Multifamily and Hospitality: More Than Friends?

Multifamily and hospitality are getting closer. Are the sectors on a path to come together, or will structural challenges stand in the way?

Jan 23, 2024
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Today’s Thesis Driven is a guest letter from Daniel Cohen, CEO of NextStory Capital. Cohen previously founded and was the CEO of Sentral, a residential and hospitality operator.

The Catbird, a hybrid hotel-apartment concept in Denver, CO

From a customer’s perspective, hospitality and multifamily can look like two different points on a single "shelter continuum," the first point being short-term accommodation, the second being long-term housing. Some practitioners imagine the two businesses evolving and overlapping, with hospitality offering longer-duration stays and multifamily able to offer shorter-duration stays. But are these businesses actually merging?

There’s clearly upside for those that can pull it off. Hotel people want multifamily’s abundant financing options and dream about getting multifamily valuations - how do they deserve half the cap rate I get? Multifamily pros covet hotels’ sky-high revenues, and they admire the brand standards that seamlessly thread through the marketing materials, the furnishings and even the scent machines. Each group stands to benefit from what it doesn’t have.

This article explores the challenges and opportunities that multifamily and hospitality operators see as they innovate around hybrid business models to capture that upside. Specifically, we’ll cover:

  • The structural hurdles to running a "hybrid" model;

  • Opportunities and attempts to overcome those hurdles;

  • Companies combining elements of multifamily and hospitality today;

  • What each industry–multifamily and hospitality–could learn from the other.

To get us in the mood, some operators are already offering versions of combined multifamily/hospitality offerings. Apartments by Marriott Bonvoy and Hilton’s new H3 brand are taking aim at long-stay guests, and some high-end multifamily brands occupy several points on the continuum, notably Kenect, Placemakr and Sentral, the company I started. We refer back to these groups later on.

H3 by Hilton

Why It’s Hard to Merge These Businesses

Traditional hospitality customers and traditional multifamily customers fundamentally want different things. On average, they pay different amounts for different lengths of stay, and the stark differences are reflected in the basic numbers:

The divide related to customer intent shows up in the consumer data too. Hospitality customers make faster, lower-consideration decisions: the average hospitality booking window is approximately 25 days. A 2016 Zillow report said long-term renters take 10 weeks on average to make a decision. I imagine that’s come down since, but directionally the difference is large, and a 2019 study indicates tenants have multiple apartment showings before signing a lease.

While the center of each demand pool may be fairly far from the other, we know these different customer personas can overlap in interesting ways. The Four Seasons branded its first residences in 1985 and Ritz-Carlton opened its first condo hotel in 2000. Companies like AKA provide extended-stay accommodations that feel a lot like apartments. And more people are booking short-term rentals for longer-term stays; monthly stays were 13% of Airbnb’s business pre-pandemic, now they’re 18%.

But once on property, multifamily residents and hotel guests have different expectations, especially of property staff. Residents have abundant administrative needs, like smooth package delivery, guest access, quick attention to maintenance problems, and overall expectations that the physical property will be kept to the standards advertised when that resident took a leasing tour. Hotel guests feel differently, often not needing as much administrative help, but wanting staff to be attentive, gracious and clearly invested in the guest’s experience. These differing expectations - one seeking administrative ease and one seeking something more relational - has shaped an entirely different property-team culture in multifamily properties vs. hotels. As practitioners in the ‘overlapping’ business models named above will tell you, it’s hard to train administrative people to be service-oriented, and vice versa.

The Technology Is Rigid

Differing customer profiles isn’t the only way in which these businesses are siloed. Over time, a raft of technology companies have become critical components of the multifamily and hospitality ecosystems. Unfortunately, those technology companies are industry-specific; no off-the-shelf technology platforms I know of serve both multifamily and hospitality.

Distribution channels are an easy example. Customers looking for multifamily go to Zillow, Trulia, HotPads, Apartment List or Customers looking for hospitality go to, agoda, Airbnb, Expedia or Hospitality and multifamily not only have their own separate centralized distribution channels but have seen significant aggregation of those channels, giving a few businesses entrenched interests in the status quo. Five companies own the ten major websites mentioned above.

Apartment (top) and hospitality (below) distribution channel examples

From a practitioner’s perspective, managing each particular hospitality or multifamily distribution channel is a skill set in itself, taking time to learn and master. And multifamily and hospitality distribution channels are functionally different in ways that would need to change if these industries merged, with a few examples below.

Pricing optimization also offers a complex challenge, although this problem seems more solvable in the near-term. It’s hard enough to price low-variability offerings, like 12-month unfurnished leases or two-night hotel stays. Optimizing revenue over a 12-month period is a serious technical challenge when length-of-stay becomes a variable and each physical unit can flex between shorter and longer term stays.

