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The 10 Immutable Laws of Condominium Marketing

The 10 Immutable Laws of Condominium Marketing

With more than three decades of marketing condominiums, I feel as though I can speak with some degree of authority on the subject.  However, this is not a testament to what I’ve done right all of those years, but a function of all the things that I’ve done wrong and, hopefully, learned from along the way.  In the interest of helping you avoid the metaphorical re-invention of the wheel (clue: think round), I’m delighted to share the first 5 of the 10 immutable laws of condominium marketing.  The final 5 will appear in the next blog…

1. Pre-Sales Are Your Friend

Obtaining pre-sales used to be relatively optional in the days before the end of the world as we once knew it, i.e. prior to the near total collapse of the economy and the real estate market in October of 2008.  During those heady days when marketing often meant order-taking, a relatively modest degree of equity could secure financing for speculative development projects, large condominium projects included.  The result, in the absence of a pre-sale requirement, was often a roll of the dice in terms of whether the product was a match for the market.  My personal experience is that pre-sales, even if not a lender-based requirement, are invaluable in terms of providing the ultimate marketing study regarding pricing, unit design and, of course, the location of a given project.  The streets of Boston are currently littered with struggling condominium developments that didn’t need to achieve a certain level of pre-sales and, equally important, locked-in Purchase & Sale Agreements with sizable, non-refundable deposits that are lost if the Buyer walks from the transaction.  Don’t think that you’re smarter than the market and that, “If I build it, they will come.”  That kind of hubris is the most basic blueprint for disaster for any large condominium project.

2. Your Pricing Strategy Will Make Or Break Your Project

This is such basic advise that it’s hard to believe that many developers go the other way, i.e. they start their pricing at or higher than the pricing that their pro forma suggests.   If the market and the location are hot and if the project has been well conceived, this method of pricing can work just fine – if you like gambling instead of planning.  It’s a mistake to think that you’ve hit a home run before the project hits the market and, once you’re committed to a pricing schedule, you’re locked in relative to the ultimate public perception of the project.  If, on the other hand, you start your pricing a bit lower than suggested by your pro forma, there are two distinct advantages: 1) You can create a sense of urgency by noting that prices will be going up after a certain bench mark is reached; and 2) You can keep the prices lower if you’ve incorrectly judged the strength of the market or the strength of your project.  The alternative, pricing the units higher to start, leaves nowhere to go but down.  And once initial prices are lowered, it takes no time at all for the word to get out that the project is in trouble.  The developer, in that instance, is unlikely to see offers at anything near the asking price for the duration of the project.  Momentum works in both directions.

3. Overlook Product Differentiation At Your Own Peril

You are rarely alone in the marketplace, whether you’re developing apartment or condominium complexes.  Even as I write this, there are more than 6000 apartment units in the pipeline at the Boston Redevelopment Authority…and, in a few years, there will likely be a similar number of condominium units in the permitting process.  Thus, it makes sense to determine in advance those aspects of your project that make it special (your “unique selling proposition”) and then to determine how to best communicate that difference to the marketplace.   Product differentiation can take many forms, from a pricing advantage to a superior location.  None of this matters much unless the renting or buying public is aware of your development and, equally important, taughthow to think about it in a crowded arena of competing voices.  Much of this can be accomplished through the primary branding of the project, inclusive of the name, the logo, the brochure, other collateral materials and the overall look and nature of the advertising and public relations.   Sometimes it means branding the host neighborhood as well as the project itself. Considering all of this as an afterthought and nothing more than a marketing line item in the project budget is a sure way of ensuring disaster.

4. Local Brokers Are Your Best Friend Or Your Worst Enemy

Many marketers of multifamily projects attempt to maximize the take from their commissions by preventing participation from the greater brokerage community.  This is a HUGE mistake and a classic example of being “penny-wise and pound-foolish” (I made that up, but feel free to use it with proper attribution).  There is an army of brokers out there and you risk alienating all of them with such a policy.  Instead of inviting their participation for a reasonable co-commission and having this army tout the benefits of a particular project, to their customers, shutting them out creates an army of detractors whose opinion matters – especially in the age of web-based marketing.   It’s important to remember that, while brokerage commissions are critically important to anyone working on the marketing of the project, they constitute a very small part of the developer’s pro forma.  I’ve seen projects fail because marketers were greedy and did not properly prioritize the most important aspect of their obligation to any developer, i.e., making certain that everything is done to maximize the chances of selling out the project for the projected prices in the least amount of time possible.

