The short-term hotel providers who want to lease your apartments are not all the same. Here is what sets them apart.

Jason Fudin, CEO and Co-Founder of WhyHotel, didn’t set up to be an innovator (or disrupter, depending on your view of the world).

He just wanted to be a developer.

Fudin cut his teeth in the business at Washington, D.C.–based, publicly traded behemoth Vornado Realty, where he managed over $2 billion in multifamily development. After a stint with Washington, D.C.–based boutique condo and apartment builder PN Hoffman, he returned to Vornado, where he’d been recruited back as an executive to run a group focused on innovation. That’s when he saw an opportunity in an underutilized asset—large apartment buildings in the lease-up stage.

Fudin tested his idea, during his first tenure with Vornado, by launching what he calls a “luxury pop-up hotel” as a 50-unit pilot within the 699-unit Bartlett, a 22-story apartment tower in Arlington, Va., just before the Trump inauguration—when visitors would be streaming into the area.

In just 60 days the building reached 90 percent occupancy, providing the first glimpse of validation for the pop-up model. Within five months, Fudin spun the concept into an independent, venture-backed company, WhyHotel Inc. He was joined by co-founder Bao Vuong, and the two spent the next 12 months building out a pipeline, platform, and team. Now, the firm operates three pop-up hotels in Baltimore, Virginia, and Washington, D.C., with more on the way.

“We’re a product by developers for developers,” Fudin says.

While they may not share Fudin’s real estate background, several entrepreneurs have joined him in the increasingly competitive short-term rental space. Their stories are diverse.

Jordan Allen, CEO and Founder of Stay Alfred, is a former airborne ranger in Afghanistan and a onetime college football defensive end. Sonder Founders Francis Davidson and Lucas Pellan started their venture in college after experiencing a bad stay at a short-term rental. As their idea gained traction, the two men decided to drop out of school to develop their innovation. Two others, Joe Fraiman and Andrew Kitchell, Founders of Lyric, took a more conventional route, working at housing-related organizations before teaming up to form their company. Chris Herndon, Co-Founder of The Guild, also co-founded Apartment List and spent several years as an investor at GTCR Golder Rauner and Goldman Sachs. Locale’s Founder Nitesh Gandhi, has a background in hospitality, serving as Director of Asset Management for The Chartres Lodging Group and consulting for Hersha Hospitality's Independent Collection of boutique hotels.

These providers are part of a bigger movement in the overall economy. Whether it’s Uber with cars or Airbnb with lodging, digital disrupters are creating ways for people to monetize their underutilized assets. For apartment owners, that means capitalizing on vacant units. While some apartment owners are skeptical that these companies are any different from traditional corporate housing providers, others are excited by the potential in short-term rentals. AMLI Residential, for instance, could soon be devoting xx percent of its portfolio to short-term apartments.

As you’ll read throughout this series, short-term hotel operations, while potentially representing a change to apartment business economics, come with both opportunities and pitfalls, including challenges in on-site management.

“The strategy makes a lot of sense. I get it. And it’s the best utilization of vacant apartments,” says Dave Woodward, Founding Principal of SVN-CompassRock, a provider of institutional-quality asset and property management services to the apartment, office, retail, and industrial sectors. “I think this utilization approach will creep into every corner of life.”

Different Models

One important characteristic about most short-term hotel operators is that their apartment rental business models differ.

“We all offer furnished apartments that are for rent on a short-term basis,” Fudin says. “But there are a bunch of differences in how [they’re] operated.”

Some companies only want to rent in lease-up properties, while others desire space in existing communities as well as lease-ups. These operators also offer varying levels of resident services.

Most short-term rental providers rely on what Fudin calls the “arbitrage” model.

“The arbitrage model is used by companies that believe there’s more money in short-term furnished rentals than long-term unfurnished apartments, so they pay the market rate for a certain number of units for two or three years,” he says. “They try to charge more nightly than what they’re paying in rent. They list the apartments on Airbnb and Vrbo because the sales cost is a lot lower.”

While companies that rely on the arbitrage model generally lease apartments, WhyHotel goes about leasing differently than some of its competitors. The firm only operates in lease-ups and signs agreements with apartment operators from which it earns a percentage of the monthly rent.

“[This arrangement benefits] a private developer because it’s a hedge against absorption while providing interim income,” Fudin says. “As the apartment building leases up with long-term residents, WhyHotel winds down its position in the project and eventually leaves altogether. This means that WhyHotel doesn’t have the negative effect on long-term financing that having corporate-style leases in the building does.”

Whether a building is 100 years old, 5 years old, or brand-new, Joshua Viner, senior manager of Vacasa Multifamily, says owners are usually looking for one thing when they partner with his firm.

“Companies are open to us if they’re operating at 80 percent occupancy,” Viner says. “We can be a safe and stable way to help them get into that 93 to 94 percent without necessarily needing a whole floor or two floors.”

Stay Alfred’s Allen has his sights set on taking over entire buildings for lease-up but says operating on two or three floors is the “ideal situation.” Eventually, he wants to expand to 25,000 apartments in Class A buildings in downtown locations.

“If we’re going to take over a 150-unit building, the owner won’t need to hire property management or on-site leasing staff,” Allen says. “[Because of this], we can save them 30 percent of their operating costs.”

While many of the companies in the short-term space were the brainchild of an entrepreneurial founder who saw underutilization in the market, vacation rental management company Vacasa launched Vacasa Multifamily last year to complement its primary business. Currently, the new service operates in 28 states.

