The first of 72 million Echo Boomers are already in the market for apartments.

By Michael Fickes

Did you feel the earth move last year?

Nearly four million young people jumped from university campuses into the job market. English majors and other liberal arts graduates grabbed up jobs with starting salaries averaging more than $30,000. Computer science majors and engineering grads had their pick of jobs paying starting salaries of more than $40,000. And despite the recent slowdown in the economy, most of the 2001 graduates are still finding well-paying positions.

And this is just the beginning. Another four million will show up for their first day of work following their graduation this year. Add four more million next year and the year after that and so on for the next 15 to 20 years. In all, 70 to 72 million people will enter the job market during this period.

Demographers call this the Echo Boom generation. Much larger than the preceding demographic cohort of 45 to 50 million people—referred to as Generation X—the Echo Boom rivals the 76-million strong post-war Baby Boom generation in size. And why shouldn't it? Echo Boomers are the children of the Baby Boomers, hence their designation as the Echo.

Flush with cash from well-paying jobs, Echoes are making their first independent decisions about personal business right now. They are selecting cars, computers, wardrobes and, of course, apartments.

Demography and Geography

A number of apartment REITs find themselves well-positioned to earn the business of the Echo generation. Among these are AvalonBay Communities, Inc., Alexandria, VA, Charles E. Smith Residential Realty, Arlington, VA, BRE Properties, Inc., San Francisco, CA, and Essex Property Trust, Inc., Palo Alto, CA.

Like most apartment companies, these businesses have traditionally focused a significant part of their marketing attention on the young, because many in the young adult segment of the population rent apartments.

But these REITs also find themselves in one or another ideal geographical location at just the right time. According to American Demographics magazine ("The Baby Boomlet Goes to College," June, 1999), just under two-thirds of Echo Boomers hail from California, Florida and Texas. The Eastern Seaboard plus Arizona and Nevada also host a substantial number of Echo Boomers.

On the other hand, 12 states including Idaho, Illinois, Minnesota, Oregon and Utah will feel a quick Echo Boom followed by a bust; nine states including Alabama, Indiana, Michigan, Ohio and West Virginia will likely receive a virtual pass from the Echo Boomers who either don't live there or will move away.

AvalonBay Communities occupies a geographic high-ground when it comes to the Echo Boom. At the end of 2000, the company owned or had an interest in 138 communities with 40,631 apartments in Northern and Southern California, the Northeast, the Mid-Atlantic, the Midwest and Northwest. By and large, this is Echo Boom country. And Echo Boomers have caught AvalonBay's attention.

"Strategically we're focused on the changing demographics in the apartment sector," says Bryce Blair, president and CEO of AvalonBay. "One hundred percent of the growth in the rental market is coming from the under-25 Echo Boom segment and the over-45 Baby Boom segment. The middle segment of the rental market, the 25 to 45 Baby Bust generation, is flat to declining."

Not only is the Baby Bust generation smaller than the generations ahead and behind, Busters have also reached the age when the propensity to purchase is higher than the propensity to rent, continues Blair.

Overall, Blair defines the current primary growth market of renters as bipolar, young and old.

The strategic implications of this market, according to Blair, call for flexibility in both products and services—something for the young, something for the old.

"Just because the middle segment isn't growing, however, doesn't mean it's small," Blair cautions. "It remains the largest segment of the market. So we're not in any way abandoning the middle-aged market. The point is that growth in terms of the future will come at the younger and older ends of the market."

Tactical Decisions

What does this strategic conclusion mean to the day-to-day business tactics of an apartment REIT?

It raises questions that have different answers for different owners. Does an owner or developer build physically different communities for each of these market segments? What features and amenities do the growing Echo Boomer and Baby Boomer markets want?

"At AvalonBay, we have not developed specific products targeted to the Echo Boomer," says Blair. "We think that this may be an opportunity, but it has risks. When you develop something targeted to one segment to the exclusion of others, you become vulnerable."

AvalonBay communities target all segments of the market, while recognizing in the design of its communities the need for a broad range of floor plans and amenities that appeal to Echo Boomers.

This targeting decision arises from the nature of AvalonBay's existing business. The company, for example, generally serves a population averaging 38 years in age and earning $85,000 a year.

The arrival of Echo Boomers has led the company to modify its communities to appeal to this younger segment, which may be well-off in terms of starting salaries, but by no means matches the wealth of established Baby Boomers.

