Multifamily real estate is shifting from an asset class to a business. What was once viewed as a ‘passive’ investment is becoming a sophisticated operation.
Accelerated by the Coronavirus pandemic, the preferences of today’s renters have changed. The one-sized-fits-all model of the past is dead. Knowledge workers expect flexibility. They’re not tethered to a single geographic location. They expect to access everything seamlessly through technology. And they expect great customer service.
The game has changed, creating opportunities for nimble real estate firms and new entrants into the business.
The multifamily industry used to be dominated by traditional real estate companies. Today, thanks to increased transparency, venture capital, and technological advances, many new players have emerged. Firms such as AirBnB, Common, Ollie, Roam, and Landing are all forces shaping the housing of the future.
Strategy today is about doing things differently and carving out a niche. Now that many of us will soon be able to work and live anywhere, housing must become more flexible to meet this shift.
The chart below from Dror Poleg illustrates the new ‘long-tail’ of renters who can live and work almost anywhere they want.
Here are a few of the platforms catering to this new type of renter. To no surprise, most of them don’t own any physical real estate.
Landing is a membership-based platform that offers fully furnished apartments throughout major cities in the U.S. For $199/mo., members get access to all locations, the ability to move with a 30-day notice, pay no security deposit, and have 24/7 concierge.
I compared the monthly rent for Landing’s fully furnished units to the monthly rent of a traditional 12-month lease for an unfurnished unit at the same building and found the premium to be ~15%. This seems reasonable given the cost of furnishing and added flexibility afforded by the membership.
Access to fully furnished units and the ability to move at any time with 30-day notice is unique in the multifamily industry. While regulation varies from state-to-state, owners are often prohibited from signing leases shorter than 6 months without incurring a hotel tax. Meanwhile, month-to-month leases aren’t desirable as residents can leave with a 30-day notice. Landing solves both of these issues.
Landing works with landlords in several ways; they lease units, sign revenue share agreements, or they market units on their platform and lease them once a reservation comes in.
I can see Landing being a popular option for young professionals working remotely who want to move seamlessly city to city.
Common, known primarily as a co-living company, is quickly evolving into a housing platform. They typically offer furnished rooms and flexible lease terms at affordable rates and on a single bill. They target primarily young professionals and rely highly on their design, online marketing, and branding. They streamline the leasing process and day-to-day living experience through technology. They also offer cleaning and other basic concierge services.
Their model is not for everyone, but for a specific niche, they’re the best option. Common is rapidly growing, and despite being relatively new, they have created a brand within the multifamily space.
The lines between leasing an apartment and booking an Airbnb are blurring. Early on in the pandemic, Airbnb CEO Brian Chesky saw the opportunity in “longer-term rentals to city dwellers looking for a protracted retreat.” Chesky believes the world is currently undergoing “a giant experiment where people are realizing they can work remotely.” A more flexible office and employment market equal a more flexible housing market. And more flexible housing market equals an opportunity for Airbnb.
When starting a search on Airbnb today, there is an option for ‘find a monthly stay’. I imagine many young professionals working remotely will spend the next 12 months bouncing around Airbnb’s for 4-8 weeks at a time.
Ollie is another co-living brand that combines flexible leasing with hotel-style services and a focus on community and amenities. They offer fully furnished units, housekeeping, roommate matching, and community events, all connected through the Ollie Living app.
While Ollie and Common are similar, Ollie is more involved with the development from day 1 and is fully integrated into the project. Similar to Common, Ollie is developing a brand name within the space and is well-positioned to scale.
Traditional Real Estate Operators
The flexible housing model is not just a place for technology companies. Traditional real estate developers and operators are also creating communities tailored to individuals who seek flexibility, seamless technologically, and quality customer service.
Bento Living is a fully furnished project in Nashville which offers the flexibility to ‘stay a few nights’ or ‘live a few months’. The units are thoughtfully-designed a many include space-saving furniture such as murphy beds.
For stays longer than a few days, renters get one bill which includes Wi-Fi, cable TV, cleaning, utilities, linen and towel service, and access to events. When you’re traveling you have the option to put your unit back into the hotel pool to be rented out for short-term stays.
I can see this type of flexibility being appealing to renters looking to test out Nashville as a place to live or remote workers looking for a place to spend a few weeks or months.
Philadelphia-based Korman Communities pioneered the extended-stay apartment with hotel services. Their brands AVE Living and AKA each offer furnished apartments with flexible lease terms. AVE targets professionals, looking for a minimum stay of at least 30-days. While they focus on business travelers and corporate relocations, their model may be ripe for the new class of remote working professionals. AKA is a bit trendier and caters to weekly and monthly stays (minimum of 1 week) while offering hotel-style amenities and services. While I’m sure there are many more, these are just a few of the real estate companies catering to the modern renter.
The multifamily industry must respond to evolving preferences. Doing the same thing everyone else is doing, but a little better, is no longer a viable business model.
As Dror Poleg says, we’re evolving from playing monopoly to chess.
Have you seen unique business models catering to this new type of renter?