Interim Housing Cos. See More Double-Digit Growth - 2001-01-29

<B>Interim Housing Cos. See More Double-Digit Growth</B>

By Bruce Serlen

Despite early signs that the U.S. economy is softening, operators of interim housing expressed confidence this month that their often-overlooked segment of the lodging industry will see double-digit growth in 2001, comparable to the growth they experienced in 2000.

Established players in the field, such as BridgeStreet Accommodations, ExecuStay by Marriott and Oakwood Worldwide, consolidated their U.S. bases and, in some cases, expanded into new global markets in 2000. It appears this track record will continue uninterrupted. These players also introduced new and enhanced guest services during the past year, partially to improve their satisfaction rating among residents, but also to help distinguish themselves from the competition.

In selected cases, such new players as Citrus Suites came onto the scene during the year, albeit on a much more modest scale. Citrus is in one key gateway city, Los Angeles, where demand is strong for all types of lodging, regardless of price point.

Documenting the extent of the growth of this segment was an Association of Interim Housing Providers study released late last year that estimated interim housing to be a $2.1 billion a year industry and projected that the number of corporate housing apartments in 2000 would grow by 13 percent, to 86,239.

At many companies, interest in interim housing, also known as corporate housing, is divided between traditional travel management and human resources. Typically for travel managers, travelers may need to book these kinds of accommodations if they're in a destination on long-term training or consulting assignments. Human resources managers, meanwhile, would be interested when employees have been recruited to join the company or have relocated from one company location to another and need temporary housing.

Yet, for travel managers, interim housing options took on a greater sense of urgency during 2000, a scenario that likely will continue into 2001. Given how much of an issue availability became in just getting enough hotel rooms for transient travelers in many markets, the idea of having corporate apartments at their disposal in these cities became much more appealing. The shortage of transient hotel rooms midweek wasn't necessarily felt across the board, but the need often was critical in U.S. gateway cities, including New York, Boston, Chicago, San Francisco and Los Angeles. Add to that list a handful of international destinations, such as London, Paris and Amsterdam.

"Demand continued to outstrip supply throughout the year in these locations, even when additional rooms became available on the supply side," said Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers.

Not that travel managers were prepared necessarily to house transient travelers in corporate apartments for stays of a night or two. Rather, in a tight market, having a hotel program that included corporate apartments--along with full-service and midprice business hotels and extended-stay properties-- gave buyers more flexibility as they juggled their requirements in a given city.

"When an employee relocates, for example, the question is, 'Where do they stay?' " said Jim Klein, president of Oakwood, who is based in Los Angeles. "In parts of the world like Asia, where corporate apartments are known as serviced apartments, it can take 60 to 90 days to find a permanent residence. Many people would choose not to stay in a traditional hotel for that length of time, if they had a viable alternative," Klein added.

"What we set out to provide is a hotel environment in a homelike setting," he said, describing interim housing's appeal in a nutshell.

Hotel-type services are on the increase, yet the apartments intentionally are furnished with a residential feel. "There's clearly an overlap between the hotel side and the apartment side," said David McCaslin, president of Washington-based MeriStar Hotels & Resorts, which acquired BridgeStreet Accommodations in June. MeriStar in December announced it was merging with the American Skiing Co., and that the combined company would become known as Doral International when the deal closes. "While guests are happy to use the hotel-type amenities, they tell us they very much view the apartments as their homes," said McCaslin.

As for travel management versus human resources, interim housing providers don't necessarily draw a distinction. "They're both our clients," said Gary Abrahams, president and CEO of ExecuStay by Marriott, who is based in Gaithersburg, Md. "In fact, in many cases, we're seeing the relocation segment being outsourced to a third party, which serves as a consultant to the company doing the relocation. It's this party that is actually our client."

Historically, the interim housing concept has not been well-understood, but operators said that has begun to change. "The underlying strategy is now better understood when it comes to both the traveler and the travel manager," Abrahams said. "After all, interim housing is still a fairly new product in the lodging portfolio, so it's encouraging that each year they grow more comfortable with the product."

