N.Y. Corporate Housing Becoming More Of An Option

ExecuStay, the corporate housing division of Marriott International, in July announced that it had secured a long-term lease on an existing 204-unit apartment building in Manhattan's Chelsea neighborhood and had begun leasing units as corporate apartments. A month earlier, ExecuStay announced it had started construction on a new project in the city, a 124-unit apartment building on Third Avenue and 37th Street.

The two high-visibility projects, the first of their kind for ExecuStay in any U.S. market, cast a spotlight on the corporate housing lodging segment in New York. Even without the lure of the Marriott affiliation, however, this industry segment has seen significant growth in New York recently. For example, Oakwood Worldwide, another major player, expanded its presence in the city last year and a number of independent projects entered the market around the same time.

The timing of all this activity is noteworthy because it parallels the current economic slowdown. While these projects may have been planned or opened in more bullish times—when accommodations in traditional Manhattan business hotels were often at a premium—the situation mid-2001 is radically different. Starting in February of this year, occupancy rates and room revenues in the city have fallen significantly. In June, for example, occupancy rates were down 9 percent compared with June 2000.

Consequently, a large number of new corporate apartments coming online adds to the overall supply of lodging accommodations in the city. At the same time, however, travel budgets at many companies have been under severe pressure, making buyers more eager than ever to embrace cost-saving alternatives. Corporate apartments—defined by their 30-day minimum length of stay—can be one such option.

"Depending on the individual market, we've been growing or shrinking our real estate commitment," said Gary Abrahams, president and CEO of ExecuStay. "What we're looking for are markets with a consistent level of demand and New York has proven to be one of those. Our business in the city doubled last year and, even though the market has slowed, we're still seeing growth in the high single digits this year."

Investment banking and other financial services industries have remained core users of corporate housing. "As these industries have felt the impact of the slowing economy—seen in the declining number of IPOs, for example—there have been fewer relocations, consulting assignments and training programs, which is why people who are coming to the city tend to need corporate apartments," Abrahams said.

Demand by these users also has been cyclical. "Demand tends to peak in the second and third quarters—with the majority of relocations, for example, taking place in the summer," said Noel Hernandez, senior New York district manager for Oakwood, which last year opened relatively large-scale projects near Wall Street and in Chelsea.

Creating even more demand in the third quarter have been summer internship programs, where financial and law firms hire students during school break. "As a whole, corporate housing is a relatively new industry. Now that the economy has softened, many buyers have just begun to realize what a cost-effective alternative we are to traditional hotels. They look at other options and the reaction is, 'Hey, we may have something here,' " said Oakwood's Hernandez.

Prior to the economic downturn, bookings for many of the 57 corporate apartments at the Envoy Club, which is located at First Avenue and 33rd Street, came from both client companies' travel and human resources departments. The travel department was more likely to initiate the booking when the purpose of the trip was training or a consulting assignment; human resources, on the other hand was more likely to take the lead when a relocation was involved.

"We've seen much more consolidation of these two since the economy stalled," said Envoy Club general manager Daniel Silver. "Companies are trying to save money by being sure an apartment it's leasing, say, on a one-year lease, is being occupied continuously."

The relocation market in the city specifically has changed this year, too, as the real estate market for permanent housing has changed, reflecting the economy. "As the market for rental apartments, co-ops and condominiums has eased a bit this year, people relocating to the city have more inventory to see," said Wendy Kleinman, director of sales at The Marmara Manhattan, a 102-unit apartment building at 94th Street and Second Avenue. "Therefore, they're spending less time in temporary housing."

Newly cost-conscious, companies have become much more cognizant of the length of stay spelled out in the lease. "In the past, there might be a tentative move-out date, but now companies are much more definite and less likely to permit extensions," Oakwood's Hernandez said. "As in other areas of travel policy, costs are being monitored much more closely than before."

Booking cycles have become shorter. "Companies have become more cautious and are waiting longer before committing," said Rosary Rayos del Sol, sales manager at the Phillips Club, which operates 96 corporate apartments at Broadway and 66th Street on the West Side of Manhattan near Lincoln Center.

ExecuStay's Chelsea and Third Avenue projects are unusual for the firm because they represent dedicated corporate housing buildings. In the Chelsea project, all the units will be leased as fully furnished corporate apartments. About 40 apartments were available initially and the remaining 164 will be available by the second quarter of 2002. At the Third Avenue building, which is scheduled for completion by year-end 2002, 18 units—distinct from ExecuStay's 126—will be retained by the developers for sale as condominiums.

"In the past, we might have five, 10 or 15 of the units in a building, the remainder of the apartments being occupied by permanent residents," said David Lorenzo, general manager for ExecuStay in New York. "The rest of our Manhattan inventory is like this. But by consolidating into fewer buildings, we're able to operate more efficiently in terms of housekeeping and maintenance, as well as provide our guests with a higher level of personal service. After all, it's easier to maintain one entire building, rather than a few apartments in each of 20 buildings."

Similarly, the Marmara Manhattan, which was built as a regular apartment house, occupies the entire building. At Oakwood, the 86 apartments that the firm controls in The Ocean, the building overlooking Battery Park City near Wall Street, are on two contiguous floors. The building, which originally was an office building, has 500 apartments overall. By contrast, the 40 apartments Oakwood has at its Chelsea location are spread throughout the building.

Similar to ExecuStay, the rest of Oakwood's New York inventory is made up of a small number of units in numerous buildings. The Envoy Club occupies the first seven floors of a larger building. A second Envoy Club is under construction—also as a self-contained part of a larger building—at 38th Street and Fifth Avenue.

In today's competitive environment, dedicated buildings provide corporate housing developers with a subsidiary, if less tangible, benefit. "When you can name a building with your brand, it gives you added visibility in terms of all-important brand recognition," ExecuStay's Abrahams said. "Especially in a high-profile market like New York, this can be very beneficial because a great many decision-makers pass through the city and may see it."

For travelers staying in a corporate apartment where all the apartments nearby are occupied by permanent residents, it's a somewhat different experience than staying in an apartment surrounded by similarly temporary guests. "Because people in a dedicated building are more or less in the same situation, they're more likely to seek each other out," ExecuStay's Lorenzo said. "The atmosphere is more social."

Similar to any kind of business travel, location is a crucial consideration in the choice of lodging. Compared with traditional transient business travel, however, the question of location is more complicated for the traveler occupying a corporate apartment. Typically, transient travelers want to be as close as possible to where their business appointments are taking place. Since their stays are only for a night or two, they can tolerate the negatives in return for the proximity. By contrast, travelers staying in a corporate apartment are living there for at least 30 days. Accordingly, they tend to want to make themselves feel more at home in a residential area.

"This is why Manhattan neighborhoods like the East 30s and Chelsea are so appropriate," Lorenzo said. "They have a residential feel in terms of the street life and the services available. But at the same time they're in walking distance to many key business addresses."

Hernandez, meanwhile, makes the same argument about Battery Park City, site of the Oakwood project near Wall Street. Battery Park City, which faces directly on the Hudson River, intentionally was built to combine residential and office development.

Further uptown on the Upper East Side, the ambience clearly is residential. "Many travelers who are coming to New York have their families with them and they usually prefer to live in a neighborhood like ours, especially if their children are young," said The Marmara Manhattan's Kleinman of her building's 94th Street address. "It's less hectic than midtown or downtown, though we're only minutes away from those business destinations by subway or taxi."