To that point, today revenue management "solutions" for each business are highly specific to hospitality or multifamily. Hotels use Duetto, IDeaS, Atomize and other platforms. All of these provide real-time short-stay pricing guidance and forecasts for different types of hotels but not for long-stay properties. The closest some of them get are extended stay hotels, and all of these integrate only with hospitality property management systems.

For multifamily, today RealPage and Yardi Revenue IQ are the big revenue management platforms, and they slot into their own "walled garden" software ecosystems. Worth noting that residential revenue management software has never gained the traction it has in hospitality, where it’s nearly ubiquitous. It also costs a lot for API connections, is often under-utilized by those properties that are customers, and RealPage and Yardi both recently were sued because of how their software works. So that’s not great.

The industry-specific nature of critical software is a problem at a higher level as well. Each property - apartment or hotel - uses one central property management system (PMS) to manage the asset. That single software platform often manages everything, from bookings and accounting and reporting to repairs and maintenance and tenant communications to marketing and even the property’s website. Despite significant sophistication and the opening of data APIs, I have yet to see a PMS that can accept both leases denominated in months and stays denominated in days.

In one related case study, the investment company I run is exclusively partnered with June Homes, a tech-enabled property manager. June is a residential manager but, and this feels hotel-ish, June’s tenants get to select a lease term of any length greater than 30 days.

June allows renters to customize their lease term

No surprise, June appeals most to the customer base in the middle: residents that want longer length of stays than hospitality but shorter than traditional multifamily:

June’s ability to identify and convert these specific customers rests on a software ecosystem they built around this segment. June spent six years and tens of millions of dollars to build proprietary marketing, revenue management, and other systems. June’s story is instructive - if you as a multifamily owner want hospitality upside, it’s possible the technology you need doesn’t exist and you will need great technical partners or the wherewithal to make a lot of technical investment.

Hotel or Apartment: It Matters Who Owns The Building

At the very top of the investment food chain, big institutional investors like pension funds diversify their overall holdings broadly into higher-risk investments and lower-risk investments, a good example of which you can see here. Real estate is on the low-risk end of the spectrum, prized for its "relatively stable and consistent income… with the opportunity to achieve capital appreciation," according to industry group NAREIT.

Apartments exemplify the characteristics big investors want in a low-risk allocation. Housing is a non-discretionary good (you have to live somewhere) with many secular trends supporting high apartment occupancy and long term rent growth. And according to the National Apartment Association, multifamily has 57% operating margins, far higher than hospitality. Apartments are reliable and low-complexity cash generators.

So, no surprise, apartments attract institutional investment. Of the 22 million apartments in the US, 11% are owned by the top 50 largest owners, according to the National Multifamily Housing Council. Most of those are institutional investors. That may not seem like consolidation, but the figure in hotels was 5% in 2020, per Hotel Business magazine, and many of those owners are not institutional investors. Publicly traded apartment REITs have an equity market capitalization of $102 billion; for hotels it’s $24 billion.

Why so much less? Hotels, built around high-churn short stays, are much more volatile, as you can see in the high variability of average annual rate and RevPAR even excluding the effects of COVID.

Boston Hospitality Review, Source: STR – Historical (Through 2021), HVS – Projected (2022-24)

During that same period (from 2000), multifamily occupancy nationwide averaged more than 91%, occupancy stayed within a tight 5.5-percentage-point band, and average rents grew consistently each year, all per Federal Reserve Economic Data.

And hotels are higher-complexity, lower-margin businesses requiring significantly more line and management staff (labor is usually the highest cost on a hotel P&L). As a result, average operating margins are closer to 20%, and sometimes lower, per CSI Market.

For these two businesses to merge, apartment owners must want to add profitable but lower-margin/higher-complexity offerings to the business they already like for its high profit margins and low complexity. This is the big headwind I see to these businesses integrating at scale: Adding hospitality to a multifamily property can be accretive, but makes an asset less of a fit for what a traditional multifamily investor wants.

Over time, multifamily investors have actively pushed apartment property managers to become more profitable and less complex. They’ve paid lower management fees, driven managers to pay lower salaries to property employees, forced reductions in marketing costs and minimized CapEx. All that is consistent with an institutional investor that wants this investment to occupy a particular low-complexity spot in their overall allocation. However, this trend means multifamily properties are less able to attract and retain good people or to differentiate themselves via marketing, programming or physical renovations. It’s exactly the opposite in hospitality, in which operators need to do all those differentiating things and have a guest-experience-focused team to be successful.

How Can Multifamily Profit From Hospitality Skills?

Perhaps because my DNA is that of a real estate investor, I am excited about innovations that directly drive NOI. And multifamily is already pretty good at keeping costs and complexity low and profit margins high, so I think multifamily should cherry-pick only the most value-add ideas from hospitality. Given that bias, there’s one thing hospitality does well that multifamily does poorly and should do better: sales.