New Looks For Apartment Communities

Amenities geared toward the younger, hipper Echo Boomers and the established Baby Boomers are now being included in the plans of most apartment developers.

"Clearly some Echo Boomers can pay rent side by side with well-off Baby Boomers," Blair says. "But it would be a mistake to think of Echo Boomers as just as well off as this older group. In addition, Echo Boomers and Baby Boomers have different priorities.

"Baby Boomers want more space because they have accumulated more things. Security is important to this group, too.

"Echo Boomers in many cases want less space. They might want studio apartments. They have no furniture, so they may want furnished apartments. Or they might want a three-bedroom, three-bath apartment home to accommodate roommates.

"All of this leads to different floor-plans and apartment amenities."

AvalonBay offers a wide range of apartments, from 1,500 square foot units with crown molding, granite countertops and attached garages to roommate floor plans with two master bedroom suites and bathrooms.

Charles E. Smith Residential Realty also offers a host of floor plans. Alban Towers, for example, an historic building in Washington, D.C., comprises 226 units and more than 40 different floor plans.

While that level of variety isn't typical, according to company executives, the concept of multiple floor plans lies at the heart of an effective marketing appeal to the traditional 20-something market (today's arriving Echo Boomers) and the non-traditional market of 45 to 60 year olds (today's Baby Boomers).

Like AvalonBay's communities, those owned by Charles E. Smith happen to be located in Echo Boom territory. The company owns approximately 60 properties, mostly mid- and high-rise, containing more than 30,000 apartments in Washington, D.C., Northern Virginia, Chicago, Boston and Southeast Florida.

Interestingly, this holds true even in light of the recent merger announcement between Charles E. Smith and Archstone Communities Trust. Based in Denver, Archstone operates 194 garden apartment communities with 59,650 units in California, Florida, Texas, the Northeast and the Midwest.

In fact, the merger will consolidate Echo Boom markets within the new company's geographical span.

"Archstone brings a significant presence in California to the merger," says Susan Goyette, director of communications for Charles E. Smith. "With Archstone's presence in this market, it will make it easier to bring in our high-rise strategy."

When the merger is completed in September, Charles E. Smith will serve as the high-rise division of the combined company.

"It's not as if we said here's the Echo Boom market, and we want to target them as customers," says Matthew McCormick, executive vice president of Charles E. Smith. Then again, the company has had a long-standing urban strategy focused on markets where Echo Boomers happen to be.

"The products we're developing in these urban locations, by the nature of their design and amenities, happen to attract Echo Boomers, as well as Generation Xers," continues McCormick. "These products have also proven popular among empty nesters and older professionals.

"While we don't have a strategy for tailoring apartment communities to Echo Boomers, the product we have always made now attracts those customers."

What is it that attracts Echo Boomers? According to McCormick, it's a mix of common and apartment amenities, including multiple floor plans.

Common Area and Apartment Amenities

Amenities important to today's renters include common area offerings as well as apartment features.

Common area features at Charles E. Smith properties generally include state-of-the-art leasing centers, health spas and business and conference centers.

The company's leasing centers, for example, look and function more like a real estate office than a conventional apartment community leasing center. Prospects discuss their needs with marketing-consultants equipped with computers capable of defining floor plans. "We can call up different floor plans, with more and less square footage, varying views, open or enclosed kitchens, upgraded kitchens, roommate floor plans with master bedroom suites on either side, and more conventional one-, two-, and three-bedroom units."

Washers and dryers are important to today's rental market, from Echoes through older Boomers, and Charles E. Smith is adding these amenities to most of its units. "This is a wow factor for customers coming out of college," McCormick says.

On the other hand, Echo Boomers expect apartments equipped with technological connections. "We expect that our existing high-rise portfolio will be fully wired for high-speed Internet service within a year," McCormick says. "This is probably more important for Echo Boomers than our older customers, primarily because they are coming from a college environment where they have had high- speed Internet access. It's something they have grown up with and that they expect. To them, the Internet is the equivalent of cable television and electricity service."

Charles E. Smith buildings offer business centers, too. These centers, located in a common area, generally include four to 10 reasonably new computer stations with high-speed Internet connections. Backup equipment includes scanners, printers, color-copiers, heavy-duty staplers and paper cutters.

If you wonder who would use these centers, you're probably over 30. According to McCormick, they have become social Mecca's as popular as apartment community card rooms were 30 years ago.

