Inside the Wyndham-Reside franchise deal

SEATTLE – Wyndham Hotels & Resorts has been a little light in the upper middle extended-stay tier, especially as its loyalty club members look to push up the chain scale. They may have found an answer in Seattle-based serviced-apartment company, Reside, which has been in business for 30 years, mostly on the furnished corporate housing side with average stays around 60 days. Now, Reside has the Wyndham Residence brand behind it to push deeper into the B2C residence-style vertical for more transient business with an average stay of about four days.

The 10-year development deal that was announced in late October has Reside paying Wyndham franchise fees, including room royalties, in return for branding and Wyndham services.

Reside already has been managing two properties under the Trademark Collection by Wyndham (The Beekman Tower and Broadway Plaza in New York City). With the five properties announced so far under Reside, a Wyndham Residence and corporate housing managed in Puget Sound - this inventory expands upwards to over 2,500 units depending on the time of the year.

Reside also has a separate tech platform, a corporate housing marketplace called 3Sixty, which taps into more than 1 million accommodation options across 60 countries

For Reside Founder and CEO Lee Curtis, this is a new opportunity to primarily convert multi-family properties that are having trouble filling up with leases and as well as competitors who are struggling without the weight of a major brand like Wyndham behind it. Reside manages the properties with a mix of fully furnished studio, one- and two-bedroom units.

Reside Houston Downtown room and common space

Curtis told Hotel Investment Today his phone is ringing with some 30 deals already in the underwriting process as it targets the top 50 MSAs and their surrounding areas. He is shooting for 20 to 30 openings next year and is seeing a much wider range of developers coming to the table than expected. He would like to reach 50 inside 24 months and “a couple of hundred” within five years.

That said, Curtis added that they will not “force feed” deals. “They have to represent what we’re trying to build and represent Wyndham correctly.”

Five deals have been completed and the Reside Seattle Downtown and Reside Houston Downtown are already open with Wyndham Residence branding. Two deals in Washington, D.C., and one in New Orleans are in the pipeline with Curtis saying a deal in Florida will be announced soon.

“What they’re giving us is quantifiable and, I believe, sustainable demand,” Curtis said. “They’re getting paid royalties and we’re getting access to a system we normally wouldn’t have access to… The short-term rental space and some of the players have struggled from the same inevitable headwinds of only being able to generate so much demand over an OTA channel. We get to the same space, and then then we go way past it with Wyndham.”

Curtis said RevPAR is in the $160-plus range up to $200, predicting rates for studios in a market like Washington, D.C., in the $160 range up to $300 for a two-bedroom unit. Occupancy, he said, should stabilize around 75%.

Merry band of developers

To source deals, Curtis said Reside has a “merry band” of traditional brokers and other groups that specialize in off-market deals. Since the Wyndham announcement, he and his team are also on the road meeting with national brokers to educate them about the new opportunity. He added that Wyndham’s development team is now aware of Reside and is already providing some leads, as well.

We come in, convert the building to fully furnished and run it through the Wyndham channels. It really changes the operating demand dynamics of that property and dramatically increase the NOI – up nearly 100% from unfurnished.

Lee Curtis

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“We’re not necessarily advocating or pushing toward ground-up development like most hotel chains,” Curtis explained. “This is really a conversion product and because of that, it opens up many different avenues to developers in some overbuilt markets in Texas, or in Seattle, where there are too many apartments coming online without enough business traffic or leases. They’re not meeting their initial goals. So, we could be a really good fit for an owner that needs a better answer. We come in, convert the building to fully furnished and run it through the Wyndham channels. It really changes the operating demand dynamics of that property and dramatically increase the NOI – up nearly 100% from unfurnished.”

While converting existing or newly completed apartment buildings is the primary source of development, Curtis said he is starting to see some conversions of other types of commercial property.

“On my last trip to D.C., I was seeing a lot of that happening,” he said. “It’s a great fit for us because the footprint’s the right size, the locations are good and there’s an appetite for something that isn’t commercial. I think New York will eventually get there, too.”

Curtis has also seen some interest from groups with product in leisure areas like the Smoky Mountains, where there is a built-in demand component. “I’m working with a group right now that wants to develop a handful of them outside of Nashville where there are theme parks,” he said.

As for their own investment, Curtis said Reside is owned by a Canadian private equity firm called Westbridge Capital, who is watching this deal closely. “I wouldn’t be surprised over the course of this agreement that we start looking at acquiring certain assets that just make sense for us,” he added.

He concluded that Reside deals will make sense because of the affiliation with Wyndham. “It will absolutely drive exceptional NOI to the bottom line, period; it’ll increase the value of the asset, period,” he said. “If that lines up with your own thesis as an owner or property investor, then you should be talking to us. And I say that only because that isn’t everyone's goal. I know it seems like it is, but in multifamily there are many groups that are more about the cap rate and the idea of almost perpetual annuity-type rental revenue over exceptional profits and growth. I’ve learned a lot the last couple years. I know we all wanted to make more money, but maybe not everyone does.”