Budget-wise, interim housing is certainly a cost-effective alternative to other forms of lodging. Minimum lengths of stay tend to be 30 days. For travel managers hard-pressed for coverage in a tight market, there also are possibilities of housing more transient-type travelers one after the other in a single corporate apartment. Not only would this take some of the pressure off finding additional coverage, but it's highly cost-effective.

"On top of the 13 percent growth in 2000, the number of corporate housing apartments is projected to grow by 15 percent in 2001," said Mark Skinner, a partner in Atlanta-based hotel investment consulting firm The Highland Group, which conducted last year's Association of Interim Housing Providers study. The study also showed that nearly three-fourths of corporate housing properties are in suburban locations.

Within the industry, meanwhile, 2000 was a year of consolidation in the number of buildings in a city in which a provider might operate apartments.

"In the past, we might have operated 10 units in each of 10 buildings, but in 2000 we started to consolidate, so we are operating 30 units in each of three buildings," MeriStar's McCaslin said, noting that that trend would continue in 2001. "This way, we're able to provide a higher, more efficient level of service, particularly in regard to housekeeping and maintenance."

Other units in these buildings, meanwhile, are rented to regular residential tenants who hold the lease in their own name. Because more apartments in a building are involved, the trend toward consolidation also has meant improved relations with the building owners. "It tends to give us greater clout with owners," McCaslin said.

It also makes it more practical at times to have an employee of the interim housing provider onsite in the building. "Having someone onsite in this capacity makes it much easier for us to provide that higher level of service," Abrahams said.

In an alternative variation, the interim housing provider owns the apartments outright, and often the entire building. This is frequently the Oakwood approach, for example. While Oakwood leases, furnishes, services and then sublets thousands of apartments under its Oakwood Corporate Housing division, it is also a real estate owner. In fact, Oakwood this year is completing a two-year property acquisition program under its Oakwood Apartments unit valued at $400 million. As a result of the program, 15 properties have been added to the Oakwood portfolio.

New acquisitions that Oakwood announced either last month or this month include properties in San Francisco, Philadelphia, Austin, Texas, and Northern Virginia near Dulles Airport.

In San Francisco, for example, Oakwood last month acquired a small apartment building on Nob Hill. The acquisition brings Oakwood's portfolio in the Bay Area to 2,500 owned or managed apartments. "The goal has been to acquire high-end apartment buildings in locations that are particularly desirable to business travelers," Klein said.

Owning a building in its entirety enables the provider to display exterior signage. "Thanks to signage, you're able to build visibility of your brand, which can be helpful in terms of perception on the local level," McCaslin said.

As with so many other areas of the lodging industry, branding is becoming even more important. "As branding continues to emerge as a trend, we want to be first to establish a recognizable name," Oakwood's Klein said.

In terms of name recognition, ExecuStay has a leg up on the competition since it's part of the Marriott portfolio and, like other Marriott brands, uses the parent's name as a sub-brand. "There are different advantages we derive from the Marriott association--including cross-selling possibilities and participation in the frequency program--but including their name in the brand is certainly first and foremost," Abrahams said.

Yet, for the end-user of the apartment, McCaslin doubted that the brand really made much difference. "Our research indicates that residents don't really have a preference," he said. "What seems to matter to them is how easily you get them into the apartment and once they're in residence how you furnish and service the apartment."

Both ExecuStay and BridgeStreet described their growth strategies in 2001 as focused mostly on the United States. Oakwood's focus, meanwhile, is both the U.S. and international markets. "You won't see ExecuStay move into new U.S. markets during the year, but you will see growth within the markets where we already are present, the larger markets in particular," Abrahams said. These include "virtually every major gateway," or more than 200 cities in all.

"We're building additional penetration in these cities by working with existing clients, but even more so by bringing on new clients," Abrahams added. ExecuStay's U.S. penetration is so great, it was easier for Abrahams to rattle off the only two major cities where the brand has no presence: St. Louis and Kansas City, Mo. Outside the United States, ExecuStay does have some presence in Canada and the United Kingdom.