Speaking of being greedy…

5. Don’t Be Greedy

Here I can speak from direct, albeit embarrassing experience.  I once developed and marketed a 240-unit condominium project that was 80% pre-sold prior to beginning construction.  Because of the success of the pre-sale campaign and in order to maximize my profit, I made the decision to hold almost 50 Penthouses off the market under the theory that, once the building was constructed, these units would command far more money than the price point at which we would have sold them on a pre-sale basis.  And then God punished me for being greedy.   President Reagan changed the tax laws related to buying units as tax shelters, the entire condominium market disappeared along with the investor market, and I was left with…50 unsold penthouses.   The lesson here is that you never know. It’s very easy to outsmart yourself and, as I did way back then, learn the valuable lesson that the real estate market is fluid and subject to change at a moment’s notice.

6. Furnished Models Are More Than Just…Furnished Models

There’s a reason why more and more single-family brokerages are turning to “staging,” the practice of furnishing their listings along with de-cluttering them.  The simple truth is that most buyers are unable to see the possibilities when faced with a blank canvass or, worse, a cluttered canvas.  The same holds true for multi-family apartments and condominiums. Not only does a furnished model convey some ideas for how the spaces in a unit might be made to work for the target market but, equally important, a furnished model can be a valuable tool for “correcting” the architectural design flaws inherent to some residences.  Furnishings can expand the perceived space of any room since, counter-intuitively, they make a space seem larger than if the space was presented with nothing in it.  That illusion of size can be further enhanced with mirrored walls that not only expand the space but, if placed to reflect existing windows, can bring light to areas of a residence that would otherwise appear dark.  Finally, a furnished model is a dream generator, allowing buyers to imagine their own furniture occupying the space of an apartment or condominium. That said, staging a model unit is not within the purview of most interior designers or, as is often the case, the developer’s wife. It is a sophisticated marketing tool that requires a marketing-oriented professional who understands the challenges and opportunities presented by a particular venue.  The idea is not to “decorate,” but to sell.

7. It’s Not Location, Location, Location…And Never Was

You’re all heard the time-honored saying, “The three most important things in real estate are location, location and location.”  I’m here to say that it’s not true.  You can have a great location but, if the market erodes, you probably have an overpriced location supporting an overpriced development.  The truth of the matter is that the three most important things in real estate are, “timing, timing and timing.”  Real estate development is the ultimate roll of the dice (except for actually rolling dice) and it’s better to be lucky than smart.  I’ve developed projects where the timing worked in my favor and I looked like a genius.  These have been more than balanced off by projects that were even better conceived that came on the market just as the market decided to tank…and that very same genius became another developer struggling to survive.  If there’s anything that I learned from the roller coaster that is the condominium market since it first emerged in 1973, it’s to anticipate a downturn.  This usually means laying off the risk despite surrendering a chunk of profit.  It’s hard to do and it flies in the face of human nature when the real estate market is heating up on almost a daily basis.  Then again, if there’s an advantage to experience, it’s recognizing that this isprecisely the time to minimize risk by taking advantage of another aspect of human nature, the desire of others to hop on a bandwagon that may be headed off a cliff.   Don’t be afraid to leave something on the table…while you still have a table.

