By Royce Pinkwater
Sooner or later, concepts are tweaked and become new again.
An old idea – buying a pied a terre and renting it out while you’re away – has been shifted a bit and is now becoming a hot new investment trend in NYC. Examples of this idea are starting to pop up around town, with crowdfunding platform Prodigy Network and corporate apartment provider Korman Communities at the forefront.
The two have teamed up to provide very reasonably priced NYC condominium hotel apartments that can be rented by their owners through the successful AKA brand. Currently, they have two projects in the city, AKA United Nations in midtown and AKA Wall Street in the Financial District.
AKA’s projects have proven to be good investments. To date, they’ve had an occupancy rates of up to 86% and yearly cash return of 15%. Besides NYC, AKA currently has similar residences in Beverly Hills, Rittenhouse Square, Washington’s White House district, and London’s West End.
With a longer length of stay, such visitors seek more space with more of a residential feel than a standard hotel room, as well as lifestyle services and amenities
Traditionally, the high-end condo hotel has been just what the name suggests: a condominium with the additional amenities of a top flight hotel: These traditional hybrids have been around for years. In contrast to these, as well as the plethora of huge size, huge cost luxury apartments coming to market recently, AKA’s residences consist of smaller spaces, lower prices, full kitchens, maid service, gourmet room service, balconies, and so on. They also come fully furnished.
With a longer length of stay, such visitors seek more space with more of a residential feel than a standard hotel room, as well as lifestyle services and amenities. Accordingly, AKA’s apartments combine the style and hospitality of a boutique hotel with the space and comfort of a fully appointed luxury condominium.
More importantly, building regulations stipulate that owners have no limitations on how much or how little they themselves have to stay in the apartments — a change from the standard condominium hotel model, which restricts renting of units.
The apartments have been created for overseas investors looking for a pure investment play in the NYC real estate market. The combination of amenities plus cash flow is proving to be very attractive.
Individual owners are, of course, not burdened with finding renters or managing the property. How it works is that the owner appoints AKA as the exclusive agent responsible for the rental and management of the property while they’re away. The property then goes into a pool with the rest of the unoccupied properties; all properties are rented out equally.
Prodigy CEO and Founder Rodrigo Niño explains the idea’s attractiveness, “When owners come here, they don’t have to stay in a hotel. They can stay in their own home and even cover their costs by renting the apartment out when they’re not here. There’s been nothing until now that meets demand for that.” The idea is also a direct response to demand from foreign investors looking to own a slice of NYC real estate without the hassle of managing it.
The AKA joint venture combines the talents of a very new company and a very old one. Prodigy Network is one of the leading firms in the business of real estate crowdfunding, a business made possible by 2012’s JOBS Act. Prodigy has raised more than $300 million from 6,000+ investors and is currently developing commercial projects valued at close to $1 billion.
Prodigy’s partner, Korman Communities, is a fourth generation firm responsible for more than 40,000 homes, apartments, and townhouses, and two million square feet of industrial/commercial space.
Prodigy’s Niño has spoken at worldwide conferences, as well as NYU, MIT, Yale, and Harvard, and has been featured in The Wall Street Journal, BusinessWeek, Forbes, The Economist, and The New York Times. He is quick to point out the difference between AKA’s residences and traditional condominium hotels: “We like to call (our properties) extended stay apartments or extended stay residences…The difference between a condo hotel and what we do is that our apartments have no limitation in terms of time of usage…What we are creating is not a hotel but rather a serviced apartment that you can rent when you’re not using it.”
Condo-Hotels Around The World
Whether you call them short-term condos or extended stay hotels, the creation of these residences constitute a trend we believe will continue as the world’s wealthy become increasingly global in their lifestyle and demand more flexibility in all aspects of their lives.
I had a chance to catch up with Rodrigo Niño recently, and this is part of what we discussed:
Royce Pinkwater: I’m with Rodrigo Niño and we’re talking about Prodigy and his projects. How do you bring people’s attention to your projects? I know you travel everywhere; I think you mentioned to me that you spoke at M.I.T.
Rodrigo Niño: Exactly. We’ve been talking a little bit about what we do at M.I.T., Harvard, Yale, and other universities around the globe because there’s a lot of interest associated with crowdfunding for, as much as it is just another form of equity syndication, the fact that it’s done over the Web thanks to technology makes it very available to people.
Quite frankly, I would recommend crowd-funding for an investor who never wants to visit the unit to investing. This is more for an international investor who loves New York.
RP: How do you go about choosing the projects that you put on your platform?
RN: We don’t like to get creative when it comes to that. We believe that institutions have chosen those assets wisely over the past eighty years and so we follow strict institutional criteria. Proof of that is the financing that we have gotten for our portfolio here in New York that is comprised of five buildings now worth over eight hundred million dollars, and we got financing from DeutscheBank, Bank of America, and CIBC at very competitive rates. That’s proof of the type of assets we like to choose and focus on.
RP: I understand that, among other things, you are reinventing the condo hotel?
RN: We like to call them extended stay apartments or extended stay residences; that’s essentially what they are. It’s a very good point that you raise, Royce — the difference between a condo hotel and what we do is that our apartments have no limitation in terms of time of usage. In addition to that they are fully furnished like a condo hotel but they also have not only a living room but a kitchen. So what we are creating is not a hotel but rather a serviced apartment that you can rent when you’re not using it.
RP: Right, which is great for investors who may or may not ever want to visit the unit. They don’t have to, or they could.
RN: Quite frankly, I would recommend crowdfunding for an investor who never wants to visit the unit to investing. This is more for an international investor who loves New York, who likes the lifestyle and wants to enjoy the city as the local for a month or two per year or less and doesn’t want to be paying for an empty apartment all year long. So he puts it in that rental pool and he can make some money to cover expenses and bet on the future appreciation while also enjoying the apartment. As you know, if you buy a apartment in New York and you rent it out, you know that the tenant is not going to let you use the apartment whenever you want.
This is the principle behind AirBnB. Proof of how strong the short-term rental market here in New York is that AirBnB’s strongest market is New York. The demand here for short term rentals is even higher in terms of occupancy than the standard median hotel’s, which is already a very high 87%. So it’s a very compelling argument in value proposition that we’re putting out.
RP: I think it’s a wonderful product. Thank you very much, Rodrigo.