A copy of this article from the “Building Management” publication was gifted to me by author Andrew Alpern. The first installment was published on 29 December 1919 and the second installment was published 12 January 1920. [My notes and comments are inserted into the article inside brackets.]
Apartments and Personal Desires
By Dr. Charles V. Paterno
President, Paterno Construction Company
The accompanying article appeared in the December issue of “System,” under the title, “Values People Will Pay For.” Dr. Paterno has made a careful study of the utility factors and luxuries that people insist upon when they spend their money for apartments to live in. He says: “I contend if people buying at a certain price demand appearance value rather than utility value, that is an important fact for every business man to know, and play to.”
[December 1919 issue of System is posted at the bottom of this article.]
THE family that acknowledges itself poor buys the cheapest thing it can get. This class is comparatively small. The next class buys that which looks as though it cost more than it actually does cost – they buy for “front.” The very wealthy people insist on getting their money’s worth. These are not cynical conclusions. I have reached them through 20 years of building and merchandising apartment houses. If these principles apply to the selling of places in which to live, which are by all odds the most important purchases that anyone makes, surely they must apply with equal force to everything that people buy for personal use. I can testify that they apply to everything connected with the home and the person – clothing, furniture, food, automobiles, and so on, and they seem to apply equally to office rents and office fittings.
The great American average public, taking New York as its cross-section (and the New Yorker, as every one knows, comes from everywhere on earth), buys, dresses and lives with the idea above all in mind of appearing to have more money than actually it has. The only two classes which are not bothered in this way are those who are so poor that it is useless to try to conceal poverty and those who are so rich they do not have to put a price mark on themselves.
These are not merely interesting theories worked out on a lazy summer afternoon under the shade of a great, green tree. They are principles classified, refined, and defined in trying to find out where and how people want to live, how their desires can be compromised with their pocketbooks and then in manufacturing something which at the moment seems to be the best compromise between desire and pocketbook. It is always a compromise on both sides. The buyer – that is, the renter – has to compromise between what he would like and what he can afford. The seller – that is, the builder – has to compromise between what the renter would like and can afford and what is most profitable to him from a commercial standpoint.
At the present day, in New York City, the shortage of living quarters is such that almost anything from a tent up can be rented the moment the plans are announced and at almost any price, but it was not always thus. For some years before the war, New York was overbuilt; more apartment builders failed than succeeded; but through good times and bad, we, through 20 years have kept steadily to a preconceived program of putting through one operation every year. [I adore how Dr. Paterno, as a trained medical doctor, uses the word “operation” to describe his construction projects!]
Results Prove Idea Correct
We have each year bought the ground, put up the building, rented it, sold it at a profit and then with the money in pocket, gone on to the next operation. We have never sold any operation without turning a substantial profit. Perhaps our idea of what people pay for and what is behind the price is not right. But in our first adventure as greenhorns in building, we had at stake all the ready money we could put our hands on, which was between $3,000 and $4,000.
Our last operation is probably the largest apartment house in the world and is rented for approximately $1,000,000 a year. Twenty years divide the two, but everything that we have today grew out of that first little investment, and so I think that our ideas on what people are willing to pay for are not far from right.
I got into building quite by accident. I stayed in it at first because I had to, and then because I wanted to.
My father had built three or four small apartments [151 West 106th Street, 154 West 106th Street, 156 West 106th Street & 204 West 106th Street]. Just as I graduated in medicine in 1899 he died, leaving two small houses in the process of construction [507 West 112th Street & 505 West 112th Street]. They were no good as they were – an unfinished building is almost an impossible thing to sell – and it was squarely up to my brother, Joseph, and myself, as, being the oldest boys, to get out the money of the estate. Our father had left Joseph and myself about $1,500 apiece, excepting that my share had been decreased to $500 on account of my medical education.
More than anything else, he had left us a splendid credit reputation. Where so many builders go into an operation without sufficient funds and then hope to get out by paring some one down here and another there, my father regarded his debts as sacred. When he bought, the seller knew that my father was going to pay in full, and promptly.
