WhyHotel offers pop-up hotels in residential buildings

WASHINGTON—Many companies are trying to find the right mix of hotel and home—the amenities, security and service that come with a hotel stay complemented by the space and flexibility of a residence—and WhyHotel thinks it has struck just the right note.

Earlier this month, WhyHotel, an alternative lodging service that operates pop-up hotels in newly built luxury apartment buildings, secured $3.9 million in seed funding, led by Camber Creek with participation from Revolution’s Rise of the Rest Seed Fund, Mendacre, MetaProp, Working Lab Capital, Mitchell Schear, Vornado/Charles E. Smith (the predecessor to JBG Smith Properties) and other real estate executives.

“We go into large, newly constructed, multifamily buildings, and we take about 50% of the units to operate a temporary pop-up hotel,” explained Bao Vuong, president/co-founder of WhyHotel, noting WhyHotel aims to have 100-plus units in each pop-up. “As the building fills up with long-term residents, we bleed down the number of units we have. We may start off with 150 units, and then as the building fills up, we go to 130 to 110 to 80 to 50 and, eventually, pull out of the building.”

But, it’s also a turnkey operation. “We manage 100% of the operations within the building,” he said. “We have 24/7 on-site staff; we’re responsible for fully furnishing all of the units with couches, TVs, WiFi, dishes, pots, pans—anything you would use at home.”

The first property opens this month in the Inner Harbor area of Baltimore, the result of a partnership with Monument Realty for 158 of the building’s units. Currently in lease-up, the 347-unit property offers a custom mural, apartments with private balconies, an outdoor rooftop pool, a rooftop lounge, game room, theater room, 5,000-sq.-ft. fitness center, and business center.

Michael Darby, principal of Monument Realty, said it was a no-brainer for the company. “When you build a building of this size, you do have a period of time where you’re still leasing up the building when there’s quite a few units available. If our lease-up rate is 20 units per month, that’s 18 months for the whole building. There’s always the question of what do you do with that space that’s not being occupied for that period of time,” he said. “The math you have to work out is what’s a reasonable amount of rooms to offer WhyHotel, but with 350 apartments, you can offer them 150 off the bat where you don’t have any risk of them being leased for at least 12 months.

“They share the expenses associated with the building—electricity, real estate taxes and other common-area maintenance costs,” he continued. “Above that, presumably, we’re going to make money as well, and we share in bottom-line profits of the venture. It’s a good way to bring in income during that time and offset expenses.”

Darby also noted that it’s good business to have an active building during the lease-up period. “It helps tenants feel like there’s a lot of other people around,” he explained.

Vuong agreed, pointing to The Bartlett, a 50-unit pop-up hotel the company ran in Washington, DC, in conjunction with Vornado Realty Trust. “It was a way for them to make more efficient use of the asset and help allow them to rethink how they could unlock some additional development that they wanted to do in the multifamily space,” he said, noting that it lasted for five months and, being the first venture, was smaller than the typical WhyHotel would be. “The reason why we were only in that building for such a short time was because the building leased up in 13 months. For DC, that is incredibly fast for that size of a building. But it also goes to show how we affect the lease-up. We generally do not have a negative effect on the building in terms of trying to get long-term residents.”

Both executives noted that the on-property hotel could be a boon for residents. “If our tenants want, they can use some of the services the hotel has, such as cleaning, at a very competitive rate,” Darby said.

WhyHotel also offers residents room rates at half the price of a traditional hotel. “Even though we were in The Bartlett for only five months, we had 20% participation from the residents who had friends and family stay with us. That’s an important driver for us,” Vuong said. “We’re not just there to de-risk the development; we’re there to provide value for everybody involved. We found that the residents used the amenities more often also because they had access to the hotel in the building.”

Vuong also added that, while WhyHotel offers a residential experience, the company is different from homesharing in that it operates under a hotel license and gets all required regulatory approval. “Most of the buildings we’re targeting are in either commercial or mixed-use zones, which means that area has been programmed to have retail, office or hotel,” he said. “We’re not in single-family-home neighborhoods. When we get those approvals, generally there’s a sunset date, so at the end of the day, the neighborhood and the city get the housing stock. We aren’t there permanently. The city also gets taxes, and because of the size and scale of what we do, we’re hiring between 15 to 20 employees for each pop-up we do. These are all found jobs. If we don’t do this, those jobs aren’t coming back at any time.”

While each pop-up is expected to typically last between eight and 16 months, Vuong said WhyHotel won’t just pull up stakes in each city. Pointing to the Baltimore project, he said, “It’s a market we think we can be in for the long term. This area has seen a resurgence in the past few years.”

There are three main criteria for WhyHotel when evaluating projects: the strength of the traveler market; the regulatory environment—it will only go in if it has the full backing of the city; and how much multifamily development is going on. “When we go into a city, we want to make a long-term commitment to the city, so there needs to be a development pipeline of multifamily,” he said.

And it enables the company to get into trendy neighborhoods quickly. “We’re not buying for the next five or 10 years. It’s not capital intensive, and in many cases, apartment buildings are pioneers. That allows us to get into up-and-coming neighborhoods in a much quicker way,” he said.

“We’ve got four deals lined up for this year and we are in the process or lining up additional deals in 2019 and 2020,” he added. HB