Hotels are seen as an entirely different business model, the
reality is that the parallels of the extended-stay hotel business model can make it virtually seamless for apartment owners.
In 2002, a concept for Value Place extended-stay housing was created out of Wichita, Kan. It was intriguing to many because of the synergy that could exist between it and multifamily properties. It was a good opportunity for those in the multifamily housing business to complement their current operations while also expanding holdings.
Sales pitch aside, this extended living chain describes itself as “combining all the convenience of a hotel and all the essentials of an apartment. [It’s] a hybrid—and that makes [it] better than a hotel, an apartment or any other short-term or long-term housing accommodations. Think about it—no extras padded into our price, no hidden fees. No lease to sign, no utilities to set up.”
A Storied Background
Value Place was founded by Jack DeBoer, a developer familiar to not only those in the hospitality industry, but the multifamily industry, as well.
In the 1970s, Jack DeBoer was the second largest apartment developer in the country, and out of that experience he developed thousands of units across the nation that now make up the Extended Stay segment of the hospitality industry. DeBoer founded Residence Inn, Summerfield Suites and Candlewood Suites. In 2002, DeBoer recognized a void in the economy segment of the hotel industry.
While there were plenty of mid-price and upscale properties with fees and amenities designed for corporate business travelers and family vacationers, there were not many practical options for small- and mid-sized business owners. Out of that discovery, he developed and opened the first Value Place in October 2003 in Wichita. It now operates approximately 170 properties in 30 states.
It is easy to see the benefits and synergies between multifamily and extended stay operations. DeBoer created a brand and a concept that fits very well into any multifamily portfolio. Providing safe, simple, affordable and clean housing is what the multifamily industry is all about, and that is what his franchise-based concept is centered around as well.
The prototype design and “new construction only” brand standard allows for ease of construction, brand consistency and a process that can be easily replicated. Landmark Commercial Real Estate is actively pursuing additional markets and opportunities to develop or acquire more Value Place properties and hope to add an additional three to five properties.
As additional markets are acquired and new developments stretch across state lines, it’s important for developers to familiarize themselves with the different laws that apply specifically to short-term rentals. Referred to as “hotel taxes,” these laws differ from state to state, and need to be understood by anyone looking to develop extended-stay lodging.
The staffing model and the construction costs associated with this extended stay brand are some of the most desirable benefits as an investment option. With hard construction costs in the $24,000 to $26,000 per door range (with no land or soft costs included) the product can be considered a tremendous value compared to the potential revenue stream. Good managers are essential to the success of the property. The model operates with the equivalent of 4.5 full-time employees, keeping operating expenses low and staffing far below the norm for other hospitality properties or multifamily properties of similar room count.
The economies of scale in these 108- to 124-unit extended-living properties can be more beneficial than developing larger apartment communities. The construction time is shortened; owners are dealing with one slab versus multiple depending on how many buildings are planned for a multifamily housing project and one set of plumbing versus multiples, among other construction aspects.
A Stable Investment
The extended-stay lodging industry has remained stable over the last three years, and even is beginning to trend up in the last 12 months during a time when traditional hotel occupancy rates are down. The occupancy rate for extended-stay hotels was 70.1 percent in 2010, according to research by Hendersonville, Tenn.-based STR Inc. Revenues eclipsed $6.3 billion in 2010, up from $5.6 billion in 2009 and $4.7 billion in 2005.
It is not unusual for occupancy rates to reach well into the high 80s and low 90s with the average weekly rate (AWR) continuing to steadily climb. Landmark Commercial Real Estate estimates that this is expected to continue for the rest of the year.
Those in the apartment industry who are looking to diversify into extended-stay properties should do market research. One major key to being successful with extended-stay lodging is to not only be a safe, clean and affordable option to the traveling guest, but to also be competitive with apartment communities in the market that are being considered for the development of an extended-stay property.
This could allow owners to capture the local business, which is really where the average length of stay will increase. Extended-stay guests don’t have the upfront expenses they might have in a traditional apartment such as utility set-up, furniture and long-term lease commitments, for example.
Owners who can compete with the price of local apartment rates could provide a better value to those seeking housing because their residents don’t have to set up utilities or purchase furniture, among other move-in expenses.
When a number of apartments in a unit are transformed into short-term stay rentals, it’s important for developers to encourage residents to maintain a sense of community among one another. Managers and operators are often encouraged to help residents get to know one another by hosting open houses, community events for children, regular safety awareness events and holiday get-togethers. A certain degree of transience may come along with the idea of extended-stay units.
At Value Place, each renter signs a weekly occupancy agreement, so it is expected that neighbors will change frequently. However, the average stay in a property is often more than 100 days.
Nick Esterline, S.E.C., is an investor and developer based in Wichita, Kan. Nick and his affiliated companies currently hold interests in and manage over 150,000 square feet of retail space, over 60,000 square feet of office space, over 700 apartment units and two Value Place properties totaling 210 rooms. He is also a member of the Greater Tulsa Apartment Association and the Apartment Association of Greater Wichita.