There was no question of a financial statement or anything of the sort with him; but the sellers got to know that he never bought anything without seeing his way clear to pay for it, and that was enough for them. Always he did pay and on the dot. That is the great big asset that he left to us boys, as asset the…
…value of which is difficult to measure; but certainly we should have been worse off in a business way had he bequeathed us an estate of a million dollars and a bad reputation, rather than the few thousands of dollars and the reputation everywhere of exactly fulfilling his every undertaking.
The building under construction was of the old familiar type of New York apartment. It had five stories, of wood and brick, without elevators, and with two apartments to the floor. Like all other building of the kind, the living room, or parlor, as it was then known, occupied the front of the building, and the other rooms opened on a passageway just as though they were so many cells. That was the standard design and the apartments were of the standard size and price; that is, from five to seven rooms and renting for about $10 a room. There was nothing in particular to differentiate them from some hundreds and perhaps thousands of other apartments.
I had intended simply to finish this building and go on with my medical career, but as we were finishing the first building, we had a chance to buy the plot next door [San Marino at 509 West 112th Street] at a very low figure. My brother and I got together, agreed to buy the land, and then traded in our new house at a small profit. We borrowed $2,000, took all the cash we ourselves had and entered upon our second adventure in apartment house construction – the first in which we, ourselves, solely were interested.
In those days people had large families. The principal thing that they wanted was room. I rented that first house personally, making my office right in the house and exhibiting the apartments to prospective tenants. We had not then the idea of merchandising apartments and it would not have done us much good is we had, for this was merely completing what somebody else had begun. In the second venture we followed exactly the same procedure as our father had worked out for himself. His ideas were good; the people then wanted space and not innovation. We got our tenants at once and then almost immediately sold the place at a profit of 100 per cent on our investment; that is, we came out of the transaction with $8,000 where we had entered into it with only $4,000.
Experience Gives Confidence and a Profitable Return
We were beginning to get a hold on the situation – though not consciously. Our success in these two ventures led a woman who knew our father to put in a plot of ground with us at 105th Street near Amsterdam Avenue [Salome at 149 West 105th Street].
THE people wanted big rooms. We made that a seven-story, 49-foot front building. That was two stories more than we had yet tried and the 49-foot front gave bigger rooms than the people had been accustomed to find. Also we put in two bathrooms for the first time, and, as an additional feature, increased the outlook of the living rooms, by running two columns of bay windows up the front, which also served to give a better facade. We used hardwood here and there – oak was popular at the time. But these apartments were better in their way than anything that could then be had for the money. We rented them very quickly, and when rented, we sold the house on the investment basis with a net profit to us of no less than $40,000.
That put us on our feet. It was the first real money we had ever had. And with the money we got the lesson that a little ingenuity in design – a little catering to the popular taste of the moment – not only permitted higher rentals, but also the sale of the building on an investment rather than on a cost basis. Up to that time we, and I think nearly every one else, had considered an apartment largely as a plot of land and a building, and our first two ventures had been disposed of as such. Now, however – and this has been our practice ever since – we discovered the value on the income-producing quality. If you consider land as land and a house as a house, any ingenuity that you may exercise is more or less wasted; but on the other hand, if you take the more logical ground of building something which the public will purchase as an investment, then you can capitalize all the brains that go into the design.
We adhered to our program, during the next several years, of putting through an operation each year, and all of them were on the same general model as the one that I have just described, except that each was just a…
…little better in some point of finish; but all were primarily designed comfortably to house a rather large family at not too high a price.
People were not then accustomed to paying high rental. I doubt if there were an apartment anywhere in the city for more than $3,000 [per year]. But I began to notice a change in the demand. The families seemed to be smaller and requests came in for four, five and six-room apartments, well finished and well located. There was then no subway and people liked to live within easy access of the elevated road. I also began to gain the impression that a view might be of importance. We had yet no thought of attempting the extremely high-priced apartment, but up on Morningside Avenue was a splendid site; I heard that Columbia University was going to buy extensively in that neighborhood (afterwards they did so) and there would be no question of crowding. Only farms were about, but on a venture we put up two houses of four, five and six-room apartments, still only seven stories high, because that was the greatest height the building laws would permit for a non-fireproof building. For the first time we devoted a little attention to the entrance-way. We did not actually decorate it, but we made it a little better looking – something more than a way in.