If you want to work in hospitality you can study it in college or start in sales–at jobs like these. You could spend an entire career in sales and marketing, eventually doing something like this and at the pinnacle, you can be this guy. In hospitality, selling is a discipline with its own ambitious employee culture. It’s a set of learned skills and expertise in which someone can specialize and grow over time.

Selling in multifamily, which takes the form of leasing agents, is not a discipline like in hospitality. Sales happen at the property level usually as low-paid employees cycle in and out of leasing agent jobs. Leasing agents get limited professional training and if they are successful, they get promoted to more administrative roles like community manager or assistant CM. Property management companies do not have many or any revenue management or sales specialists.

The discrepancy is striking, and it seems obvious multifamily should track conversions closely and focus on improvement. But one (admittedly rational) reason it doesn’t: Residential assets are generally well-leased. There just aren’t a lot of gains to be made from increasing conversions because the bad system is working well enough to meet owners’ needs, the argument goes. Here’s the same table as earlier but with occupancy added:

Personally, I push back on that as a lazy answer. Higher conversion rates would allow a property to raise prices, driving NOI, the key metric for valuing a multifamily asset. Sales training would be a value-adding investment that does not materially increase operational complexity.

It’s worth noting one other discipline multifamily could learn from hospitality, but I want to caution that it’s not clear this drives NOI. Hospitality has a service culture that’s highly customer-focused. Branded hotels need to maintain customer satisfaction rates or risk losing their flags, and lots of hotel employees earn bonuses at least in part based on reported guest experience. That’s all reflected in hospitality’s 33 average Net Promoter Score, which is pretty high. Apartment managers have an administrative culture - a result in part of the squeeze profit-seeking owners have put on the business - and their NPS is -12. Yep, below zero, which is bad.

If customer experience and/or brand value is an owner’s goal, multifamily’s employee culture needs to move from administrative to customer-centric. The companies I mentioned earlier are well-along in this process, training their staff to maintain hospitality-level brand standards in multifamily buildings. Property teams need to clearly understand the resident experience they want residents to have, and to maintain a service-oriented mindset, something that would feel foreign to traditional multifamily employees. This requires a lot of re-training and coaching but has ample precedent in hospitality.

And How Can Hospitality Profit From Multifamily?

Because apartment properties need to have long-term relationships with residents, the industry has a vested interest in making resident/property communications smooth and satisfying. Multifamily has done a good job digitizing the resident experience once you’re on the property: From self-tour to leasing to onboarding to rent payments and maintenance tickets, it’s digitally easy to be a resident.

Even off-the-shelf multifamily PMS have good communications functionality, like this and this. And point solutions around community-building in apartments have done well, notably apps like Cobu. These relationship-building digital tools have traction in multifamily, but hotels still largely rely on clunky text messaging and email, if not just bedside phones of questionable cleanliness. It’s obvious the world is moving towards more digitally smooth communications and an ability to create community more easily because of those, but hotels are behind in this trend.

RealPage marketing materials for tenant communication software

So What’s Next?

The three multifamily examples mentioned at the top share some strategic similarities. They each commit some units in a property to hospitality uses and the rest to apartments - they have multiple, distinct offerings in one building. They also have ambitious goals around the resident and guest experiences that people can expect from their brands. These models are rich with complexity, which is their challenge, but I believe can produce durable NOI and even enjoy brand value.

Despite those, I don’t see big signals of a convergence of hospitality and multifamily, however there are a couple other places to look.

I mentioned June Homes, our partner. The model has hospitality-esque qualities: it’s branded (although only lightly at the property level), it has highly sophisticated marketing and revenue management software and it gets significant revenue premiums vs. traditional multifamily, all while maintaining 93% occupancy. The trade-off is operational and technical complexity, the mountain June has been climbing since 2017.

June’s is a mix of the two business models, but as a resident, June’s housing feels like apartments. The hybridization of June’s model is really in their operations and marketing, and that works for their business.

But the multifamily/hospitality hybridization can go deeper. Some operators are developing unique, residential-like offerings that can be rented short or long term. While this model is more common in Europe, it’s quite unusual in the U.S.

But at The Catbird you’ll find a valet, a staffed hotel lobby, a rooftop restaurant, ground-level co-working, lounge space, and a whole event management team. While this sounds like a hotel, The Catbird also has laundry facilities on every floor, storage lockers and even mailboxes for each unit, things you’d never see in hotels. And the rooms are beautifully designed for living, not just visiting.

Unit in the Catbird

No surprise, the Catbird’s length of stay varies from two nights to six or more months, and the operators are slowly figuring out how to revenue manage something this complicated. Fun related fact: Sometimes the same room at the Catbird can be found on AND on

I’m impressed with what The Catbird has done, and it provides some great examples of how traditional multifamily and hospitality could become much more than friends. In many ways it exemplifies what future housing models could look like.

–Daniel Cohen

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A guest post by
NextStory Capital Cofounder and CEO
© 2024 Brad Hargreaves
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