While Oakwood was acquiring the properties in San Francisco, Philadelphia, Austin and Northern Virginia, its Oakwood Corporate Housing division, which leases, furnishes and then subleases apartments, targeted New York for a big push in 2000 and again this year. Starting in October, it began subleasing 86 units in a project called the Ocean Residence, located in the financial district overlooking Battery Park City. By mid-December, 90 percent of the units had been subleased, mostly to investment companies, technology providers and consulting firms. Of Oakwood's inventory of more than 20,000 U.S. apartments as of the start of 2001, approximately 1,000 are in the New York metropolitan area.

At the Ocean, Oakwood is commanding fees of $150 per day for studio apartments and $180 per day for one-bedroom apartments with a 30-day minimum length of stay. However, considering the tight New York market, where occupancy rates for regular hotel rooms through 2000 hovered around 84 percent and the average daily rate for a standard room was around $220, Oakwood's pricing, while high, was still relatively cost-effective.

Unlike a typical corporate apartment building, the Ocean comes with many high-end amenities usually associated with deluxe hotels, according to Noel Hernandez, district manager for Oakwood Corporate Housing in New York. These include sweeping views of the Statue of Liberty, a lobby finished with Italian, 14th century-style frescoes, plus concierge and valet services.

<B>

Expanding On Ocean Notion</B>

While the Ocean isn't an Oakwood dedicated building, meaning it contains non-Oakwood-controlled apartments, the Oakwood units have been bunched together. "Oakwood has two contiguous floors," Hernandez said, creating a sense of a building within a building. It also has its own dedicated service staff onsite, increasing the sense of an Oakwood identity. Trying to maintain the New York momentum it began with the Ocean, Oakwood this month will begin leasing 40 units at a new building south of midtown.

While BridgeStreet is primarily U.S. based, with a presence in such key cities as Chicago, New York and Los Angeles, MeriStar's McCaslin said it also has a presence in Canada and in Europe, specifically the United Kingdom.

"We may go deeper into Europe during the year, but we're less interested in smaller U.K. markets than we are in the larger cities outside the United Kingdom," he said. He mentioned Paris, Rome and Madrid as examples.

"It's always made the most sense to follow the demand patterns established by our customers and that's the strategy we'll stick to," McCaslin said, noting that there was a strong overlap between interim housing and normal business travel needs.

In specific markets, the location of the apartment is often a determining factor. "As in other forms of business travel, much of the selection of one of these apartments is location driven," McCaslin said.

On the global front, Oakwood is planning to make further inroads into Asia in 2001, a region where it is already strong. In South Korea, for example, its Oakwood Premier division in August is scheduled to open a 279-unit complex in Seoul. In Asia and to some degree in Europe, the units are usually referred to as "serviced apartments." The Seoul facility will be located in the Kangnam finance and technology district, where such U.S.-based companies as Cisco Systems, IBM and Motorola have their local headquarters. Apartments will range in size from studios to three-bedrooms, which more easily can accommodate families.

According to Oakwood's Klein, if furnishing a temporary apartment on short notice in the United States can be difficult and time-consuming, the task can be even more daunting outside the United States in such areas as Asia, especially if the traveler has Western tastes and expectations.

"In Asia, it can be nearly impossible to obtain appropriate furniture rentals and home furnishings, particularly on short notice," Klein said. "After all, in numerous small ways, Western travelers have their own standards."

In choice of location, too, cultural factors can come into play. "In many Asian cities, there are main areas where Westerners feel comfortable and want to live," Klein said. "Similarly, there will be other areas--less middle class and affluent, for example--where people are less interested in living."

Oakwood's Seoul property follows the successful launch of its first property in Tokyo, which opened in May 2000 and now is fully occupied. Again, the mix of company clients ranges from technology to finance.

Compared with the thousands of interim housing units operated by Oakwood, ExecuStay and BridgeStreet, newcomer Citrus Suites' 229 units make it relatively modest in size. But, in the same way the boutique concept has brought new energy to traditional downtown business hotels, such an operation as Citrus is revitalizing its niche in the interim housing universe. Making that impact even greater is the fact that the three properties operated by Citrus at present all are located in the same community, the trendy Santa Monica suburb of Los Angeles.