Getting More Rent Because of the View from the Windows
The view rented those apartments instantly. They were full of tenants almost as quickly as they were finished. We sold the houses at a good profit and built more of the same kind right beside them, and sold them in turn. The experiment of going into the wilds taught us one lesson, which is that the moderate-priced renter considers no neighbors as good neighbors and that unless one can buy land in the first-class neighborhood, then next best thing is to buy where there are no neighbors at all, provided, of course, that the no-neighbor site in conveniently located in the way of transportation. If there are no neighbors at all, the tenants will expect that any neighbors that do come will be good ones. We also decided that it was not good business to have more than seven rooms in any apartment, and that policy we continued until we got into the really high-priced rentals.
We then had money enough to essay a little more. We were beginning to find out what it was that people would pay for and we bought a few lots on Riverside Drive. It was a plot, by the way, in which I used to pasture my horse. On that we put up our first two big buildings, each with 75-foot frontage and 10 stories high [Altora Residence Club & Porter Arms]. It was fireproof construction and every room had a parquet floor. By that time we always knew our rentals before we built. Our method was to discover the market value of floor space in any neighborhood and then try to give something a little better than could be had elsewhere, marking up the rent accordingly. For instance, we calculated that the fireproof construction and parquet floors together should permit a rental increase of 33 1/3 per cent. These improvements by no means involved a corresponding increase in the cost of construction.
We found that a southern exposure was worth 10 percent, that it paid to make the kitchen as convenient as possible and to put in a first-class refrigerator. It is mostly women who decide whether or not an apartment is to be taken, and, even if a woman has servants, the character of the kitchen means a great deal. An extremely good-looking refrigerator and range will sometimes nearly rent an apartment! [On this note you might like to read Where People Prefer to Live By Dr. Charles V. Paterno • 1918] People do not seem to consider the investment value of these things. They are entirely willing to pay on impression, for strangely enough, very few people know what anything in the building way costs. For the men we put in better bathrooms; we had not then reached the very expensive bathroom with porcelain fixtures, but used good-looking enameled iron. The extremely wide application that these facts have in the manufacture and distribution of all products intended for individual use must, I think, be evident to the reader.
People were then still buying, or rather renting, largely on value and they would not pay a high price for a poor thing, just because it looked fussy. We rented everything ourselves. I heard what people had to say and it was part of my job to convince them that we really had what they wanted – all the time taking mental notes to get their best ideas into our next undertaking.
I really cannot overemphasize the importance in building, and I presume it is the same in every other line of manufacturing and merchandising, of keeping in personal contact with the customer, so that no outsider’s report, no agent’s report, can be interposed between the actual demand and your own estimate of that demand. And so I sensed changes.
I found a new public coming into prominence – people who were more anxious for looks than convenience. Although the women still like the large bedrooms, they were particularly struck with large living rooms. In the old apartment you entered into a narrow hallway down one side of which ran a perfectly blank wall. Visitors had to make their way through this uninviting hall, past a door or two to the living room in the front. The dining-room was commonly at the extreme rear, and, therefore, guests for dinner had to tramp through the length of the apartment, and, if the hosts did not life to exhibit all of their rooms they had to keep the doors closed, which was all right so far as men were concerned, but women visitors knew quite as well as the hostess why all the doors were closed!
Of course, nobody told me what they wanted in so many words, but I began to discover that what the people were looking for was some kind of apartment in which most of their money might be spent in the furnishing of the living-room and dining-room and an arrangement so that these could be shut off from the…
…rest of the space. The old demand was for plenty of room to shelter a big family; the new demand was for a place in which visitors might be well entertained without having too intimate a knowledge of the menage – a place where they might be confined in a couple of showrooms.
