|Just the Peaks
This newsletter, at a glance
Multifamily developers are finally on the short-term train
How CRE investors can cash in on the trend
For years, there’s been a rift between traditional hotels and apartment buildings. As traveling business clients and tourists dominated the short-term space, families and other ‘permanent’ tenants stayed with tried-and-true high-rises and multifamilies.
With the newfound ‘sharing economy’ of the last decade, marketplaces like Airbnb and VRBO have changed the face of lodging. Visitors can now enjoy luxury accommodations and extras in otherwise residential settings; meanwhile, hotel and resort owners struggle to maintain clientele as competition compounds each year.
Inspired by the success of homestays, CRE developers have embraced the trend—with stunningly fruitful results.
“Startups like Sonder, Stay Alfred and Domio have progressed from renting floors of apartments buildings to doing deals for full buildings, either as redevelopments or new construction,” says Matthew Rothstein of Bisnow East Coast. “The increased confidence in such products comes from the expectation that their professional management and amenities packages will increasingly appeal to business travelers.”
While hotels tend to relegate travelers to the outskirts of cities, short-term rentals allow for more freedom of geography. Curious tourists can mingle with the locals, while busy businesspeople can stay closer to their intended destinations.
The rental rundown
- Sonder, offering ‘Airbnb-style apartments,’ achieved $100M in revenue in 2018; that number is estimated to quadruple in 2019 to $400M
- Since 2012, the company has raised $135M in funding; they continue to add roughly 200 units a month
- Popular short-term rental startups claim they can beat competing hotel prices by 20% to 30%
- Today, the hotel industry is evaluated at around $570B; Marriott currently holds 1+ million units worldwide, while Sonder has 4,000+
- WSJ reports that the recent short-term trend has slowed hotel growth; per-available-room revenue was only 2% this year compared to 3.5% in 2018
How Sonder inspires
It’s difficult to describe what sets Sonder apart, but one thing is certain: they have a competitive edge. CRE insiders say the hospitality startup offers the cool factor of Airbnb with the consistency of a traditional hotel chain.
Located in cities across North America and Europe, Sonder leases entire apartment buildings (or individual floors) for short-term stays. To make the experience more convenient and desirable, spaces are outfitted with living rooms, kitchens, onsite laundry, as well as 24/7 concierge, gyms and other lux amenities.
Also referred to as ‘serviced apartments,’ the model isn’t exactly new. Still, the next-gen rental approach requires a more specific focus on technology. Developers and investors looking to break into the space should keep this factor in mind.
“A huge part of us having a competitive edge over a typical hotel is that we rethink and automate many processes,” says Sonder CEO Francis Davidson-Tanguay. “[This] underpins how we acquire real estate, design and furnish our units, handle day-to-day operations, and distribute our rates and inventory.”
For those thinking about investing or launching their own hospitality startup, take a cue from today’s top competition.
How to go from multifamily to short-term model
- Conduct research on the neighborhood, local regulation for short-term rentals, current hotel demand and other key factors before diving into a renovation.
- Keep rates reasonable for instant advantage. Companies like Sonder confidently compete with established hotel chains thanks to their bargain rates.
- Incorporate technology to automate what you can. Saving money on staff and similar manual overhead helps keep rates down.
- 24/7 concierge is key to beating out Airbnb. Modern travelers want clean sheets, cozy quarters and a live voice—even if it answers from afar.
- Track tourism trends for surefire sustainability. A thriving economy helps boost occupancy, but short-term owners need consistency to thrive.
Rounding out your portfolio with a short-term rental?
Everest has no reservations!