In recent years, officials in many of the nation’s most expensive housing markets have embraced “micro apartments” as a way to provide less-expensive housing for young renters. They are betting that the tiny apartments — generally the size of a hotel room for about half the rent of a full-size apartment — will attract young professionals and recent college graduates, helping to revitalize city centers.
Micro apartments are about 300 square feet or smaller, though some developers and cities define them as large as 500 square feet. They sometimes lack a separate kitchen or bedroom. Developers believe that single people in their 20s and 30s will accept less space in exchange for lower rent, even in cities where rent levels aren’t especially lofty. Nationwide, rents have soared as the supply of apartments hasn’t kept pace with demand.
“It may take a while, but CMBS conduit loans will be perfect for these projects,” commented Michael D. Sneden, Executive Vice President of ValueXpress. “Fannie Mae is not fond of small unit properties, preferring a mix of studios, 1-bedroom and 2-bedroom layouts. They also have rent/square foot (sf) and value/unit criteria that “micro apartments” may violate. Rents of $1,200 per month for a 300 sf unit in New York City ($4.00/sf) will be common, which is higher than Fannie Mae standards.”
CMBS conduit lending does not have similar restrictions on unit size, unit mix, rent/sf or value/unit; therefore, these loans will become very attractive for “micro apartment” buildings as they are developed and stabilized.