With the success of University City, Mr. Starkman became more confident that attention to the consumer’s lifestyle needs was the key to making the principles of location, design and affordability converge successfully
The Challenge The day Joe Starkman heard his fifteen year-old daughter refer to the car as a tool to get from point A to point B and not a defining part of her image, he began thinking about this emerging generation's perspective on the automobile. When she expressed no interest in getting her driver's license, he asked his daughter and her friends more questions about why they felt no connection to driving or owning a vehicle.
What emerged from this conversation and similar discussions with members of the millennial generation was a solution to the challenge faced by Mr. Starkman's Calgary-based company, Knightsbridge Homes. How could it offer places to live that are not only well located and beautifully designed, but also affordable? Could it be as basic as removing the automobile as a consideration from housing design to decrease costs and create more entry-level options for buyers?
The Background Since their emergence in the Calgary market in the 1990s, the success of Knightsbridge Homes was built on its commitment to do small-scale quality projects, rather than great volume. Running a lean operation with just eight full-time employees, three core principles drive the decision-making at Knightsbridge: find a great location, provide memorable design, and appeal to targeted or underserved market segments.
The challenge, however, has been the inherent struggle between these ideals when the primary motivation for a large segment of the market is affordability. How do you provide cutting-edge design in a desirable location when both factors will increase costs? Traditionally, homebuilders focus on cheaper land or lower end finishes to generate cost savings. To solve the problem, Mr. Starkman asked consumers directly what features they could live without. Their response was size and parking.
Mr. Starkman used his transit-oriented development of University City as a way for Knightsbridge to break from the herd mentality of condo offerings by doing away with large kitchens and dedicated entertaining areas. Instead, he created a more compact unit where residents could utilize spaces for multiple functions. The company also made parking spaces optional, something that many buyers did not miss.
While the concept of smaller units to increase affordability is not necessarily groundbreaking, this new condo offering featuring exclusively small suites was nothing short of radical in 2010. While there was nervousness on the part of lending institutions over the idea of smaller units, Mr. Starkman had faith in his research into consumer lifestyles and pushed forward with his vision. As a result, when the first phase of University City priced its initial offerings at under $200,000 for units that ranged from 467 to 718 square feet, it sold out all 216 units on the first day.
The Solution With the success of University City, Mr. Starkman became more confident that attention to the consumer's lifestyle needs was the key to making the principles of location, design and affordability converge successfully. He saw an opportunity to replicate the success of University City in Calgary's redeveloping East Village community. This urban village features a state of the art riverside pathway network to make it a community where residents can live, work and play in one setting with full access to a range of services and transit options. East Village is an ideal urban laboratory to test the concept of condominium living that does not rely on automobile use or ownership.
Mr. Starkman's N3 condo project in East Village consists of 167 units between 461 and 620 square feet, priced from $199,000 to $299,000. Knightsbridge was able to hit this price point by negotiating removal of the municipal parking requirement for residential developments. A commissioned transportation study showing that 25 per cent of Calgary millennials in their 20s don't have a driver's license, and 50 per cent don't own a vehicle, helped his case. Why provide parking for a vehicle that does not exist for this target market?
By removing a cost of $75,000 per parking stall, and shortening the build period for the project by eliminating parkade construction, N3 is able to pass cost savings along to buyers. The day N3 received approval from Calgary City Council in May 2015, Mr. Starkman tracked 100 new expressions of interest for units in the building. Without having marketed a single unit in a building that has yet to be constructed, N3 has a waiting list of 750 interested buyers for its 167 units.
The Result Knightsbridge Homes refused to compromise on its core principles of great location and outstanding design, which meant getting creative in order to also achieve affordability. This creativity manifested itself in their market research methodology, where it removed the focus from its own product (the home) and instead placed the focus on the consumer's lifestyle. As a result, Knightsbridge was able to eliminate the costly feature of parking and bring to market a product that broke from tradition, filling an emerging market need by looking at the consumer's lifestyle as the driver of housing design.
Jyoti Gondek (@jyotigondek) and Phil Dufour are at the Westman Centre for Real Estate Studies at the Haskayne School of Business (@haskayneschool).