner, then you’ll want to check out Never Too Small’s YouTube channel.
II.
I have a theory that the rental real estate industry is handling apartment utilities all backwards. I think the current way of segmenting utilities drives inefficiencies and, if addressed, could lead to a win-win scenario for both residents and owners. And it’s something I want to prove out using 501 Main and 61 N Pleasant.
Hear me out.
A typical breakdown of multi-family utility responsibilities looks like this in my area:
Hot water → owner
Heat → owner
Water → owner
Trash → owner
Lawn care → owner
Snow removal → owner
Internet → resident
Electricity → can be owner or resident
And often, as a result, 50% of a owner’s annual operating expenses might be allocated to utilities (using data I’ve collected in my area).
These expenses are all passed off to residents in some form or another, typically by way of inflated rents. Not necessarily because owners are greedy (though some are) but because they have to cover all their costs—namely, utilities, maintenance, repairs, property management, property taxes, insurance, and debt service. Rental prices are (or, at least, should be) set based on operating costs plus some reasonable margin—just like any other business.
Incentive is a powerful motive. When an owner covers a utility expense, there’s little incentive for a resident to be efficient with that utility’s usage. I’ve rented my primary residence for the past 6 years (6 different apartments), and I can attest to being a bit more extravagant—perhaps even wasteful—than I would have been if the financial onus was on me: leaving the heat on when gone for the weekend, letting the water run when doing dishes, opening windows in dead of winter. Not out of spite, more so just blissful ignorance born from not having to pay for consumption.
Based on observations within my network, this seems to be consistent for those that rent versus own. Anecdotal, no doubt. But this is still somewhat of a thought experiment.
So what if, instead, owners covered utilities that benefited from economies of scale while residents covered utilities that were charged based on consumption. Along the lines of:
An owner can realistically expect to spend less by bundling on trash, lawn care, snow removal, and internet than the individual residents. For example, EC Fiber—our local provider that brands itself as “Vermont’s Wicked-Fast Internet”—offers 25 Mbps to individual households for $72 per month whereas an owner could secure 800 Mbps for an entire building for just $250 per month (or 300 Mbps for $160 per month in smaller buildings). By now, internet should be considered an essential service and it doesn’t really matter how much of that the residents use—the price is fixed on a monthly basis. For a 5-unit building, the owner could secure an internet contract at less than half the price that individual residents would pay ($32 vs $72 per month per unit). That’s $40 per month in savings for the residents and their internet would be 2x as fast.
When exploring true cost of apartment living, it’s important to look holistically at the combined expense of rent plus utilities. There’s often a disconnect here where residents make rental decisions based on combined expenses and owners make listing decisions based on rent alone.
With that in mind, we know hot water, heat, electricity, and water costs are all variable. If residents were responsible for these, then they could realistically expect to pay lower rents (presumably reduced by the amount the owner was initially paying for those utilities). That way, any measures that residents took to reduce consumption on their end would be captured as additional savings for the resident. As a result, residents would have the financial incentive to be conservative and mindful of their utility usage.
Furthermore, if owners were to install high efficiency systems, appliances, and fixtures for each apartment, then savings for residents would be even better.
You might be asking, well why would any owner go through the trouble of installing these better systems? Well, for existing buildings currently in use, one-off retrofits probably don’t make a lot of sense given the required renovations would be extremely disruptive to residents.
But for new construction and gut renovation projects, the opportunity becomes more tangible. As long as you get the insulation and air sealing right, then pivoting to an all-electric high performance building isn’t actually a much bigger lift financially (based on actual pricing for 501 Main). Swapping copper baseboard runs, ductwork, flue venting, and fuel storage for additional electric circuits and mini split refrigerant lines is a tradeoff I’d take any day.
Not only does it make the apartments more competitive on the market (residents have more “buying power” since total costs have effectively been lowered) but perhaps there’s a win-win scenario where most of the cost savings is passed onto the resident and the owner is able to capture a bit as well. Again, something to incentivize.
Last point here. Some people might be thinking all electric? That sounds expensive from an operational standpoint. How are residents going to be able to afford that?
