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Startups see untapped potential in apartment buildings

Adam Allington Aug 25, 2017
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Construction workers work beside new apartment buildings in downtown Los Angeles, California on April 5, 2017. FREDERIC J. BROWN/AFP/Getty Images

Startups see untapped potential in apartment buildings

Adam Allington Aug 25, 2017
Construction workers work beside new apartment buildings in downtown Los Angeles, California on April 5, 2017. FREDERIC J. BROWN/AFP/Getty Images
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Home-sharing services such as Airbnb are great for homeowners looking to make extra money by renting out properties, but for people living in apartment buildings it’s a bit more tricky.

Apartment construction has been booming in recent years. Now, a handful of startups are aiming to wring even more money out of that market, both for the building owners and tenants.

“Right now, it’s the wild, Wild West when it comes to short-term rentals,” said Sean Conway, the CEO of Pillow Residential, a company which is trying to make it easier to rent apartments on Airbnb.

Most big apartment buildings have rules barring Airbnb, so Conway asked property owners what it would take to change that. “And they told us transparency, control, and profit sharing,” Conway said.

Pillow, which is now in 12 cities, lets building owners track and control how much tenants use Airbnb. It also gives building owners a cut of the profits — between 5 and 15 percent. Conway said it’s also a way to for tenants to afford the increasing cost of rent.

“Property managers are realizing is, this is what the next renter generation appeals towards — being able to utilize underutilized assets.”

But there are signs the apartment market is starting to cool. Hans Nordby of CoStar Portfolio Strategy said vacancy rates have risen to 8.1 percent, up from 6.8 percent a year ago.

“The developers are starting to pull their reins in,” said Nordby, “in the markets that have rent losses and vacancy rate increases, because they both lead to less net income for the building.

Even when demand for apartments is strong, it can still take a long time from the moment a high-rise building opens until it is completely filled with tenants. Something Jason Fudin, CEO of WhyHotel, calls “timing inefficiency.”

“When we build a new building, a high-rise or a large building, the first day it opens, you have hundreds of vacant units,” notes Fudin.

To address this inefficiency, Fudin started WhyHotel, which aims to turn those empty apartments into “pop-up hotels.” For consumers, it offers the perks of an apartment at hotel prices. For developers, it helps them monetize their investment quicker.

“Pulling the trigger on a project of that scale with $150 million in motion is a difficult economic decision,” he said, “because of that time lapse between the go decision and when you start seeing real economic income.”

Fudin notes that WhyHotel could make it easier for investors to green light projects.

“To the extent that a WhyHotel use is in the building, it means that it’s a less risky decision for a developer to build that building,” said Fudini.

WhyHotel’s rollout was for 50 units in a new building in Arlington, Virginia. The hotel just shut down a few months ago after the building filled with permanent tenants.  Fudin said he’s already in talks for even bigger pop-ups for next year.

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