Why Short-Term Rentals Are Becoming A Staple For Mixed-Use Developers

Alongside residential units, office and commercial space, developers are increasingly adding another ingredient to their mixed-use recipe: short-term rentals. STRs can help developers boost their net operating incomes, switch to less expensive financing and make on-site retail spaces more desirable.

But the expense reductions are just one facet of the benefit equation short-term rentals offer mixed-use developers. Adding an STR program with a seasoned national operator can also offer an innovative lifestyle amenity and a compelling advantage for retail leases.

"We’ve seen some short-term rental providers shy away from mixed-use buildings because it’s challenging to do right, but we’ve figured out how to balance the needs of residents, guests and developers and are expanding the model nationally,” said Tom Klaess, senior vice president of property management at Stay Alfred, a short-term rental provider with over 2,500 units in 100 buildings across the U.S. “It’s our goal to not only ensure a harmony where we operate, we want residents to consider Stay Alfred’s presence a plus.”

For most multifamily properties, short-term rentals can increase net operating income by up to 25%, Klaess said. That boost comes from reducing recurring operating expenses for marketing and management fees, and reducing unit turn costs — with a chunk of units already leased to Stay Alfred, finding and onboarding new tenants is a smaller financial drain.

In turn, developers receive guaranteed monthly rent from STRs with an annual escalation clause, helping to offset rising construction and regulatory costs.

Many of the nation's top developers are experimenting with short-term rentals. For Trammell Crow Residential, Stay Alfred units have become a staple for buildings in cities like Austin, San Diego and Denver. Stay Alfred also partners with Greystar Real Estate Partners, Lincoln Property Co., Alliance Residential and Pinnacle.

Demand for short-term rental programs for multifamily buildings is increasing nationwide, but several of the largest short-term rental operators focus not on mixed-use but on leasing full buildings, turning them into quasi-hotels.

By contrast, Stay Alfred has invested heavily its mixed-use operating model, often leasing multiple floors of a building and relying on a seasoned approach to community harmony.

Historically, some developers sat out of short-term rentals, fearing that building residents and travel guests would clash. But research shows this concern can be overcome. Annual surveys from the National Multifamily Housing Council show that over 60% of renters either have a positive or neutral view of sharing their building with short-term renters.

To get residents on board when the company enters a building, Stay Alfred makes proactive introductions and invites residents to an on-site "meet and greet" event, where Stay Alfred ambassadors explain how the program works and provide the number for a 24/7 support hotline where residents can report any guest concerns.

Residents also receive a Green Ticket, which they can use to book discounted travel at any Stay Alfred location in 33 cities for life, as well as a pass for a free stay for their friends and family in their own building.

This travel amenity taps into one of the largest trends in consumer spending: Leisure travel is growing rapidly. Travelers spent a total of $762B in 2018, up 6.1% from 2017.

“It’s a perfect fit," Stay Alfred Senior Vice President of Real Estate Mike Wilson said. "Millennials and baby boomers represent the growing majority of upscale multifamily residents, and both segments love to travel. In addition to expediting lease-up and the significant NOI boost, developers are finding a competitive edge in the amenities war with our resident travel perks.”

Stay Alfred has also started offering exclusive events for residents and guests in their buildings. In Nashville, the company partnered with a national record label to host a release party for a prominent country music artist. The event, just for building residents and Stay Alfred guests, was held poolside at 505 Nashville, the city’s largest multifamily building, where Stay Alfred leases 10 floors.

“We only operate in the best urban neighborhoods where we can provide easy access to art, food and culture so our guests can live like locals,” Stay Alfred Vice President of Marketing Eric Anderson said. “It turns out that long-term residents value these experiences just as much as our travel guests. When we can strengthen a building community doing what we do best, it's a win-win.”

Additionally, having travelers in a building may lure sought-after retail providers that full-time residents and developers want. Guaranteed foot traffic from travelers with a surplus of spending money entices businesses to want to be in a building and adds convenience for residents who might enjoy having a restaurant or coffee shop right downstairs.

Having short-term rentals in a mixed-use building at scale can help developers expedite the daunting task of filling up commercial space on the first floor of their buildings. 

This feature was produced in collaboration between Bisnow Branded Content and Stay Alfred. Bisnow news staff was not involved in the production of this content.