Rebekah Henderson currently handles operations training at American Landmark Apartments, but her multifamily resume is extensive. She’s been a leasing agent, an onsite manager — for a time, she was even a part-time groundskeeper.
For decades, she’s watched the fundamentals of the apartment market remain essentially unchanged. Residents would arrive, sign 12-month leases, stay for a year or two, then move out. Cue the next group of renters.
Recently, though, American Landmark shook things up a bit by partnering with Landing, a company that offers what it calls “flexible living” options that residents can rent for non-traditional lease lengths and switch apartment communities without jumping through the usual hoops. Landing is just one of many companies entering the market to harness the growing demand for non-traditional rental options. As the apartment market continues to respond to the tumult of the pandemic, these companies are offering residents and apartment managers a different way to operate.
“I was kind of nervous, to be honest,” Henderson said.
Henderson’s hesitation dissipated when she saw how smoothly the partnership ran. Landing took charge of a portion of units in communities Henderson oversees — and they also took charge of all the turnover within the apartments.
“Not only do I have a guaranteed lease with them and a guaranteed lease payment, but I also have one point of contact for anything that goes on in that apartment, which helps avoid miscommunications and things falling through the cracks,” Henderson said.
Henderson said the period between tenants is tough logistically, and it’s also extremely expensive. Apartment managers have to paint, replace carpeting and sink tons of money into making the unit available for the next resident.
These costs make turnover particularly unattractive, which is in large part why year-long leases have become such an industry standard. By having rigid lease timelines, apartment managers ensure they won’t have a deluge of residents moving out at once and can reduce the number of times they have to reset a unit.
Landing, however, takes on those turnover costs. The assurance of steady lease income from Landing — particularly at a time when some apartment residents are struggling to pay rent — helps the apartment community’s bottom line.
For consumers, the flexibility means they can make housing decisions with more freedom, not tied down by yearlong commitments. That could have an outsized impact in Austin, a city where about 55% of the population rents.
While it’s difficult to say just how many companies are in the flexible renting space — the business models vary widely and are therefore hard to track — experts agree that the demand is certainly on the rise. The reach of businesses like Landing, which operates in more than 200 cities, indicates the market is responding in kind with more options than ever.
A renter’s market?
Austin has one of the priciest apartment markets in Texas. The median rent in Austin is $1,516 per month as of September, according to ApartmentData.com. In Houston and San Antonio, the median apartment rent costs only about $1,100 for comparable square footage.
The Austin metro is home to more than 1,000 apartment communities and 260,623 units — and that supply is growing.
Fifty-eight apartment communities totaling 15,714 units opened between August 2020 and August 2021, while another 52 communities totaling 14,922 are currently under construction. More than 100 additional communities are proposed.
Occupancy rates dipped during the pandemic but bounced back up relatively quickly this year. As of the September report, nearly 92% of all apartments in Austin were occupied. Still, 11% of all apartment units in Austin offer some sort of concession — move-in specials, extra square footage or even free months — to incentivize renters.
At the same time, rents are steadily rising and demand for apartments seems to be outpacing the increase in supply. According to QuoteWizard, available apartment units in Austin fell more than 10% from 2019 to 2021, while prices went up more than 4%.
Some experts say the increase in demand for apartments is in part a spillover effect from the single-family home market, which has been reshaped by skyrocketing prices and rock-bottom supply, making it harder for the average Austinite to afford a home. If people uproot and move to Austin and find scant available homes in their price range, they might settle into an apartment while they wait for housing inventory to tick back up.
“With just a few weeks [of housing inventory], we’re turning homeowners into apartment renters,” said Cindi Reed, vice president of sales and business development for ApartmentData.com. “They’ve got no place to go.”
These factors have opened the door for new players to enter the staid apartment market — ones who offer more flexible options than a traditional one-year lease.
Membership approach
In 2019, Birmingham-based Caliza Inc., which does business as Landing, introduced its membership living model. With Landing, renters become members of a nationwide network of apartments, which they can move between with relative ease.
Longtime renters are aware of the myriad headaches of moving — background checks, security deposits, setting up utilities, buying new furniture or shelling out money to transport their own. With the member network, the process is streamlined and renters know what they’re getting no matter which city they move to.
Landing operates approximately 40,000 apartment units across the country. The apartments come furnished and stocked with things like utensils, linens and cleaning supplies. It’s a turnkey solution that evokes an Airbnb stay, but aimed at an audience that’s looking to stay put for a little while.
Landing cross-lists apartment units with its partner properties. Landing will list a vacant unit, as will the apartment manager, so renters have the option of a more traditional lease. Landing Chief Operating Officer Marcus Higgins said this also reduces risk for property managers.
Most Austin apartments currently listed on Landing’s platform range in price from $50 to 150 per night.
Higgins said from the consumer perspective, options for medium-term stays are hard to come by. For short-term stays, between one and seven days, traditional hotels are still the primary choice. For people looking to stay in a place for up to a month, Airbnb, Austin-based Vrbo and Extended Stay America offer fairly cost-effective options. Any longer than that, and consumers often face a difficult choice: Pay a premium for a hotel, opt for an unpredictable home share or lock themselves in to a year-long lease.
“There’s a massive gap and opportunity there for people who are in between that 30 day and 12-plus-month stay, who perhaps want the flexibility,” Higgins said.