8. Build For Your Market, Not For Yourself

When we started planning Charing Cross, we did something quite unique in order to determine the best unit type for our target market, young professionals and young professionals with children.  I would characterize it as a web-based focus group.  We developed four different plan types that would characterize the “bread and butter” units for Charing Cross, i.e. the most prevalent two-bedroom unit type in the project.  These unit types included the following, all of which contained the same amount of square footage:  a two-level unit with a living room, dining room and kitchen on one level and two bedrooms on the upper level; a one level, two-bedroom unit with a corridor leading to a small bedroom and a large master bedroom; and a one level, two-bedroom unit with two master bedroom suites flanking the living room, dining room and kitchen.  We then sent all of the plans to friends of my children who were the same demographic as our target market and they, in turn, sent the plans to their friends.  I was certain that the overwhelming favorite would be the duplex unit.  And I was dead wrong.  The overwhelming choice was the plan with the two master bedroom suites, sometimes called a “Florida” plan.  Apparently, most of our target market preferred a unit that could accommodate a baby, a den, a home office or a roommate, all with some degree of privacy from the master bedroom.  I nearly designed the project “for myself” and, more likely than not, the target market would have informed me of that during the pre-sale period.  At that point, there’s nothing to do but blame my partners, the architect, the stars…

9. Shop The Competition…and Shop Yourself

I guarantee you that the folks from Ford have studied every aspect of Honda and have trained their salespeople how to sell against them.  Then again, one wonders if this really happened during the 1970s when I suggested that Ford and GM put a Mercedes and a BMW at the front of the room and copy it.  And maybe it doesn’t happen now.  Well, you’re not Ford or GM and nobody is going to bail you out of your bad decisions.  Inflation might, but that’s about it.  Your best guarantee of success is to shop the competition to determine how their location compares to your own, how their unit layouts compare to your own, how their amenity package compares to your own and, most important, to take all of that information and teach your own salespeople how to sell against the competition.  The best time to do this, however, is prior to the start of construction since there’s still time to make changes in the design, the unit layout and mix, and the palette of amenities that you hope will induce a purchase decision.   After your project is built, and if your location, layouts and amenities suffer in comparison to your competition, you’ll be left with a “value” sell…and the developer will be unhappy that his marketing company didn’t think about the competition as project profits fall precipitously.  The other side of the coin is to have some people whom you trust shop your own development.  I’ve always been amazed that salespeople whom I thought were great, when left to their own devices, failed to convey the information that was drummed into them during training sessions.  On the other hand, there is little as gratifying to a marketer than to receive positive feedback from your “shopper.”  Either way, it’s information that’s too valuable to ignore since your salespeople are the “tip of the spear” (Sorry, USMC) in terms of whether a sale is made or not.   You may not hit a home run every time but, from years of coaching baseball, I’ve learned that you play like you practice…and shopping is a key part of the practice for selling condominiums.

10. The 10 Immutable Laws Of Condominium Marketing are…Mutating.

And who amongst us doesn’t like a surprise ending?  Well, the truth is that most of the traditional laws of condominium and apartment marketing, while not obsolete, have changed dramatically over the past few years.  Web-based marketing, replete with “inbound” marketing techniques such as blogs, tweets, and FB usage, have changed the way marketers have done business for the first time since the ice age (“Check out this cave!  What a view!”).  It’s a brave new world of metrics and analytics and to ignore the new immutable laws of condominium marketing is to ignore most of your buyers.   IGNITION Residential, our multifamily marketing company, is marrying this brave new world with over three decades of traditional marketing experience and we will be in the forefront of creating, implementing and, of course, writing about The 10 NEW Immutable Laws of Condominium Marketing.   Stay tuned…

 

What do you think? Anything we missed or anything that doesn’t really belong on this list?

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About Merrill Diamond

Merrill H. Diamond is a trained architect and a founding principal of IGNITION Residential, an interdisciplinary multi-family marketing firm. He is also a founding partner of Diamond/Sinacori, a Boston-based real estate development company founded in 1978. Mr. Diamond has been the recipient of numerous local and national awards for both development and marketing. He has served as both a gubernatorial appointee to the Massachusetts Historical Commission and to the Senate Special Commission on Historic Preservation. In addition, Mr. Diamond has been named “Entrepreneur of the Year” by Arthur Young / “Venture Magazine;” “Merchant Builder of the Year” by the National Association of Homebuilders (NAHB), and one of “America’s Most Valuable People” by “USA Today".

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