The Extreme Edge of Innovation

Four C-Suite executives offer insights and predictions for the future of the multifamily housing industry

The Extreme Edge of Innovation

At the 2018 Apartment Internet Marketing (AIM) Conference (Huntington Beach, CA, May 6-9), panelists for “The Extreme Edge of Innovation” session provided insights and predictions for the future of multifamily housing industry. Moderated by Ryan Gilbert, Partner, of the San Francisco-based venture capital firm Propel Venture Partners, the panelists represented expertise on three disparate innovations, as follows:

  • Property Investment: Daniel Cohen, CEO, Daydream Apartments, a Denver-based owner and manager of Class A apartment properties and homesharing facilitator.
  • Operations: Jason Kamen, Director of New Market Real Estate, WhyHotel, a DC-based operator of 100 to 250 room pop-up hotels with 24/7 on-site staff in newly built, luxury apartment buildings.
  • Construction Methodology: Steve Glenn, CEO, L.A. area Plant Prefab, a first-of-its-kind prefabricated home factory dedicated to sustainable construction of high-quality custom and single/multifamily dwellings.
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Convening the panel, Moderator Gilbert made this observation: “The multifamily space isn’t the domain of the 22-year-old techie who goes to work on a scooter and eats ramen noodles. It’s about real innovation across the U.S. and the world; building brands with which residents are proud to associate; and with a focus on turning an apartment into a home.”

But what happens when nobody’s home? For residents looking to rent while away and come home to “a significant rent credit,” Daydream Apartments is a fully leased multihousing model that is also a “push-button facilitator” for homesharing. “We generate a lot of economic lift.” In fact, Cohen suggested that multifamily housing managers who balk at the sticking points and risks associated with homesharing may be missing their moment. Citing slowing rent growths, “it’s just a very good time to do this,” said Cohen. “Investors want higher returns from their core properties. NMHC did a survey about homesharing - it was crazy how many were not only not offended by it, they were interested in doing it.”

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In contrast to Daydream Apartments’ fully leased properties, WhyHotel contracts with post-development unleased properties to operate turnkey pop up “hotel.” As Kamen noted, “The lease-up period is the riskiest period of the build. It takes a year to a year and a half to fully lease up a building and [developers] are operating in a deficit.”

WhyHotel’s solution is to lease floors and operate a pop-up hotel. “We don’t take over the entire building, said Kamen, “we will operate in half of the building or less.” WhyHotel provides a full operating staff, which generally works out of a converted unit on the higher floors of the building. As the building fills up with residents, WhyHotel decreases its presence, eventually leaving entirely. “There’s a lot of heartburn about how long it takes to fill up a building,” Kamen summarized. “Having us as a safety net means you don’t have to give concessions, and when your building does stabilize, you get a much higher rent.” WhyHotel sweetens the pot by offering residents 3 room nights at cost for visitors and free room nights to 15 comp nights a month to management staff.

WhyHotel does not have full service “unless there’s a food component in the building; then we can do room service.” While the business model remains based on a perceived need in the market, Kamen has since coordinated with a REIT that has modified its construction plans in order to accommodate a WhyHotel partnership.

Cohen and Kamen characterize their business models as “found money” in mature or maturing multihousing models. For Glenn, the focus of Plant Prefab’s mid-sized dwellings is shaving time and money of on-site construction and labor costs with prefabricated and assembled building modules. In cities where unionized labor is at a premium, “we’re able to save a lot of time that normally might be wasted with on-site construction,” said Glenn. Citing a dorm project in Berkeley, CA, Plant Prefab was able to assemble a 16-unit building on-site in 11 hours. “We’re doing projects in half the time. And we’re saving lots of neighborhood disruption,” Glenn noted. Committed to sustainable materials, Plant Prefab has created some of the first LEED Platinum multihousing units in the U.S. and Canada.

With innovations like homesharing and pop-up hotels, one of the key takeaways is to be conscious and respectful of the community’s attitudes toward temporary guests. On the other hand, be aware that residents are now look at their homes as a revenue stream and resent having obstacles placed in their paths.

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Other takeaways from the panel include:

  • Homesharing and pop-up hotels can mean “found money” - which, in times of slow rental growth, can boost revenues.
  • Homesharing and pop-up hotel models work best in areas where there is ground transportation and tourism drivers.
  • Homesharing can make use of underserved property amenities, like meeting space. (Cohen: “Have cooking classes, where residents can meet visitors.”)
  • Creating stellar prefab projects with significant cost savings is achievable at the midsize level in urban infill areas.

Some challenges cited by the panel include

  • Taking your capital into markets where municipal regulations are unsettled.
  • Attracting the right clientele (Cohen: “If you don’t have a five-star rating by three hosts on AirbnB you won’t even see Daydream Apartments.”)
  • Before considering a pop-up hotel, review your absorption levels. (Kamen: “Garden apartments have higher absorption; it’s not worth it.”)
  • When considering a prefab, compare the costs of moving panels v. modules to your site. (Glenn: “With modules, there’s a lot of air, and shipping ‘air’ can be expensive.”)