New Business Models Move in on Apartment Turf

WeLive, Sonder Among Growing Providers of Short-Term Rentals

They weren’t high in visibility at the Apartmentalize convention in San Diego, but companies offering new rental models are gaining traction in major markets.

Credit: WeWork.

The WeLive complex in Lower Manhattan has interactive spaces including this laundry room with a pool table and arcade games.

In New York City and Washington, D.C., WeWork has been serving up the multifamily version of its rapidly spreading office co-working locations since 2016. Called WeLive, the concept offers upscale apartments clustered around shared social and dining spaces.

In San Francisco, Chicago and multiple other global markets, players including Sonder and Lyric are spreading their footprints with a short-term apartment rental concept that combines elements of hotel booking site Airbnb with the corporate housing model long offered by companies such as Oakwood Worldwide.

Real estate economist Alan Nevin, who heads economic and market research at San Diego-based consulting firm Xpera Group, said the rise of the alternative business models has implications not only for consumers but also for what gets built and where in the multifamily segment.

In many cases, he said, the short-term rental players, especially Sonder, have leased large blocks of space in multiple markets from traditional apartment developers before and during construction. This pre-leasing effect has often helped developers to bring new properties to financial stability sooner than might otherwise have been possible, satisfying the concerns of lenders who are steadily raising financing standards in a competitive environment for new apartments.

“They help take up these large sections of buildings that otherwise would have taken a lot longer to get filled,” Nevin said, adding the arrangement has also helped some developers minimize the need for assistance from deep-pocketed equity partners to get apartment projects built.

While the WeLive concept currently appears to appeal primarily to urban professionals and has only surfaced in two markets so far, he said it will likely attract those seeking a mix of amenities similar to what they’re getting at the office with WeWork.

Nevin said Sonder and similar providers have so far impacted the apartment industry in many more markets across numerous consumer demographic groups.

Credit: Sonder Inc.

Sonder rents out apartments leased from their original owners in 11 global markets, including this unit in downtown San Diego's Little Italy neighborhood.

Started in Montreal in 2012 and now based in San Francisco, Sonder Inc. has expanded its presence to a total of 11 major markets in the U.S., Canada and Europe.

That expansion came in part from the help of venture capital heavyweights like Greylock Partners and Greenoaks Capital, putting clout behind the vision of founders Francis Davidson and Lucas Pellan.

Mason Harrison, director of communications for Sonder Inc., said the company leases blocks of apartments from developers of multifamily properties located only in commercial districts, though it does not disclose financial details of those arrangements.

Sonder then furnishes those units and rents them on a short-term basis to consumers, who book them in advance online, similar to Airbnb’s model. One difference, Harrison notes, is that Sonder, by focusing on non-residential neighborhoods, avoids issues like oft-reported clashes between short-term renters and long-term residents over parking, noise and other nuisance matters.

The focus also allows Sonder to offer the equivalent of vacation and corporate travel rentals in some areas where hotel construction is limited based on height, zoning and other restrictions. Prices vary by market, though Harrison said the furnished units come with costs similar to an upscale boutique hotel in a given city.

“No two rooms are ever alike,” Harrison said of the rooms’ designs. Similar to corporate housing, Sonder provides housekeeping, security and related services on a 24/7 basis, deploying locally-based companies that are often small businesses.

Harrison said the concept tends to be popular with both visitors and residents who like to sample different neighborhoods within a city on a short-term basis. Its apartments tend to follow location patterns similar to those of hotels near popular neighborhoods, so renters make use of local restaurants, bars and other services, rather than Sonder providing those on-site.

With multiple new apartments coming online in many of its markets – which now include San Diego, Los Angeles, Chicago, Miami, London and Rome – Harrison said many developers have welcomed Sonder’s presence during the planning and building of their projects.

“We have actually helped stabilize some projects early in the process,” Harrison said, adding that Sonder now operates over 2,500 rooms globally and has welcomed 200,000 guests since launch – over half of those visitors within the past year.

New York-based WeWork is looking to replicate the vibe of its office co-work spaces with flexible lease terms, but so far WeLive has had a slightly different development slant. Rather than just leasing space for its apartments, as it does with offices, it has been working with developers to build out its apartment units and surrounding service amenities to WeWork specifications right from the start.

Since 2016, WeLive has opened 200 apartment units in a complex on Wall Street in New York’s Lower Manhattan, and another 200 at a property in the Crystal City neighborhood of Arlington, VA, just south of downtown Washington, D.C.

Its next and biggest project is slated to open in 2020 in Seattle, with more than 300 units to be built as part of a larger mixed-use development that will feature both WeWork and WeLive spaces.

The New York and Arlington spaces feature generally smaller upscale apartments, built around interactive social spaces. For instance, the New York location has a laundry room stocked not only with washers and dryers, but also a pool table, arcade games and seating areas for mingling.

Other fully-furnished and serviced areas include workout studios, chef’s kitchens, and movie rooms.

Those extras come with corresponding price tags. According to the WeLive website on June 13, apartment units in Lower Manhattan go for rents starting at $3,050 per month for private studios, with four-bedroom units starting $7,600 per month. In Arlington, studios start at $1,500 per month, while four-bedroom units start at $3,700 per month.

While she said the company was not granting interviews prior to Apartmentalize, a WeWork spokeswoman sent an email noting that the New York and Arlington WeLive properties are both operating at nearly full occupancy.

Tenants, which WeLive refers to as members, include young people moving to a new city, parents with small children, and commuting workers seeking to minimize their daily travel times. New York and Arlington also have some retirees and empty-nesters.

“We are always looking for new opportunities, and we look forward to bringing WeLive to new markets,” the spokeswoman said of the company’s future expansion plans.

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