We talk about space like it’s a commodity. The first thing most property owners and managers I meet tell me is how many square feet they have. As if every square foot is created equal. We even value our spaces, not by their own merits, but by the “comparable” spaces that surround them. The real estate establishment has surrendered to the economic principle of substitution. I dusted off one of my real estate license textbooks for this gem of wisdom: According the the principle of substitution, the value of a property cannot exceed the value of equivalent substitute properties that are available in the market. The italics are their way of stating the importance of this ridiculous statement, or maybe to show the high likelihood of it being on the test.
Most other competitive industries realize that a lot more goes into a purchase decision than the price of “equivalent substitutes.” Companies with nearly identical offerings (Coke v. Pepsi, Coors v. Bud, Avion v. Fiji) do everything they can to give their product a unique feeling to the consumer. This all-encompassing thematic emotive device is called branding.
The first thing most property owners and managers I meet tell me is how many square feet they have. As if every square foot is created equal.
Those charged with marketing space usually try to use utility (location, size, layout, amenities) to create uniqueness and therefore capture value. But, a brand is more holistic than that. It isn’t the combination of the specific parts that equal the sum of a brand, but how those parts all fit together into an understandable whole. Brands can transcend their physical properties and become an emotion.
The built world historically has been quite poor at branding. I practice and write about real estate every day and I know of about 10 American buildings by name. Most people know of about 3 (Empire State, Chrysler, and WTC I would guess). All of these building are famous for being an icon of their times, the biggest or most expensive or most notorious. But, buildings have reached their superlative limit. Building height is now limited by their elevators. They can only go about 51.4 miles per hour before passengers will feel physically ill. Cable weights limit the reach of each individual elevator, so now many ultra-skyscrapers require multiple elevator changes to get to the top.
Ok, so being the tallest building is no longer a viable way to create an image, so what now? One way is style. Architects have long understood the value of a building’s style. Building something with interesting angles and design themes is more expensive than building a uniform rectangle, but it can pay off in the end. But, having great form is not the same as having great function. The industrial aesthetic that is common for most warehouse conversions proves that you don’t need everything to be shiny or have every flaw hidden.
Technology is another way to diversify. Buildings are starting to get into this race, but ultimately they will probably end up with about the same level of technological integration and personalization.
Much of the value of the building is not the building itself, but the people in it.
So, what can buildings use to diversify their brand? Well, as I said earlier a brand is not just the details of a product, it is the complete emotional takeaway. Much of the value of the building is not the building itself, but the people in it. Kiewit Plaza, long time home of Berkshire Hathaway and one of the world’s most prolific investors Warren Buffett, undoubtedly demands a higher lease price than anything else in Omaha. Sierra Towers, a highrise in Hollywood that has been home to numerous stars of stage and screen, sells for more than twelve times the tax assessed value. Being in the right community can create demand that is not susceptible to the substitution principle.
I am not suggesting that every building needs to find famous tenants. But there are tools that can done to increase community engagement and strengthen a building’s brand image. A new entrant is Doorbell, coming out of Harvard’s Innovation Labs. The startup is set to start offering their community platform to select buildings in the Boston area. They help tenants connect to things like wine tastings, rooftop picnics, and cornhole tournaments. As an added benefit they bring discounts for residents from local businesses.
Probably the most complete solution is offered by Building Engines. They combine traditional property management tasks like equipment monitoring and service tracking with community building tools like tenant relationship management and connectivity. They provide their service across multiple platforms and will even build a professional website for clients. Creating a unified message is an important aspect of branding as it reinforces the perceived brand personality.
Everyone has different notions of what it means to have a great community. Be it shared spaces, collective events or a communal garden, group amenities can create a powerful positive associating with a space. When someone connects with others in their same building, turnover drops and more people want in. Brands deal with emotions and therefore are hard to quantify. Creating one can feel like a guessing game at times. But, the hard work of delivering positive feelings can pay off. Nothing is more defensible than a good brand image and few things can set a premium price point as efficiently. I hope to see more building enter the collective conscience in the future, not because they are iconic themselves, but because of the feelings they foster. For this to happen we all need to take a long look at the widely held but ultimately naive notion of the principle of substitution. We are not perfectly rational and feelings matter.