Developing a new residential building is easy right? Once you get through the construction process just start collecting rents. Not so fast. Renters often don’t go looking for a place to live months in advance so unless you have a building with enough draw to get pre-orders you will likely have months worth of little to no income until your sales team can get people leases signed and checks cashed.
This process is made extra difficult because showing an empty building is difficult. Just like a home is an easier sell when it is staged with furniture, having a building that already has tenants is easier to lease than an empty one because people need help envisioning what it would be like to live there. A blank canvas often creates uncertainty and uncertainty is poison to the purchasing process.
One company is attempting to create value in the time between construction and full occupancy. WhyHotel turns unrented units into short-term, furnished rentals. They just announced a $10 million dollar funding round that will help them bring their innovative business model outside of their hometown of D.C.
I wanted to understand the value of this model as it represents a clever new way to unlock previously untapped value for the property industry. I spoke with Bao Vuong, President and co-founder of WhyHotel to better understand the potential of his company’s business model.
Distribution and promotion is often one of the hardest parts of any new product so I asked if they planned on using booking sites or if every listing was going to go through their own portal. Bao said, “We recommend guests book directly through our website, but all of our hotel rooms are available for booking on the traditional websites and demand channels (i.e., booking.com, hotels.com, HotelTonight, Expedia, etc.) and home-sharing sites (i.e. VRBO/HomeAway and AirBnB).
The fact that these spaces are on both hotel room and vacation market rental sites shows just how extraordinary they are. They service these rentals with an onsite, round the clock staff just like a hotel would but they have the appeal of vacation home spaciousness and appliances.
The obvious benefit of this arrangement is a consistent early revenue stream for cash-strapped building owners (remember that they are just finishing construction and are often over-budget). But there are a lot of other benefits as well. Bao explained it this way, “WhyHotel’s concept helps bring life and energy to the building when it first delivers, accelerating the activation of the residential, retail, and community spaces. WhyHotel serves as a tremendous onsite amenity for both the property management team and the long-term residents. For the leasing team, WhyHotel is able to offer free room nights to prospective tenants — a ‘try it before you buy it’ program. For the property management team, they have access to free room nights to put up residents when there is an inevitable problem during lease-up like HVAC issues, construction issues, leaks, etc.. Residents also get the benefit of either free nights for family and friends or free cleaning services because we will clean their bathroom at no cost every month we’re in the building.”
If you haven’t yet heard of WhyHotel it is because they are not yet in your town. They have pursued their growth in the D.C. area rather than spreading themselves too thin in multiple geographies. As Bao put it, “WhyHotel is a Washington, DC-based company and we have so many important relationships in the Washington, DC area that have enabled us to build WhyHotel as a concept and a brand. Also, WhyHotel’s founding team has deep professional roots in DC and Northern Virginia, so growing the company after we spun out from Vornado in the great DC-area has served the company well.” He said that this round of funding will help with their aspirations to bring their concept across the U.S.
Much like co-working and hot desks changed the value proposition for office buildings by giving both landlords and tenants more options, short-term vacation rentals could do the same for residential and mixed use. One of the exciting things about the innovation happening in the property industry right now is that it isn’t necessarily the software and hardware that is making the biggest impact. Instead, it is a collective rethinking of how we can all benefit more from new ways of utilizing out built environment.