While an Echo Boomer may well have an Internet connection in his or her apartment, that's not the point. The point is relaxing during the evening with others, while surfing the net. "We just opened a property in South Beach, Florida," McCormick says. "It has seven stations in the business center and they are constantly in use throughout the evening."

Charles E. Smith business centers usually connect to a conference room, used by students who want to get out of their apartment for study or sales people working from home to make presentations. Residents also use the conference room to meet with stockbrokers, attorneys or sales people when they don't want to invite those folks up to their apartments. "Sometimes, this room is tied into a kitchen, allowing the conference room to double as a dining room appropriate for a formal dinner party," McCormick adds.

Echo Boomers also demand personal services beyond what traditional apartment communities have provided.

San Francisco-based BRE Properties, Inc., with 72 apartment communities totaling 20,267 units in Echo Boom markets such as Arizona, California, Nevada, Oregon and Washington, has begun to respond to these demands with services resembling hotel concierge desks.

For example, Echo Boomers purchase products over the Internet and expect their apartment communities to accommodate that process. "We have concierge services in our rental offices," says Deirdre Kuring, vice president in the asset management department of BRE. "They will receive packages and often remain open after hours so that residents can pick up their packages. Young people work later in the evening, and we're basically extending office hours to meet that demand."

Kuring also notes that when younger people travel for business they request even more unusual services, such as feeding pets.

Fitness Centers: The Number One Amenity

REIT executives generally agree that the number one apartment community amenity today is the fitness center, in that it crosses demographic lines.

Fitness centers evolved from the popularity of 300 square-foot exercise rooms that apartment communities began installing some years ago.

Today's fitness centers offer much more than exercise rooms, however. Typical modern fitness centers span 700 sq. ft. to 1,500 sq. ft., depending upon the size of the community. They provide three to five top-of-the-line treadmills, rowing machines, stationary bicycles and skiing machines, plus weight machines.

These centers also feature cardio-theaters, in which a bank of televisions tie into headsets at individual exercise stations. Residents don the headsets and select audio from one of the televisions.

Carefully planned business strategies support these elaborate fitness centers. "We are developing fitness centers that will allow about 80 percent of the people who might otherwise join health clubs for $30 to $80 per month use our facilities," says McCormick of Charles E. Smith. "This translates into leasing opportunities. If the fitness center is good enough that they don't have to join a health club, they can save $80 a month and afford more rent."

McCormick estimates that about 20 percent of the people who pay for health clubs won't make this connection. "You will always have serious body builders that want free weights, which we don't put into our properties because of liability issues," he says. "Another percentage will prefer health clubs because of long standing social relationships there."

Echo Boomers May Segment the Apartment Market

While Echo Boomers have begun to alter apartment living, the changes are uneven from market to market. "You don't see the companies playing leap frog with newer and newer amenities in California," says Bob Talbott, senior vice president for operations with Essex Property Trust, Inc., a Palo Alto, CA–based company with 83 properties and 18,673 units located in Northern and Southern California and the Pacific Northwest.

"In Texas, you might see color television sets in the kitchens and large oversized Roman tubs in the bathrooms," Talbott says. "You don't see too much of this yet in California, given the high cost of development. After you pay for the land and the entitlement costs, you can't afford to put in too many extra amenities relative to the rents you can generate."

Nevertheless, Talbott agrees that the mix of apartments within individual communities seems to be growing more varied. "In the 1970s, you built a lot more one bedroom apartments for the baby boomers," he says. "Today, you need a balanced mix of floor plans."

From his vantage point at AvalonBay, Blair believes that the apartment industry will gradually grow more segmented. "As this bipolar growth of markets for Baby Boomers and Echo Boomers takes hold, we'll begin to recognize that the renter is no longer a homogeneous 30-year old," he says. "There will be people at opposite ends of a spectrum.

"In response, the market will begin to segment. Companies will build products for specific markets. I recently toured an apartment community in San Francisco targeted at Echo Boomers. Other companies, such as ours, will develop segmented products with floor plans for Echo Boomers as well as Baby Boomers."

At the other end of the spectrum, Blair says that AvalonBay is exploring the idea of segmented communities strictly targeting Baby Boomers.

"Different companies will draw different conclusions about this," he says. "But the fact remains that the customer is becoming more segmented, and apartment companies are going to have to decide how to respond to that."