As it happens, only two of the three dedicated buildings already are open. The first property, the Santa Monica Beach, opened 14 months ago and is comprised of 70 one-bedrooms and two-level townhomes. The second, the Santa Monica, which is comprised of 101 studio and one-bedroom apartments, opened this month.

By this spring, they'll be joined by the 58-unit Santa Monica Promenade, which also will be a combination of studios and one-bedrooms. So the whole undertaking is relatively new.

"Given the sub-market of Los Angeles we're in, we sensed there'd be a demand for this kind of housing," said Citrus Suites president Howard Jacobs. "We also intentionally went after the high-end of the market because of all the amenities we're offering."

So far, 80 percent to 90 percent of Citrus Suites' guests have been business travelers, but they're drawn to the resort ambience of Santa Monica. "Because they're here for at least a month's stay, they're really living here as opposed to visiting the way transient travelers do," Jacobs said. "Consequently, they'll choose to live in Santa Monica, though their business can actually be downtown, Century City, Beverly Hills or even the Valley."

Similar to interim-housing guests anywhere, many of Citrus' guests aren't necessarily delighted at first to find themselves on the road. " 'I'm stuck in X for three months,' might be their initial reaction," Jacobs said. "But by the time they leave, a high percentage tell us they're sad to go."

As for the size of his three owned and managed properties, Jacobs considered 50 to 100 units to be the optimal size.

"Above 150 units, it can become hard to maintain the high-end standards we provide," he said, "while 50 units or below would be hard to achieve the economies of scale you need to be successful financially."

The Citrus properties include such amenities as fireplaces, CD players, 27-inch televisions, VCRs and cordless telephones in the rooms, as well as heated pools and sun terraces onsite. Concierges are based at each property.

"Plus, there are perks like Frette cotton robes in the rooms that guests get to keep," Jacobs said.

When it comes to catering to the needs of its guests, Citrus is hardly alone in attempting to provide a high level of personalized service. In some ways, the intense focus on service that's shared by Oakwood, ExecuStay and BridgeStreet may be the result of their special character. Travelers, after all, show up in a destination they're often totally unfamiliar with, for a month or longer, and the apartment becomes their home. On a more self-serving level, of course, operators view providing high-end guest service as a form of competitive advantage.

As with other forms of lodging intended for business travelers, high-speed Internet access in guest rooms became a much in-demand guest amenity in 2000. Travelers increasingly needed to be able to retrieve their e-mail messages quickly as a way of staying in touch with their offices and customers. Considering that their guests are staying with them for long periods, operators of interim housing felt the pressure to provide high-speed access even more intensely than did operators of other types of lodging. A related issue concerned costs: whether or not to charge guests for the service.

"Installing high-speed access gets more complicated when you don't control the entire building and have to install it in individual apartments," said MeriStar's McCaslin, who noted that many of BridgeStreet's guests are satisfied accessing the Internet through the traditional dial-up method.

In the third quarter of 2000, Oakwood announced a deal with an outside provider to install high-speed access at all its U.S. Oakwood Apartments facilities. The rollout was expected to take a year to complete. Not surprisingly, the first units to get the installation were in the technology-driven communities of Mountain View, Calif., in Silicon Valley and Seattle, Wash.

<B>

Standardizing Access</B>

Given its modest size, Citrus Suites chose to include high-speed access in all its apartments as a brand standard. "We also decided to build the cost into the basic rate, rather than charge a premium," Jacobs said. "It just seemed consistent with the image we wanted to create."

As for more personal guest services, housekeeping has become an issue. "As the interim housing industry has gotten more sophisticated and guests' expectations have risen, maid service has become more standard," ExecuStay's Abrahams said.

Travelers, however, who are used to staying in regular business hotels where daily maid service is a given will be disappointed. "Daily is almost nonexistent," Abrahams said. "While there's some flexibility, weekly service is much closer to the norm."

By contrast, a service issue that traditional business hotels rarely, if ever, have to deal with is furnishing the apartments to travelers' satisfaction.

"Because our guests can be with us for months and months, we want them to be able to customize the furnishings to their tastes," Abrahams said. "Whether you prefer contemporary or traditional style, or have specific requirements, we have apartments to specify virtually every taste.