I gathered these ideas through many sources, largely from the chance remarks of tenants as I was showing them through; but also from the fact that a great many of these prospective tenants were considerably more expensively dressed than the rentals they wanted to pay showed that they could afford. If they wanted to put so much of their income into their clothes, evidently they would also want to put as much as possible of their living expenditure right up in front also!
In our next venture, which was a $1,000,000 structure, “The Paterno,” we carried out some of these ideas. We made a great many apartments and as the main features of each provided a large living-room, a good-sized dining-room, and a well-equipped bathroom and kitchen. Finally we designed a main entrance hall, which, although it did not approach the elaboration of later entrance halls, was spacious, well furnished, and all aglow with prosperity.
We made every one of the bedrooms comparatively small and then further took off their space by putting in large closets. It must have been that the occupants of the earlier types of apartment houses were not supposed to own any clothing other than that which they actually wore, because as far as I can recall, the only time closet provision was ever made was when we happened to have a bit of space that we did not otherwise know what to do with. Wardrobes are impossible things in apartments.
I rented “The Paterno” in record time. It was exactly what the people wanted and was easily the best thing which, up to that time, had been erected. That was before the present magnificent apartments in certain sections of New York. It was not then safe to provide many apartments with rentals exceeding $2,500 [per year].
The Next Stages in the Business Development
Having sold this production according to schedule, I went in for something still better, taking a whole block from Broadway to West End Avenue with a 12-story building [The Alameda] to rent at from $20 to $25 a room, as against $10 a room in our first venture. We had determined that people like to pay about 50 per cent for show and 50 per cent for convenience, and therefore we let ourselves out as much as we wanted to on the entrance hall.
Most of the tenants we could expect had been at some time in their lives in Europe and they like a Continental touch. Perhaps, because I was born in Italy, I had that entrance hall done splendidly in Italian Renaissance with great high ceilings, imported some of the furniture and tapestry from Italy, and then had reproductions made of other Italian masterpieces of furniture. It does not pay to put into an entrance hall any piece of furniture or statuary which a tenant can get downtown or price anywhere. The things must look expensive and be hard to duplicate. This entrance takes up valuable renting space and costs money to furnish and money to keep up, but tenants are glad to pay an advance of 10 per cent on their rentals simply because of the impression on uncle when he comes to town. Therefore it is a good investment.
The impression on uncle, and the neighbors, is an important element in values that is sometimes not given due consideration. Too often it is dismissed as a vanity. And it would be proper to do that if fewer people were vain, or if more judged by fundamental facts. But it is true that the surface appearances in the things men eat and wear, the automobiles they ride in, as well as the furnishings of their homes, have a marketable value. That is the important fact that I am trying to make clear from my experience, which happens to be solely in erecting just the sort of homes people want.
When Do You Reach the Point of Diminishing Returns?
In general, any expense added in the way of show or decoration in an apartment is a good investment, if the tenants will pay the extra charge. It is the part of the merchandiser of apartments, as of the merchandiser of other lines, to discover the exact point at which show stops paying. I have seen it carried to great extremes and have seen very valuable space wasted which is not reflected in better rentals. Mere gorgeousness will not do, and neither will shoddy imitation. The profitable point is somewhere between. The thing to bear in mind is not so much the comfort of the tenant as the impression gained on entering first the apartment building and then on entering the apartment itself. Allowing for the maximum in this impression, then everything additional that you can put in for the comfort of the tenant makes the apartment that much more easily rented. But the things that really add to the price concern the visitor more than the tenant – the “front” – excepting the one point of convenience of transportation. Everyone wants to get downtown easily. A good and convenient location is essential.
We had been dealing first with people of moderate means who wanted space, then later with people of greater means who were willing to sacrifice space and comfort if thereby they might appear to have even greater means. We had not gone into real wealth, but I noticed that those persons who were considerably wealthier than the average of our tenants looked less at the entranceways and more at the structure and convenience of the apartments.
