How To Triple Your Brand In One Deal
Since its founding in the ‘60s, LA-based Oakwood Worldwide has been a pioneer in the corporate and serviced apartments sector. Thanks to a $4B JV with Singapore firm Mapletree Group, Oakwood will triple its brand with more than 100 new properties globally over the next five years.
Oakwood CFO Bill Foltz (above left, with Oakwood founder, chairman, and CEO Howard Ruby at the deal signing), the architect of the JV (with Goldman Sachs as financial advisor), gave us the details. A year before meeting Mapletree, Oakwood was independently contacted by three other Asian firms that were attracted to its serviced apartment brand in Asia and were looking to JV (that’s much more than a coincidence), he says. (Four suitors vying for their attention, sounds like the guy who turned us down for prom... the first one who turned us down.) It chose Mapletree four months after engaging Goldman due to its interest in US expansion, along with Asia and Europe. In Mapletree’s first foray into the US, the JV will direct more than $2B for acquisitions of traditional apartment properties (50 buildings estimated), which Oakwood will fully furnish (below) and update with hotel-style amenities, Bill says.
The JV will likely focus on “B properties in A locations, with 80 to 150 units” on the coasts and in major business centers (NYC, LA, Chicago), Bill tells us, along with up-and-coming cities like San Diego, New Orleans, and Raleigh. The serviced apartment concept (average stay is 75 days) is well established in Asia and Europe, he says, but in the US the sector is fairly wide open. Oakwood is one of few major players, and the largest by far. Its business lines include branded Oakwood properties the firm runs, manages, and leases to corporate and conventional tenants, as well as a supplementary service setting up and running a chunk of corporate units (often leased through big clients' HR departments, like Microsoft or Accenture) within another company’s apartment project (think AvalonBay, EQR, etc.).
The business model works. Oakwood can charge more than what a traditional multifamily landlord does for the same space, increasing the property’s profit potential. But it’s not without risks. Serviced apartment vacancy could reach 15% versus a well-run apartment building’s 5%, thanks to the velocity of the turnover. Bill says obsolete office buildings in urban cores could be potential conversion plays, and adds that the company will be hunting down land for ground-up development. Formerly the CFO of the LA Dodgers, Bill says the concept of vacancy carries through from baseball to real estate. As the game goes by, you lose the opportunity to fill seats and can never make that up. A deep thought to be sure, but it has us wondering if they’ll serve Cracker Jacks in Oakwood building lobbies.