I’ll address that with a real example that I’m exploring for my projects. Take electric resistive water heaters—the apparent scourge of apartment living due to their insanely high operating costs. At least, it’s a common belief tossed around that many people seem to take for granted. Long story short, in working out how to operationalize my proposed method of utility splitting, I wanted to look at all options where I could install a separate water heater per apartment (the most effective way to submeter utilities).
I’m going to get a little technical with hot water heating for a second. And apologies in advance if it’s overly math-y. But I think it’s an important discovery worth sharing for anyone that owns or rents a place to live.
To start, here’s a quick breakdown of fuel costs in my area:
British Thermal Units (BTUs) and kilowatt hours (kWh) are both measures of energy. That energy is then converted into heat within the hot water system.
The big takeaway here is that, for an equivalent amount of energy (not accounting for combustion efficiencies), electricity is currently 28% more expensive than propane and 218% more expensive than #2 heating oil.
Setting aside heating oil since that’s a rare fuel source for hot water heaters (and one that requires expensive equipment), let’s consider two hot water systems:
The classic Home Depot special that you find in many rental basements: a 40-gallon Rheem burning liquid propane that retails for $629; and,
The Stiebel Eltron Tempra 24: a tankless (3 gallons per minute) electric resistive water heater that retails for $600.
For the purposes of this example, these are both sized for studio or one-bedroom apartments with one bathroom.
Without getting into derivations, here are the equations for estimating annual operating expenses for hot water heaters (from energy.gov):
Annual water heating cost for propane = 41045 BTU / EF * Unit Cost of Fuel$ per BTU * 365
Annual water heating cost for electricity = 12.03 kWh / EF * Unit Cost of Fuel$ per kWh * 365
Where EF = the system’s energy factor provided by the manufacturer.
The formulas above are based on an average hot water use of 64 gallons per day for a 3-person household. To scale down to one person (30 gallons per day), we’d multiply the result by 30/64.
Ok, so here are the results:
Voila!
Wait what? You actually get a cost savings when using electric hot water?
Apparently, yes. The great thing about numbers is that they don’t lie. Granted, there are endless systems out there that could be analyzed. I just chose two more popular ones.
Even if you use a high-efficiency propane heater, you’re still looking at an EF of 0.82, which nets out about the same annual cost as the electric Stiebel Eltron.
Not to mention the Stiebel Eltron only measures 5” x 17” x 15”, which makes placing a row of them in a basement (or even individually in apartments) much more feasible.
The whole point of this ramble is really two-fold (and kudos to you if you’re still reading):
People are quick to take misguided opinions as fact so it doesn’t hurt to do your own due diligence. Case in point: electric resistive hot water heaters seem to be a good alternative to traditional propane systems. At least in my area. In other areas, that will depend on fuel options and costs.
There’s real value that’s being lost to utility providers in the form of inefficiencies and waste that could be recaptured as lower rent for residents if addressed properly. It just requires a bit of creative thinking and adjustment to the current model of managing utilities on the owner side.
1 PICTURE
I.
The Mews Homes are one of the best examples of new missing middle housing development. Affordable, walkable neighborhoods that just look good and feel right.
📍 South Jordan, Utah
From: Opticos Design
That’s it for today. Thanks for reading. If you haven’t yet, go ahead and subscribe here:
About me: I’m Jonah Richard, a small-scale real estate developer in Vermont. With my company, Village Ventures, I’m currently getting my hands dirty redeveloping mixed-use buildings along Main Street while trying to pick apart and replicate what makes other communities thrive.
Follow me on Twitter or connect with me on LinkedIn for more things related to incremental real estate development, smart growth, and creating great places.
Nice read Jonah. Really liked the utility and water heater breakdown. A couple thoughts.
1. Using small instant water heaters makes the tenants life easier if you can remove the hassle of signing up for gas all together by having electric heat pumps, etc. Sharing internet makes a lot of sense.
2. Check your peak load on those water heaters. If you have three of your tenants showering at once, are you going to trip your main breaker? Those things are power hungry when on.
Nice posting. The Valley News had an article about the Woodstock ice rink - the design engineer's comment was that if you can make a hockey rink net zero, you can make anything net zero.