Understanding Corporate Housing
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Corporate housing in multifamily finance typically refers to the practice of renting an apartment property to corporate workers or executives on a medium-term basis. In that way, owning corporate housing property lies somewhere between operating an extended-stay hotel and leasing out apartment units for a traditional 6-month or 1-year period. Before we tackle whether or not corporate housing is a viable alternative source of income for multifamily investors, here are some important facts about the corporate housing industry:
- In 2019, corporate housing revenues reached an astounding $10 billion, according to the Corporate Housing Providers Association (CHPA).
- The average daily rate (ADR) has seen some fluctuation during recent years, with the average night costing 130.5 in 2019, down from $181 in 2017, $137 in 2014, but higher than the $117 ADR in 2008.
- In 2017, the average corporate housing customer spent 78 nights in a unit, slightly down from 2016.
- The top trip purposes for corporate housing travelers included relocation (33%), project training (21%), insurance/emergency (10%), government/military (9%), and interns (8%).
- Corporate housing occupancy rates have slowly been trending downward in recent years, from 90.6% in 2005 to 88.5% in 2008, to 86.4% in 2017.
What are the benefits of corporate housing?
The benefits of corporate housing include the potential for higher income than traditional apartment units, as well as the ability to provide a certain degree of customer service, including housekeeping. According to the Corporate Housing Providers Association (CHPA), corporate housing revenues reached an astounding $10 billion in 2019, with the average daily rate (ADR) for corporate housing units costing $130.5. In addition, the average corporate housing customer spent 78 nights in a unit in 2017, and the top trip purposes for corporate housing travelers included relocation (33%), project training (21%), insurance/emergency (10%), government/military (9%), and interns (8%).
However, it's important to note that corporate housing occupancy rates have slowly been trending downward in recent years, from 90.6% in 2005 to 88.5% in 2008, to 86.4% in 2017. In addition, it's more expensive to operate and maintain corporate housing units than traditional apartment units, and there may be legal loopholes to jump through, as many cities do not allow short-term rentals without a property owner obtaining a special permit.
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What are the different types of corporate housing?
Corporate housing generally refers to the practice of renting an apartment or home to corporate workers or executives on a medium-term basis. There are a few different types of corporate housing, including:
- Furnished Apartments: These are typically leased on a month-to-month basis and come fully furnished with all the necessary amenities. Furnished apartments are ideal for corporate travelers who need a place to stay for a few weeks or months.
- Extended-Stay Hotels: These are similar to furnished apartments, but are typically leased on a weekly basis. Extended-stay hotels are ideal for corporate travelers who need a place to stay for a few days or weeks.
- Corporate Housing Companies: These are companies that specialize in providing corporate housing solutions to corporate travelers. They typically provide a wide range of services, including finding and leasing furnished apartments, extended-stay hotels, and other types of corporate housing.
For more information, please see the following sources:
What are the advantages of corporate housing over traditional rental housing?
The advantages of corporate housing over traditional rental housing include the potential for higher income, as corporate housing units can be rented out for a higher daily rate than traditional rental units. Additionally, corporate housing units are typically fully furnished and offer a certain degree of customer service, such as housekeeping. Finally, corporate housing can be a viable option for multifamily investors who have a building in the lease-up phase, as companies such as WhyHotel offer temporary hotels specifically for corporate travelers.
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What are the drawbacks of corporate housing?
The potential for profit is high, but there are some drawbacks to consider when investing in corporate housing. For instance, you'll need to market your units to large corporations, and you'll be competing against companies that do this professionally, as well as the thousands of Airbnb listings in your city. In addition to the competition factor, it's more expensive to operate and maintain corporate housing units than traditional apartment units. For instance, each unit must be fully furnished and most corporate travelers expect a certain degree of customer service, including housekeeping services. Finally, there may be legal loopholes to jump through. Many cities do not allow short-term rentals without a property owner obtaining a special permit. Therefore, you could be running afoul of local laws by hosting short or medium-term corporate travelers. Plus, if you currently have a mortgage on your multifamily property (as most owners do), you could also run afoul of your lender by hosting corporate travelers instead of typical, long-term residents. Qualifying for a refinance using the income from temporary visitors could also be a challenge.
What are the best ways to find corporate housing?
The best way to find corporate housing is to market your units to large corporations. You can also use services like Airbnb, which may be beneficial for owners of small-to-medium size apartment buildings that may only choose to rent 1-2 units out on the service in order to generate extra income. Additionally, you can look into companies like WhyHotel, which operates temporary hotels specifically for corporate travelers.
Sources:
- https://www.chpaonline.org/clientuploads/2018_Key_Findings.pdf
- https://multifamily.loans
- https://apartment.loans/posts/understanding-corporate-housing
- https://www.bisnow.com/national/news/multifamily/empty-apartments-turn-into-try-before-you-buy-hotel-rooms-97410
- https://www.bisnow.com/national/news/technology/as-long-term-rentals-gain-traction-with-airbnb-here-are-3-things-to-watch-74328
As you may have already noticed, the potential for profit is actually quite high. For example, renting out a unit to a corporate traveler for 30 days at the average U.S. ADR for corporate housing ($130.5), you could achieve an income of $3,915. That's much higher than the $1,140 monthly average rent for a one-bedroom apartment or a two-bedroom apartment ($1,354). However, that wouldn't necessarily be the case if the unit doesn't go rented for much of the year. Investors of corporate housing need to market units to large corporations and are competing against companies that do this professionally, not to mention the thousands of Airbnb listings in any given city.
In addition to the competition investors face with renting out units, it's also more expensive to operate and maintain corporate housing units than traditional apartment units. The reason behind this is that in general, each unit must be fully furnished and most corporate travelers expect a certain degree of customer service, including housekeeping. For full transparency, there may also be legal loopholes to jump through. Many cities do not allow short-term rentals without a property owner obtaining a special permit. This is extremely important for investors to pay attention to, as you could easily be running afoul of local laws by hosting short or medium-term corporate travelers.
For investors who currently have a mortgage on a multifamily property (as most owners do), you could also run afoul of your lender by hosting corporate travelers instead of typical, long-term residents. Not only that, but qualifying for a refinance using the income from temporary visitors could also pose a challenge. However, there are still many more situations in which corporate-style housing could provide additional income with little downside. In today's times, the more savvy multifamily investors are beginning to realize that utilizing Airbnb may not be all bad-- especially for owners of small-to-medium size apartment buildings that may only choose to rent 1-2 units out on the service in order to generate extra income.
After all is said and done, getting into the traditional corporate housing business can be quite challenging-- and sometimes simply may not be worth it. However, for a select cross-section of apartment owners, allowing corporate travelers to rent their properties short term could be an effective way to increase profits. This especially the case for buildings in their lease-up period, or for those dealing with high long-term vacancy rates.