What segment of Commercial Real Estate do we believe offers the best combination of steady high returns and strong recession resistance?

At First Floor Equity we believe that Commercial Real Estate is the best asset class to provide you the steady stream of income that you need for the stable worry-free retirement you deserve.  But what area of Commercial Real Estate offers the most bang for your buck in todays market?

                          “Hybrid Housing”

What is Hybrid Housing?

A few years ago, I was doing a consulting job in Orlando, Florida.  It was a 90-day contract to help a local business increase the efficiency of their production lines. (great Lean Six Sigma project).  As I looked around for lodging, I quickly realized that there are no-good cost-effective options for people in my circumstance.  This is where “Hybrid Housing” comes in. 

Hybrid Housing is a new business model that sits between a traditional hotel and an apartment building.  A hotel works well for 1-7 nights and an apartment works best for people who need housing for longer than 6 months.  Hybrid Housing directly addresses the growing need for furnished short stay housing of 7-180 days. 

As a business, the goal of Hybrid Housing is to maximize the number of nightly guests at the highest rate possible, then fill in the remaining vacancies with weekly and monthly rate guests.  This maximizes occupancy and cash flow with minimal increases in operating expenses.

Hybrid Housing is a win for the consumer as it provides that cost effective extended stay lodging option.  It is also a win for the community as it increases utilization of an existing asset, provides more jobs in the community, and increases the tax base.

 What this means for you as a potential investor in Hybrid Housing:

• You can own part of a stable physical asset that was purchased for only a fraction of its replacement cost (huge upside potential)
• Your investment will be expertly managed by our highly trained staff to decrease operating costs and maximize revenue (steady return on your investment)
• You will receive above average returns on your investment without the volatility and fees associated with the stock market

This is superior to multifamily or other types of commercial real estate because:

• Multifamily properties are not currently available at such a steep discount to replacement cost.
• Most commercial projects have a low return to investors for 5-7 years with most of the projected return at the end on the sale or refinance of the property. (if that happens)

That is not the strong steady flow of income you need for a stable retirement.

So, why is Hybrid Housing such a great investment now?  Huge demand and minimal supply.

Huge Demand: Who needs Hybrid Housing?

Lots of different people!  Our new GIG economy, the increasing demand for a flexible workforce, and the development of health care hubs, has significantly increased the need for this type of lodging. 

Some of the potential guests that fit this profile are: 

• Traveling Nurses
• Consultants
• Project workers – IT, construction, plant maintenance, other short employment contracts
• People completing internships or other job training
• People traveling for medical care or family member’s medical care
• People traveling for educational programs (college summer school or certificate programs)
• People in transition – divorce, new job, relocation to a new city

This list just touches the tip of the iceberg. 

Utilizing the Hybrid Housing Model and the sophisticated management tools we have developed, we can meet the occupancy needs of this unique and growing market in a cost-effective manner never before available. 

This this allows us to cater to the widest possible customer base in need of lodging.

Minimal Supply

According to a recent article in Business Travel News: “Business travelers who stay five or more nights in a hotel currently comprise more than one-quarter of the demand for the nation’s 56,000 hotels and 5.2 million rooms, while extended stay inventory currently represents just 8% of total lodging supply”;  according to Tom Buoy, Executive Vice President of Revenue, for Extended Stay America. U.S.

How do we develop Hybrid Housing?

• First, we research the markets to find those areas of the country that are experiencing strong population and wage growth
• Then we identify an existing hotel in this area that is underperforming to the marketplace.
• We acquire the property for significantly less than replacement cost
• Make the necessary improvements to convert the property into Hybrid Housing
• Implement a sophisticated marketing plan utilizing our cloud-based hotel management software, as well as Online Travel Agents. etc.
• Start earning exceptional returns on a stable appreciating asset

operating advantages of Hybrid Housing vs traditional hotels:

• With longer average stays there are fewer turnovers. This allows for lower expenses and staffing requirements
• Revenue is greatly increased from increase occupancy due to our wider client base
• Extended stay guests are charged cleaning fees and utility usage fees up front to defray maintenance costs
• Repurposing hotels rather than building new ones allows us to acquire them for much less than their replacement cost and limits our competition to existing hotels who often have greater debt
• Another big advantage is the elimination of the franchise fees and flag agreement that cost typical hotels 9% of revenue and force very expensive and excessive “product improvement programs” onto the owners.
• We shift this franchise overhead to more productive marketing using social media and online advertising.

Increased Recession Resistance

Hybrid Housing businesses are more recession resistant than traditional lodging businesses.  By catering to a much broader market than just traditional recreational and business travelers, we can adjust our occupant mix to keep occupancy significantly higher.  If the economy were to turn sharply downward there would be a natural increase in demand for this product as people transition out of homes and apartments that they can no longer afford.  Job losses and the need to transition to other locations will also drive demand for these services.

To A STABLE Retirement, and Beyond!

If you’re interested in learning more about the benefits of leveraging Hybrid Housing investments on your journey to a stable retirement, a great place to start is by joining the First Floor Equity Investor Club.  You will receive our biweekly newsletter and get access to an exclusive collection of investment opportunities that will allow you to passively build wealth for your families and live life on your own terms.