Are You Ready for the MDU Business?
The hot topic right now is multi-dwelling units, or MDUs.
MDU is a fancy way of saying “apartment,” and today’s apartment builders are looking for the amenities and conveniences currently found in fine homes, like automation, distributed audio and video.
There’s opportunity here for custom installers and integrators, but the MDU business is fundamentally different than a typical residential install. It’s worth noting those differences before submitting a proposal.
Builders strive to reduce variability
When a developer plans his business, he adds up the cost of land acquisition, improvement, build-out and marketing, then divides by the number of sellable square feet. That gives him his cost per square foot. In a typical upscale urban area, a builder may be looking at $500 cost per sellable square foot. He wants at least a 20 percent profit, so he’ll price the units at $650 per square foot. So a 1,000-square-foot condo will list for $650,000. Simple.
The developer’s costs are virtually fixed. The land is fixed. Construction is fixed. The only big variable is “market conditions”—how much he can actually get for the units.
This is what you would call a mature industry. And mature industries rely on standardization in order to predict costs and profits. Developers need this predictability in order to survive. Imagine if they constantly ran into cost overruns on build-out. Since the selling price of the units is determined by the market, cost overruns eat into profit. And since most developers have investors putting up the capital, those investors want to make darn sure all of the profit comes in according to plan.
It’s a far different situation with Mr. and Mrs. Smith, your typical residential client. That friendly couple building its custom home is operating under a different set of expectations. They aren’t running a business. They aren’t concerned with turning the project around on budget, on time. They’re just trying to build a dream home, so they’re more likely to exhibit a high tolerance for change orders, cost overruns and upgrades. This is the arena in which virtually all CI dealers live—a world of variability without consequence.