This important fact forced itself on me as I turned over in my mind the salient features of a really big undertaking in which no rental would be less than $5,000 a year. The tenants for such a place, I judged, would want an apartment to be something better in the way of convenience and finish than they could possibly obtain in any house or hotel. Also I doomed the big, magnificence common entrance, for I thought that wealthier people would prefer and pay for separate entrances and elevators, that they would like the convenience of having practically a private elevator to get away from the hotel atmosphere of elevators in great batteries.
I also planned for light and air in every room and the maximum of convenience. Especially I knew they wanted and would pay for better service than they could reasonable expect even from a large staff of servants. I designed to give the absolute privacy of a home and the convenience of a hotel – and I felt they were willing to pay for the combination.
These are the points which I had in mind in the design of what is probably the largest and one of the most expensive apartment houses in the world, known as 270 Park Avenue, although it covers an entire block. People who are willing to pay high rents usually do not like to live in an apartment house with a name. That is one of the curious trends of public taste. In the beginning people were ashamed to live in an apartment house unless it had a name; now, however, the name is not a feature.
It Isn’t Always Easy to Combine Comfort and Appearance
We designed this apartment around an Italian court and garden. That garden was a problem! We had to have it in order to give light and air – so that none of the rooms would be inside. I knew that it should be European rather than American looking, but many European features will not be accepted in this country because they are not convenient, and so I Americanized and Italian loggia by putting it on the ground floor, so that one might enter the apartments from the garden and be protected from the weather. Truly, to adapt a European feature to an American house, it must have a wholly utilitarian function as well as being an addition to beauty. The garden itself we kept down to the formal Italian, in order to gain the effect of complete rest….
…and detachment from the general world of New York.
Instead of a big entrance hall, we put entrances and private elevators for each group of apartments, so that each individual apartment had its own exclusive vestibule leading from the elevator, and thus to all intents and purposes had a private elevator.
Then, too, instead of small apartments with small rooms we went to the opposite extreme. The largest apartments have 17 rooms with a foyer, gallery, and six baths. The living rooms in some are 20×40 feet, and the dining rooms, 20×30, with five servants’ rooms and a servants’ hall. They are complete mansions in themselves. The smallest apartments have six rooms and three baths and the rents run from $15,000 down to $4,000 [per year].
The people who would pay these rents must have the ultimate convenience. A restaurant in even a moderate=priced apartment is sure to be a losing venture. But there had to be a restaurant in an apartment house of this new character, if for no other reason than to be able to sell the apartment.
It could not be a poor restaurant and the only way to make sure that that did not happen would be to have it take in charge by the most fashionable hotel in New York. But the manager of this hotel, when I approached him, informed me of an unvarying rule never to act as a caterer outside of the hotel and never under any circumstances to undertake the management of an outside establishment. This was something of a drawback, but it is not my habit to stop on the first refusal.
How a Single Attraction Increased Net Income
I felt that I had to have that restaurant to make the place an absolute success and therefore I plunged. I offered to give to the hotel management on-half of all the profits and an additional bonus of $25,000 a year and they accepted. I expected to lose money on that restaurant, but to make it up in the way of advertising. I am not losing money on the restaurant. Directly because of it I have rented several $15,000 a year apartment, and, since the most expensive apartments are not rented for a term of less than five years and the least expensive for not less than three years, renting an apartment is a conclusive matter.
This last apartment house has more than 3,000 rooms and housed in it are more than 100 millionaires.
And thus it goes around the circle. In the $5 and $10 a room apartments the people wanted space and what they conceived to be convenience, if possible. In the $1,500 apartments they wanted appearance and convenience – if convenience did not interfere with appearance. But the millionaire colony goes right back to the $10 a room people in demanding all the convenience that may be had – but not simply for the money. They want all the convenience that may be had, not quite, but almost regardless of the money.
I think these idiosyncrasies of my public are representative of fundamental facts in human nature; and it has been my effort to show that I am not writing an article merely about the merchandising of New York apartments – a very specialized sort of business indeed – but abut putting the values that people really want into all the products we sell, whatever they may be. And I content if people, buying at a certain price, demand appearance value rather than utility value, that is an important fact for every business man to know, and play to.
View the full Paterno Family architecture catalog HERE.
