The ability to identify incredible business opportunities and to find an optimal way to benefit from those opportunities are equally important to entrepreneurs, and Jason Fudin has accomplished these objectives through WhyHotel. WhyHotel serves the important purpose of matching short-term renters with new multifamily properties. By doing so, he helps new apartment communities become profitable much sooner than they otherwise would. Recently, Jason Fudin had the opportunity to speak with Joe Fairless in detail about his business.
According to Jason, the typical new apartment complex takes approximately one year to lease up to the market occupancy level. With between 200,000 and 400,000 apartment units being created in the United States each year, approximately half of these units are vacant at any given time. Jason recognized the potential that these units have while he was working for Vornado on high-rise real estate developments. The concept of turning these vacant units into short-term rentals led to the establishment of WhyHotel. WhyHotel is a unique platform that provides full hotel leasing and staffing services for new developments only.
Specifically, Jason Fudin contacts new multifamily developers with an offer to fill a portion of their vacant units with short-term renters for between eight and 24 months. This enables those properties to make a much-needed income while the other units are being leased up. Jason uses the term “pop-up hotel” to accurately describe the service that he provides.
When Jason Fudin discusses the profitability of moving his operation into a new property approximately every year or two, he talks about margins. Specifically, the margin on using the property for a conventional hotel is significantly smaller than the margin for running the business in an existing structure that is currently vacant. WhyHotel is able to establish a healthy profit margin with reduced overhead compared to a conventional hotel and without the risks associated with property development.
Because WhyHotel is now an established firm, it is well-known by most of the major players in the apartment development world. Initially, Jason had to sell the concept and explain why his company was the best for the job. However, now that the company is so well-known and respected, the job of prospecting has dramatically reduced. At the moment, some of his clients have already realized the value in WhyHotel’s service, and they are depending on that service as part of the overall development and interim cash flow plan. Essentially, WhyHotel is becoming an integral part of the development project in some cases.
WhyHotel offers new apartment developments another key benefit that extends for the property’s first few years. When a multifamily property is new, you generally need to make rental concessions and offer rental rates at the bottom of the market to get the vacant units leased quickly. During a typical lease-up scenario, it could take approximately three years for these to burn off and for the property to run at the market level. Because WhyHotel generates immediate income for the apartment complex, it is able to work toward a stable rent roll and market rents more quickly.
As beneficial as WhyHotel’s service is to its clients, many developers have passed on using their services for a couple of key reasons. One of these reasons is related to regulations and zoning. The developer may have already been through the wringer with planning commissions, zoning hearings, and more, and it is not agreeable to open that door up again.
In addition, some developers object because the concept of a pop-up hotel is foreign to them, and the company is a relative newcomer to the scene. However, Jason acknowledges that the latter challenges are less problematic now as the company is becoming more established and has more references. WhyHotel fully develops the units as hotel units, and it completely returns them to like-new apartment units at the end of the contract. The property developer has no exposure to these expenses.
At the beginning of a deal, the parties will agree on terms in a Letter of Intent. These terms cover the length of time that WhyHotel will occupy the units, how many units will be occupied, revenue distribution, and more. Then, a detailed contract is drawn up, and this is usually between 40 to 60 pages long.
Once the contract has been executed, WhyHotel’s go-live team steps into action. This is the point where units are furnished, and on-site staff is hired and trained. Bookings are usually accepted approximately three to four months prior to the opening date.
Currently, WhyHotel operates in Baltimore and Washington, D.C. It has spent the last few years concentrating geographically close to its base of operations. This has been to build the brand, establish regular customers, and optimize revenue. However, WhyHotel plans to expand to several other major markets throughout the United States in the coming years.
A pop-up hotel has a bold appeal to a consumer. Short-term renters get to stay in a space that is nicer than a residence inn. They also get a full cable and internet package, appliances, apartment-style amenities, and support from round-the-clock hotel staff. WhyHotel uses Airbnb, Vrbo, and other similar services to find customers, and they also use a variety of other direct channels.
The last few years have been eye-opening for Jason Fudin and his team at WhyHotel. For example, they are learning how to save money by using various services over alternatives. They also are fine-tuning how long it takes to set up a new unit from scratch. Prior to his experiences at WhyHotel, his work at Vornado taught him to be patient while working on major projects, and he currently applies this to the growth of WhyHotel.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.