AIM 2023 Furniture, Flexible Rentals and NOI-Case Studies of New Yield Generation
Furnished apartment rentals solve a significant problem and save days or weeks of time for certain groups of renters. They also allow renters not to invest capital in furnishings and customization when that is a bad use of capital.
Adding furnishings changes commodity apartment product into a differentiated lifestyle convenience service, that earns much higher rents than unfurnished homes.
Lisa Yeh, Chief Operating Officer at Sentral, and David Madrid, Senior Director, Short-Term Solutions and Strategic Investments at AvalonBay Communities (AVB), discussed their companies’ approaches with moderator Khushbu Sikaria, EVP and Head of Multifamily & STR at Inhabitr.
AVB entered this rental business model in 2017 and today it delivers about 5 percent of its total revenue, spanning 2,500 units.
“We identified it as a disruptor trend in rental housing,” Madrid said. “About 10 percent would be interested in furnished living.”
Yeh said she sees emerging demand for short-term rentals. Sentral takes over the entire building where residents stay for one night to a year. It has 10,000 units in 20 cities that are managed on behalf of owners.
“By controlling the entire building, you can provide a better more consistent renter experience,” she said. “It’s a hospitality model. A fun, disruptive ride. You improve topline revenue by running the short-term rental model.”
With inflation and interest rates rising, this is a great revenue generator model to help offset the higher costs, the panelists said.
“More people are staying 3 to 4 days because they have flexibility when it comes to their company’s return-to-office policy,” Yeh said. “This is not hotel living. Using apartments for lodging is attractive. How people live and travel now is different.”
Madrid said that about 10 percent of its renter base, spanning all age groups and demographics, is interested in furnished living, Madrid said.
“We have a standard furnished apt home and if they want to swap a king or queen bed or have a bedroom instead by an office, we can create rates to accommodate that,” he said.
Yeh said that appealing to a broader range of customers, allows Sentral to go after a larger universe of renters.
She said residents enjoy the building dynamics of having multiple types of renters.
“Unlike multifamily, where most residents don’t want to have to talk to anyone, we want to talk to our residents. It’s a different vibe,” she said.
Yeh said Sentral furnishes the less-desirable locations in its assets to help drive revenue. In discussing location and seasonality, she noted her furnished units were earning 11x more rent compared to unfurnished in communities in Scottsdale, Ariz., during the Super Bowl.
“That type of rent can support vacancies during slower periods,” she said.
AVB’s website, presents an apartment home with the option: Do you like this unit? Here are the furnished and unfurnished prices.
Sentral’s marketing team looks at lease terms, asking, ‘How do we increase spend on different seasons to attract different types of customers?’
“There’s a lot of data that goes into that. Our marketing spend can and should shift with the seasonality.
Madrid said AVB’s pricing uses a revenue management strategy based on “what your risk appetite is.”
He said revenue management can be challenging because there isn’t a lot of software product for furnished apartments and mid-term leases of two months to seven months.
Other Interesting Notes:
- March through July is the highest volume period for leasing and January and February are most challenging, according to Madrid.
- Madrid said AVB will segregate guests by floor or by location so short-term and longer-term residents don’t intermingle. Nonetheless, its nightly and weekly stays are corporate travelers – not partyers.
- It’s harder to get rid of a bad actor on an apt lease than a short-term guest because STR residents don’t have the same rights. It’s not a complex eviction process, Yeh said.
- Having full-time housekeepers doesn’t make financial sense because we don’t have enough turns to justify it, Yeh said.
- Because it has people checking in throughout the day, half of Sentral’s buildings are staffed 24 hours a day and the other half are more self-served through technology, such as using entry codes, etc., for move-in and move-out through their cellphones.
Here is the replay: