Count in corporate housing among businesses that have responded rather nicely to the recent job growth and corporate reinvestment uptick. One of multifamily’s cyclical specialty operations, corporate has started to show its own signs of renewed vigor.
Not that the business went totally into the tank as corporate management nationwide cut its white-collar ranks. Fewer workers often meant more travel, which meant that those surviving overachievers would need temporary housing through even the worst of the economic downturn. Still, multifamily players who make corporate-housing operations part of their strategic DNA are really starting to like what they see.
“Lately, we’ve seen companies not only increasing allocations for their per diems, but a renewed commitment to corporate travel,” says Brad Korman, co-president of 100-year-old, Philadelphia-based Korman Communities.
The question among stakeholders, investors, owners, and property managers is, will the tide of fundamentals—demand, job creation, and household formation—raise all ships in the multifamily pool?
Corporate-housing demand latches itself in many ways to the economy and, essentially, to where people need to be—temporarily, even—to perform their jobs. On one hand, Americans’ increasing obsession with flexibility in every part of their work lives should suggest that those who are competent at operating corporate-housing options would do ever better. On the other hand, secular changes in the way business will get done in many industries can raise concerns, particularly about sustaining demand through good times and bad.
“This segment is driven by the business community and fluctuates some over time. Revenue has varied as the U.S. economy has changed,” says Pam Wade, vice president of Gables Corporate Accommodations, which manages approximately 38,000 apartment homes. “There have been years of significant growth in revenue and NOI as the economy surged. Currently, [our] corporate-housing revenue has been increasing over the past 12 to 18 months.”
Industry experts broadly predict that numbers will pick up for multifamily, and revenue from rents is forecast to track upward through 2015. So, many market-rate companies are trying to retool their corporate-housing platforms to the right size and expectations.
“Markets are ever changing, as are the needs of our customers, so we’ll continue to evaluate our strategy and make adjustments as necessary,” says Kristy Wisdom, manager of corporate-housing administration for Chicago-based AMLI Residential, whose corporate-housing strategy dates back to 1996. “We see value in offering short-term furnished corporate housing.”
Since September 2010, AMLI has seen corporate-housing revenue increase quarter over quarter.
Not everyone has increased their temporary-housing load, however. Some have chosen to ride out the economic wave rather than risk damaging their multifamily segments later on.
“We’ve kept it stable,” says Marshall Rosen, managing director and CEO of Summit, N.J.–based Solomon Organization, which owns and manages approximately 10,000 apartment homes in New York, New Jersey, Pennsylvania, and Connecticut. “The corporates can be very good when they’re bountiful, but you run the risk of having too many eggs in one basket. If a company decides to terminate its programs and you have a lot of exposure to them, that could really upset your occupancy level for a period of time.”
First to Market
Sometimes, customers tell us the business we’re in. In the early ’60s, Korman Communities purchased an odd-shaped apartment building whose layout scared potential owners who couldn’t foresee how furniture would look inside. In response, Korman hired a designer to add furniture so the company could show how the apartments would look when full.
When people asked to rent the fully furnished apartment, the firm decided to allow it. Then, when people asked if they could rent the apartments for only a few months at a time, the company policy was changed again.
“My father realized that there was a place for people who needed to be somewhere between a few days at a hotel and a year in an apartment, so he created Execu-Suites throughout our 25 properties,” says Brad Korman. “It was unique, and for us it became a big part of our business.”
In the ’90s, Korman expanded its footprint in temporary and corporate housing, creating a high-end, furnished model in properties near Central Park, Times Square, the District of Columbia, and Beverly Hills.
Gables Residential has had a corporate-housing division since 1990. Its communities were receiving a high volume of walk-in traffic requesting furnished or short-term apartments (for example, winter visitors in Florida). So the Atlanta-based firm decided to turn the opportunity into a revenue stream for the company. “During the past few years, the industry has experienced a tough economic climate, but despite these challenges, we were able to increase net operating income year over year—showing NOI growth of 116 percent in the past two years,” Wade says.
Going a Different Way
Given the risk of sudden overcapacity, and the particular operational skills needed to make money in a more unpredictable environment, some market-rate players are deciding corporate housing is just not for them.
Chicago-based Equity Residential, for example, sold off its 10-year-old corporate sector last June to National Corporate Housing (NCH), a national provider of furnished apartments for temporary-housing communities.
“This acquisition will allow both companies to expand their level of service and offer more inventory to our valued customers both nationally and internationally,” says Tom Atchison, president of NCH. “The combined entity offers one of the largest geographic coverage areas for furnished apartments in the United States and adds more employees physically located in destination cities of high temporary-housing demands, including New York, D.C., San Francisco, Seattle, and South Florida.”
What’s New? What’s Next?
When a multifamily community is a mix between temporary housing and renters, it’s often a positive for both sides.
“We can offer more amenities and services required by our furnished residents, which we can also offer to those in the unfurnished units,” Korman says. “As the demand for furnished apartments goes up, we reduce the supply of the unfurnished units, leading to better occupancy and higher rates.”
One popular trend in corporate housing is “specialty housing”—which caters to students, military personnel, and insurance and government workers.
“Companies are starting to service only a specific group, or existing companies are hiring teams to work exclusively with those segments,” Wade says.
Which is why “flex” has such appeal.
Keith Loria is an Oakton, Va.–based freelance writer specializing in real estate.