With Landing, members pay a flat membership fee no matter where they’re living, on top of the apartment rent.
This potential consumer base — people who are seeking more flexible living options — has only grown in the past year, Higgins said. The rise of remote working options has opened the workforce to the possibility of living anywhere, not just where companies have offices.
Higgins noted that the age range of users is fairly expansive. Three quarters of Landing’s members staying in Austin are between 25 and 44.
“It’s a wider range than you would think from the outside,” Higgins said.
Austin is one of the company’s most popular destinations, with the majority of their members flocking to North Austin and the South Lamar area. About half of the members in Austin came from California or elsewhere in Texas.
‘When we do better, our owners do better’
Flexible options don’t just benefit residents. They can generate considerable profits for landlords.
Earlier this year, Colorado-based BHI Residential Long Term Corp., which does business as Sentral, opened two apartment buildings on East Sixth Street, where people can stay for anywhere between one night and several years.
In Sentral properties, the residents are a mix of what the company calls “live” and “stay” — those who are there to put down roots and those who are stopping in for a shorter period of time. Sentral offers furnished and unfurnished units.
“That mix provides much more flexibility in the market and a much more dynamic business model for us and for the owner,” Sentral CEO Jon Slavet said.
While Sentral’s owner partner ICONIQ Capital owns the first nine Sentral communities, Slavet said as the company expands, it will partner with third-party apartment owners across the country. To maintain brand consistency, Slavet said Sentral will manage entire buildings, not just a portion of the units.
“We’re interested in redefining home, not running a different kind of hotel,” Slavet said. “That’s not our model. We offer any length of stay, so for our customer, it’s very flexible. For our owner partners, it’s the ultimate partnership because we’re enhancing the experience in the community.”
Sentral’s business model — management agreements rather than leases — allows it and the owner to fully reap the rewards of the partnership, he said.
“When we do better, our owners do better,” Slavet said.
Sentral’s user base skews younger, with about 75% being millennials.
“You’re going to have a minority of the community that’s digital nomads, shifting constantly,” Slavet said. “And then you’re going to have the majority who want a home base where they’re known and that feels like home, as opposed to a 200-square-foot hotel room.”
Slavet added that they’re seeing a huge uptick in demand for furnished units. By offering units that are furnished particularly with a work-from-home resident in mind — with built-in desks and other home-office features — Sentral is able to charge a premium.
By not offering shorter stay options, apartment managers could be missing out on crucial revenue opportunities.
Slavet gave the example of a large one-bedroom apartment in a class A building, which might lease for $3,000 a month, or about $100 a day. By dedicating a small number of units for shorter stays, owners can reasonably charge about $200 a day, a rate that is competitive with a nice hotel, but the apartment will offer much more space.
“You’ve just doubled your revenue on one unit, and you don’t have to add that much cost to operate that unit,” Slavet said. “That’s just a very simple example of why this business model makes sense.”
Other types of businesses are also cashing in on people’s desire for hassle-free relocation. Fernished Inc, which operates as Fernish, an on-demand furniture rental company, expanded to Austin this summer in response to the influx of people relocating from out of state.
Fernish, like Landing and Sentral, caters to the people who want the freedom to flit from city to city without the logistical headache of moving.
Fernish Chief Operating Officer Kristin Smith said Austin’s rapid growth means a lot of people are being forced to make short-term lifestyle decisions because the ideal housing may not be available.
Fernish opened an operations center in Southeast Austin. Smith said Austin is a unique market because of its confluence of students and young professionals, who tend to be less established. But she said the Fernish business model — which allows people to rent furniture for any length of time — has struck a chord with all stripes of customers.
“We’re able to help people who are generally settled but have a lot of evolution and change in their lifestyle, but there are a lot of people who are using Fernish because they’re like, ‘I’m not sure how long I’m going to be here,’” Smith said.
Flexible living gets its moment
Steven Korman was an early adopter of the flexible living business model — about 60 years early. Korman began furnishing apartments in Philadelphia in the 1960s, allowing flexible leases and creating a different kind of apartment living experience.
In the decades since, his real estate company, Korman Communities Inc., has expanded across the country, including in Central Texas. This summer, the company opened AVE Austin North Lamar, the newest in a long line of apartment complexes offering both traditional year-long leases and flexible short-term options.
Now Steve’s son, Bradley Korman, is co-CEO of Korman Communities. He doesn’t understand why year-long leases are still the standard across the industry.
“We know that people want flexibility, people went optionality,” Korman said. “All the optionality that exists in our world didn’t really exist in the apartment world.”
He said traditional investors worry about non-traditional apartment communities. They want a straightforward commodity. People worry that, given the option, residents will be unreliable, staying in places for unsustainably short periods of time.
That hasn’t necessarily been the case for Korman. While the company offers leases of any length, the average length for a furnished apartment is seven months.
The internet and the idea of home-sharing, which offers more flexibility and lower prices than traditional hotels, have facilitated what long seemed impossible — forcing a change of mindset in apartment management. A sector of housing long entrenched in its methods has grown increasingly, well, flexible.
“We’ve seen people who want to stay with us because they’re looking for professional management, they want to make sure that there’s a cleanliness protocol, great amenities, great properties and a professional opportunity to stay somewhere for less than a year, and know that they don’t have to do anything,” Korman said.
Publication: Austin Business Journal