Short-term apartment rental companies with a new twist on a classic concept are colonizing downtown Chicago buildings.
Start-up companies that operate hundreds of apartments are competing with long-established “corporate rental” companies for guests who want the space, privacy and convenience of an apartment with the amenities of a high-end hotel. Investors are pouring money into the new niche, offering developers a revenue stream that, say the startups, supports the growth of condo and apartment buildings for permanent residents, too.
The meteoric popularity of company-owned short-term rentals is opening new options for travelers, households in transition, and even for building owners and investors, said Ben Creamer, 37. He co-founded Downtown Apartment Company in 2009; the company now manages 175 units.
Travelers and people on short-term assignment often turn to established local companies when they discover that a unit offered by an individual “isn’t at all like the pictures,” said Matt Tobel, director of business development for Suite Home Chicago, another firm that offers short-term rentals. Established local firms offer a variety of short-term leases, some requiring at least a month’s stay, and have found themselves as a fallback for disappointed travelers.
“There’s an inconsistent experience with individual rentals,” said Tobel, 33. Online platforms like Airbnb and VRBO “have the technology for bookings but they don’t have the experience” with ensuring quality, he said.
Therein lies the opportunity for startups that are counting on a major, early presence in Chicago to propel results for both their guests and their investors.
Lyric, Sonder and Domio are all headquartered elsewhere and all launched within the past seven years. All three firms have created portfolios of locally managed apartments in major cities that can be reserved via app and that offer apartment amenities — laundry, kitchens, en-suite bedrooms, on-site amenities — at prices that rival a night at a higher end hotel. All manage check-in and guest communications via app. And all say that they are invested in Chicago as a key market.
Domio was sparked by the experience of CEO and co-founder Jay Roberts. As an Airbnb “superhost” in New York, he realized how hard it was to meet guests’ expectations and redirected his professional experience in real estate investing to create the company.
Like its competitors, Sonder leases whole floors of downtown buildings, often in commercial districts, thus freeing cash that developers need to deliver more units to the Chicago housing market, said communication director Mason Harrison.
For instance, Sonder has taken six floors in a South Loop building under renovation and is shaping the space into suites. “We help with the creation of new housing,” said Harrison.
“Apartment developers can take a year or two to lease the entire building. When Lyric commits to a few floors, we accelerate the pace of residential development,” said Joe Fraiman, co-founder and president of Lyric.
Branded short-term stay firms must differentiate themselves from both hotels — which can feel generic — and owner-hosted units, which can be so quirky as to be erratic. Most try to use design (think units decorated with art by local artists) and experience (services like dog walking) that can’t be matched by a hotel concierge.
But they are up against longstanding, often-overlooked, competitors.
“Consistency in branding is what corporate housing has been doing for decades,” said Mary Ann Passi, CEO of the Corporate Housing Providers Association, the trade group for corporate rentals. So far, corporate housing typically requires a minimum stay of 30 days.
And while the newcomers to the category raise awareness of yet another alternative to hotels, ongoing corporate rental companies now realize that they might need to raise their profile with consumers who don’t know they exist. (Often, such rentals are handled by corporate travel or relocation staffers.) They are also rethinking their traditional 30-day minimum, especially considering that startups are driving reconsideration of some aspects of housing regulation. “The majority of providers stick with what is legal in their markets,” said Passi.
The City of Chicago requires companies that list short-term rental units through their own websites (as opposed to a sharing platform) to obtain a Shared Housing Intermediary License, according to a spokesperson for the Business Affairs and Consumer Protection department. Existing regulations stipulate that a building with a hotel license cannot position short-term rental units as both hotel and short-term rental units. And buildings with more than five units can only allow a quarter of the units, or up to six, be short-term rentals.
As the corporate housing industry considers new forms of rentals to compete with the startups, the entire category of alternative lodging continues to grow.
In 2008, Airbnb gave the hospitality industry an abrupt wake-up call by enabling individual homeowners to make money by renting rooms to individual travelers. The newly created category of “alternative hospitality” has expanded dramatically since then, said Seth Borko, a research analyst for Skift, a New York-based industry research and news company.
In 2018, alternative accommodations, which include individual home-sharing as well as corporate-owned short-term rentals, accounted for about 10% of U.S. lodging revenues. This year, the category will take 11% of total industry revenues, Skift predicts, which translates to about $30 billion.
Branded short-term apartment rentals are a slice of that niche, said Borko, but given the size of the niche and its growth, “there’s plenty of money to be made” in the new category.
The element of surprise inherent with booking a room from an individual through an online platform has lost its charm for some travelers, said Borko, precisely because of the inconsistent quality of the accommodation and erratic service by hosts.
The concept of short-term rentals offered by professionally managed local companies is hardly new, but there’s plenty of room for improvement in the business model and the quality of accommodation, said Borko. “Some of these players are taking the business model and putting a fresh coat of paint on it. And it needed new paint,” he said.
Affluent travelers, especially, cotton to the notion of a two- to four-room apartment in a full-amenity building, offering family and business groups private meeting space of their own, he added.
In 2017, Skift found that about 36% of affluent leisure travelers (those with household incomes of $100,000 or more) used alternative accommodations. Now, 59% of these travelers do. “That’s a dramatic increase,” said Borko. “It’s becoming more mainstream.”
As the startups and corporate housing providers bridge the gap between hotels and short-term rentals by individuals, the nature of “hosting” itself is evolving. App-driven security and amenities put a new spin on what it means to say “welcome.”
“The sharing platforms have raised the bar for ease of use” said Passi. “It’s not just the apartment. It’s service.”
Joanne Cleaver is a freelance writer.
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