Fighting the Childless City

Armed with the belief that cities can be great places to raise children, a handful of residential developers are building urban apartments explicitly designed for families with kids.

Thesis Driven is a newsletter series that dives deep into emerging themes and real estate operating models by featuring a handful of GPs executing on each theme. The deep dives will give an investor enough context to understand the trend as well as opportunities for personal introductions to relevant GPs actively executing on opportunities. This week’s theme is family-oriented apartments.

For the past decade, urban multifamily developers have considered larger, family-sized units a burden: a low-ROI mandate foisted on them by overzealous regulators or conservative lenders. Family-sized units were a weight on the pro forma, offering lower rent and NOI per foot than studios or 1-bedroom apartments. Furthermore, many developers were skeptical of the demand for family-sized units. After all, they argued, any family (who could afford it) would prefer a suburban single-family home with a yard and multi-car garage over an urban apartment.

But some developers are rethinking this conventional wisdom, arguing that units that are appropriately sized—and designed—for families can even generate a rent premium over smaller apartments. Today, we’ll meet a few GPs designing urban apartments specifically for families with a specific eye toward project-level returns, zoning challenges, and opportunities.