The Nuts and Bolts of Mint House’s Short-Term Rental Management Agreement & Why ZOM Living Chose This Model to Increase Profits

The Nuts and Bolts of Mint House’s Short-Term Rental Management Agreement & Why ZOM Living Chose This Model to Increase Profits

Mint House’s multi-durational rental management agreement model is relatively new to the scene and gaining popularity because its agreements allow owners to increase profits even during challenging environments. Now, developers across the country are beginning to peel back the layers to learn about the key advantages of taking this worthwhile approach.

During this Multifamily Innovation Conference – Atlanta (MICA) session in March with Will Lucas, CEO and Founder of Mint House; and Shaun Fink, Vice President of Asset Management of ZOM Living, they discussed how a management agreement model is superior to the traditional master lease model that the market had been signing for the past several years. Ways to improve NOI through unique amenities, sharing the STR experience with full-time residents and what to consider if the community is sold were also topics covered.

“We’re a next-generation hotel company,” Lucas said. “We operate out of luxury apartment buildings in 13 markets and are helping owners capitalize on the shift to apartment- and Airbnb-style accommodations.”

Mint House is wholly operated through technology: check in, check out and resident services. Guests can pre-order food or groceries so that they are in place upon arrival, request amenities such as massages on demand, exercise in-room and call for discounted laundry and cleaning services.

“We are transforming the hotel industry forever,” Lucas said.

Mint House operates the No. 1 rated hotel in New York City, according to TripAdvisors, and the top or highly rated hotels in Denver; Nashville, Greenville, S.C., and Minneapolis, according to Bookings.com.

Delivering 2x NOI

ZOM is a national operator with 22,000 units and ranks No. 11 in size among national developers. 

It’s premier mixed-use property MUZE at Met in Miami is an award-winning, 43-story tower with 391 units, cinema and retail. Its apartment homes range from 500 to 1,400 square feet for studio and multi-bedroom layouts. (Its penthouses are 1,600 to 2,500 square feet.).

Mint House manages 22 units at MUZE – or roughly 5 percent of the occupancy – on two adjacent floors in the middle of the property.

Mint House began transitioning from the master lease model to a management agreement model at 70 percent of its portfolio. 

“This more aligns our interests with our clients, such as ZOM,” Lucas said. “It optimizes revenue and NOI and enables Mint House to be collaborative on any other aspects of the operations.”

Lucas said it has led to 3x revenue growth and 2x or more NOI growth for its owner partners.

Fink said the deal works for ZOM because it gives the company high operating leverage.

With a master lease deal for a community with 22 units at $2,800 per month in rent, there could be times when slow demand could create “a monster risk” for that community, Lucas said, because master leases incentivized the owners to fill the units at any cost, there were times when those daily rates added up to be less than what would have been a standard monthly lease’s rent.

“With this model, we can share with the potential upside,” Fink said.

Lucas said when the pandemic hit, the master lease model fell completely out of favor. Mint House’s shift to the management agreement model enabled it to withstand the downturn and perform well since last spring.

“With the [unprecedented financial circumstances] of the pandemic, we feel our model has been pressure-tested,” Lucas said. “Our clients have gotten comfortable us because they made it through last year’s downside risks. Looking at how it all turned out a year later, when you ask how bad it was, their answer is, ‘Not that bad.’ ”

Mint House stabilized its overall portfolio from March through June and then managed no worse than an 80 percent occupancy rate by July – a level it has maintained (or better) ever since.

“We only dipped below the multifamily revenue levels until July and then we came back strong and have been above that level,” Lucas said.

What is Multi-Durational Length of Stay?

Mint House’s length-of-stay terms and contactless service make it advantageous compared to hotels, Lucas said. It can lease to guests for short-term, extended term (7 to 29 days) and 30 days or longer. This helps to meet the demand of those wanting to work 8 to 10 hours per day remotely, and who prefer an apartment-style room with a live-in feel over a smaller hotel room.

Fink said the advantages for ZOM was that it was comfortable with its relationship with the Mint House team and its willingness to work collaboratively to remedy any issues such as unruly guests.

“There will always be crazy residents, but when issues come up, we work through that with them,” Fink said. “Our management team is really strong and astute and familiar with what can happen.”

Fink also appreciates the opportunity to give additional amenities to his long-term residents. “It almost is like a try-before-you-buy offer if they want to use any of Mint House’s ad hoc services such as food delivery, cleaning, etc., that otherwise we wouldn’t have offered.”

Lucas said the cleaning services are offered at a below market rate and the work is done by staff who have undergone criminal background checks.

Mint House employs tech in every room -- such as decibel level readers – to monitor any nuisances and address any other concerns that arise, Lucas said. 

Cap-Rate Friendly

Lucas studied all property transactions that had STRs in the community to see what that does to the cap rates and found that any with below 10 percent of such units there is no impact.

For those with a greater number, he found in some cases they might sell 1 point under the market cap rate, and for others, they sold at a premium to cap rates.

“Our NOI lift can more than capitalize on any penalty you find in cap rates,” he said.

Here is the replay: