Comparable Market Rent and Setting Appropriate Rent for Multifamily Development

Part 1 - Determining an Appropriate Market Area
Part 2 - Regression Analysis and the 100% Database Field Survey

Part 3 of 4

The Regression Analysis (continued)

The regression analysis is a key tool used to determine market rent for a project at any amenity level. First, all the projects in the area (the 100% database) are surveyed to determine rent and amenities. Each project is then rated based on its level of amenities, or Amenity Index . The Amenity Index has three components: unit amenities, project amenities, and curbside appeal (aesthetic amenities).

All rents are converted to net rents, and each project is plotted on a scatter graph, with rents on the y axis and Amenity Index along the x axis. From this scatter graph, a regression line is determined.

This regression line indicates the average rent in the market for any project at any amenity level.

In the regression chart shown below, for example, projects 1, 2, 21, 52 and 61 are achieving rents at the market-driven level.Projects 32, 48, 49,51 and 53 are achieving rents well above the market-driven average Projects 20, 30, 54, 55, and 57 have rents well below the market-driven average.

Distribution of Two-Bedroom Units 
By Net Rent and Comparability Index

Part 4 - Making Adjustments and Flaws with Selected Comparables