Vacasa likes to manage five to 10 units in the apartment buildings in which it leases. “Our goal is to minimize the impact on the residents in the apartment community. We feel that five to 10 units is an amenity, while 25 to 40 units can start to feel like a hotel,” Viner says.

At the Guild, a boutique short-term rental and hotel operator, Herndon prefers to operate 50 or more apartments in a new building and achieve “a branded integration” with that community. “When you arrive at the property, we want the experience to be elevated and frictionless, much like if you were arriving at a high-end hotel,” Herndon says. “For the right developer, with high-level construction and service, we’re a really good fit and they’re happy for us to be an anchor tenant and take up 20 percent of the building.”

Gandhi’s Locale, a boutique accommodations company specializing in short-term and extended vacation rentals and corporate housing, prefers to occupy 10 percent to 25 percent of a building’s inventory. Ideally, Locale would take an entire floor but has occupied partial floors. In one Austin building, it occupies the same wing on multiple floors.

“It really depends on the owner and how much inventory they want to take off the table,” Gandhi says. “We’ve stopped taking deals with less than 10 units because we just found those are difficult to operate,” he says. “It increases the risk of resident friction when you’re just taking a handful of units and they’re mixed in.”

A Variety of Service Levels

Customer service levels can vary among the different short-term providers. Many of these companies operate through online or app platforms. Once a guest books a space, they receive an email with a code that allows them entry into their apartment, which is outfitted with an access-control system and furniture provided by the short-term rental operator.

Once a guest books with WhyHotel they receive an email with a code that allows them into the apartment building and provides directions to the company’s Sky Lobby, a two-bedroom apartment that’s staffed 24/7 and serves as the company’s operations hub in the building.

“We go through check-in, explain the model, and give them keys,” Fudin says. “We give them a map to the building. When they check out, they give us their keys and go on their way.”

Stay Alfred master-leases apartments (typically for five years with options) and outfits them with furniture, an Alexa, and smart locks. Allen says his goal is to provide a consistent experience throughout Stay Alfred’s portfolio.

“We’re bridging the gap between hotels and Airbnb,” Allen says, echoing a sentiment expressed by other short-term rental operators. “With short-term rentals, you get all the amenities you have at home, but it’s an inconsistent guest experience. In a Hilton or Marriott, it can get uncomfortable with four people in a room, and if you want to wash your clothes, for instance, it can get tricky.”

Sonder seeks out new construction and stabilized buildings with “exacting brand standards,” according to Mason Harrison, the firm’s Director of Communications. These are apartment communities within walking distance of bars and restaurants. The company wants to lease full floors or individual units, and it operates 24/7, text-based concierge services, such as providing fresh towels or housekeeping.

“We put smart-home devices in all units, ranging from NoiseAware [noise monitors] to Nest and keyless entry,” Harrison says. “We also source our own furniture. We customize the interior space with furniture, artwork, and wallpaper so that no two units are the same.”

The Guild offers a service-intensive model, offering customers the opportunity to stock their fridge, order room service, or set the temperature through an app. “We aim to provide and enhance a lot of the amenities and services you’d expect at an upscale hotel,” Herndon says. “We also have a staffed front desk. Even though you can do virtual check-in, if you want to talk to somebody or if anything goes wrong, we have somebody on-site.”

Beyond that, the firm looks outside to provide services. “We’ve stitched together partnerships with lots of on-demand service providers, such as food and grocery delivery,” Herndon says.

Herndon aspires to be an alternative to Starwood or Hilton. “We have a specific focus on business travel,” he says. “We’ve found that high-frequency business travelers, such as management consultants and salespeople and attorneys, can stay wherever they want on their expense account. So, you know there’s a higher service-level expectation that comes along with that.”

Kitchell says Lyric, which operates in 12 markets, prefers buildings where it can lease assets for a long term and will even update a community’s amenity spaces. The company aims to provide “Starwood-level service” with “really premium design and decor.” It hired Ravi Hampole as Vice President of Brand after he served in the same role at Starwood Hotels and Resorts.

“We offer 24/7 support, seamless access, and everything you’d expect in Class A multifamily space,” Kitchell says. He adds that Lyric’s guests typically are business travelers who resemble the existing residents in the apartment communities in which the company leases. “They work at the same places and eat at the same restaurants,” Kitchell says.

Hosteeva, which says it offers a five star–hotel standard, “offers the warmth and comfort [of a] fully furnished [apartment] with custom interiors and handpicked furniture to call it your home away from home,” according to the firm’s website.

Like many of its competitors, Kasa, known for its technology platform, offers free, ultra-speed business-class Wi-Fi, smart locks and thermostats, beds with fresh linens, and self– check-in and check-out, with 24/7 support.

While some short-term operators just have high-end hotels in their sights, Locale wants to bridge the gap between upscale boutique hotels and longer-term corporate housing. “For so many years, there was a gap in terms of a true upscale suite-type product in the hotel world when you looked at the extended-stay product,” Gandhi says. “We’re focused on corporate housing as a true driver of demand; we’re trying to build a product that’s not only great for a leisure traveler but also a business traveler.”

Locale, which has automated check-ins and 24/7 service in its buildings, doesn’t want to be the biggest short-term operator. Instead, it’s focused on delivering a “higher-quality experience.” At the South by Southwest (SXSW) music and film festival this year, for example, Locale had a demo apartment with a desk and a mounted monitor that connects to a laptop.

“If you’re traveling for work or you have to do some work, all you have to do is plug into a monitor,” Gandhi says. “It’s an experience that you just can’t get at a traditional hotel or vacation rental.”