What performs better financially than a hotel, on average? A hybrid model of lodging that mixes short-term and long-term stays, according to Placemakr. Is the startup genius? Or is it trying to do too much?
“Our thesis is that hospitality and multi-family residential are going to come together over time, especially in urban markets, because it creates a lot of value for the owners and the customers,” said co-founder and CEO Jason Fudin.
Before today, the Washington, D.C.-based startup Placemakr had raised $37 million in venture funding.
It said on Tuesday it had also received commitments for up to $750 million in programmatic equity — a type of non-debt financing— that it will use to acquire more blended apartment and hotel assets.
Its financial partners include Davidson Kempner Capital Management, Gaw Capital, Bernstein Management Corporation, Suffolk Technologies, Geolo Capital, and JBG Smith.
While Placemakr began with pop-up hotels, it has since broadened its scope to cover a category it labeled “hospitality living.”
“These are places where you stay, live, or anything in-between,” Fudin said. “We called this ‘blended communities’ in our pitch deck in 2017.”
Here’s what that means: Placemakr obtains apartment-style inventory and runs it as a mix of furnished and unfurnished units. Guests stay for lengths varying from a night to a few years.
The “Sleep Away From Home” Market
Today Placemakr offers two main products: pop-up hotels in U.S. cities and “flexible living” properties where guests can stay for longer timespans. It either owns or manages new apartment buildings constructed for residential rental.
A case in point: Last year in Nashville, it bought a 313-unit building. It said it plans to lease a third of the units as unfurnished residential rentals. It will furnish the rest and manage them for short and medium-length stays.
The vast majority of these turnkey homes are for business travelers, such as those doing intensive training. They need to stay in a place longer than a hotel is cost-effective to use — but not for long enough to justify a year-long apartment lease.
Placemakr also offers “turnkey homes” — also known as serviced apartments or corporate housing — similar to what Blueground, Zeus Living, and Oakwood offer. In these units, the cable and all utilities and furnishings are set up from day one.
It offers unfurnished homes “with a hospitality wrapper,” such as the option to pay a fee and opt into a cleaning service or a pet care service, somewhat similar to Alfred.
Placemakr adjusts its mix of inventory allocations to suit the character of a local market.
“We premised our whole business from day one on making residential apartment buildings a permanently flexible asset,” Fudin said.
Not a Sonder Clone
But there are differences. Less than a third of Placemakr’s inventory is in pop-up hotels.
Like Sonder, WhyHotel works with owners of new apartment buildings to make money on units that would be otherwise vacant in the time it takes to lease up a building with residential tenants. The startup furnishes the units and rents them under its branding to transient travelers.
The similarities between the startups mostly end there.
WhyHotel’s leases last a year, on average, compared with Sonder’s, which are typically multi-year. WhyHotel shares the revenue from the transient leisure income with the developer, while Sonder often pays a fixed rent, which often escalates.
PlaceMakr and its WhyHotel brand also keep in-person staff, unlike Sonder, which relies mostly on automation.
“We have people on-site all the time because life has a funny way of not always going as planned,” said co-founder and CEO Jason Fudin. “We do run a much more tech-enabled service than a traditional hotel, but we don’t take it to extremes.”
Hybrid as the Master Model
“Hospitality living” startups such as Placemakr are unusual creatures for a reason. It’s hard to run pop-up hotels, corporate housing, and residential apartments equally well. Might investors prefer that even the top companies do less?
Placemakr claimed that by offering a mix of short, medium-term, and residential stays, it’s a master of resource efficiency. As a property manager, it can feed the exact supply needs of apartment building owners.
Critics said the strategy is a two-edged sword and that there are perils to not sticking with a core competency.
Fudin scoffed at this.
“Our interim corporate housing team is onboarding supply separately from the sales team that’s focused on nightly customers,” Fudin said. “While we might repurpose the assets, our teams are focused and specialized.”
Fudin predicted that once his company proves this fungible-use-case for real estate is the most reliably profitable and revenue-generating, his competitors will have to become similarly flexible or else be outbid on the most desirable properties.
Skeptics Are Skeptical
Over time, mismatches in demand for transient leisure travelers and residential apartment hunters and supply of apartments could lead to times when the property manager has to sell many cheap stays relative to fixed operational costs.
Fudin waved away this critique.
“I’m happy to say that over 60 percent of our first-time bookings are direct, meaning either people coming to our website or organizations coming through our sales channels to book housing,” Fudin said. “On the operational expenditure side, the more experience we get, the more we’re able to drive down margins.”
The unfurnished multi-family residential rental market has recently been a fairly stable commodity market in many U.S. cities. So it’s difficult to compete with existing players in that segment. Placemakr has focused on the premium end of the market because it has more cushion in its margins. Logically, the company will likely have to find most of its profits from its other products.
Serviced apartments are a long-standing segment that has hardly sizzled. It may be under mid-term pressure if corporate travel remains depressed or if climate change concerns prompt companies such as Microsoft to cap travel.
Yet many “legacy” serviced apartment companies use a business model known as lease arbitrage. This model can cause trouble during recessions. Typically the operator pays rent to the real estate owner regardless of how well the market is doing. Placemakr’s alternative model could give it an edge.
In theory, Placemakr’s diversified portfolio could deliver a blended occupancy rate that’s higher on average, making its real estate work harder. A somewhat similar company in Europe, The Student Hotel, has claimed such above-average occupancy levels with its hybrid model blending student housing with transient leisure and office space. (See Skift’s story last month: Why This Hybrid Hospitality Brand Ripped Out Its Tech Stack.)
Placemakr’s plans include eventually being hands-on with the construction of units. It aims to literally be building the future of hospitality.
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Photo credit: The interior of the Placemakr Premier SoBro, an apartment complex in Nashville, Tennessee, owned by the startup Placemakr. Source: Placemakr.