Picture a day when there is no need to meet a landlord or real estate agent, and no need to pay commissions when renting an apartment. Imagine a day when you can decide how long to stay, how much to pay, and who from a community of like-minded people to hang out with.
Sounds like a rental wonderland? Oh, it’s real. This new concept in residential hospitality is disrupting age-old ways of renting apartments.
“We believe this is going to be the future of renting. People will no longer sign year-long tenancy contracts, will want to pay monthly, and will be able to personalize services, co-work, and network, and have the flexibility to move,” Mohannad Zikra, CEO and co-founder of Stella Stays, told Economy Middle East in a recent interview.
Who is Stella Stays?
Stella Stays is not a developer with slick ideas on how to run their business. No, they are a 3-year-old proptech startup that negotiates deals with developers, allowing the company to take over the design, setup, and management of entire apartment buildings, allowing real estate investors, property owners, and builders to truly capitalize on their investments.
Three years into operation, the company grew from managing a single apartment in Dubai to now handling over 1000 units across several countries, all while enjoying healthy margins.
“In the beginning, it was a hospitality brand where the average booking was 4-5 nights. When COVID-19 hit, we started to shift towards longer-term stays. We’ve had people stay with us for an entire year. Our average length of booking is currently 28 nights,” Zikra revealed.
So, what is it that Stella Stays is disrupting exactly?
Well, mainly the hospitality sector and online marketplaces promoting short stays.
Zikra said the hotel sector is one of the hospitality industries that did not innovate, despite recent digital transformation efforts on their part.
“It’s largely still about wasting time in the lobby, waiting in line for passport checking, getting a room’s keycard, and receiving food service on a tray. It’s antiquated,” Zikra opined.
“What hotels have in their favor is consistency, which is what Airbnb does not have. Airbnb is a marketplace that invites people to list their residences, and while one could find great short-term stay deals, many people, especially in this region, are hesitant to book with Airbnb because they don’t know what they’re going to get. It’s not a brand that is consistent like the Four Seasons or the Holiday Inn.”
Stella Stays has its unique market positioning, where they manage the whole experience in the building, introducing unique designs, tech-enabled devices, smart living spaces, and community activities.
“We encode the lobby into your phone, allowing residents to use smart devices to extend their stay or personalize services. We embed workstations and coworking spaces for tenants, allowing residents to experience a community in the building,” Zikra described.
The business concept behind Stella Stays represents a three-party win-win-win scenario. To find out how and why it works, let’s start with the developers.
Developers: Unique branding and steady cash flow
A good place to start is Egypt. In September 2022, Stella Stays announced its expansion into Egypt, introducing a prime location in New Cairo, through its agreement with Tameer, Egypt’s oldest residential developer.
“Egypt is a great market in terms of size and investments taking place in real estate, so we created a completely different segment for developers – which we call “residential hospitality” -other than the option of either selling or renting, which was something they have been doing over the last 100 years,” Zikra said.
Following the devaluation of the Egyptian currency, developers there also tended to keep ownership of their buildings but were not sure what to do with them.
“We came in and said we can help you monetize and generate more revenue for your property, offering technology, establishing a residential hospitality brand, setting up and renting the units out. That’s our collaboration with Tameer,” Zikra described.
And while currency devaluation was incentivizing enough for developers in Egypt, investors and property owners all over the world are seeing the value of Stella Stays’ offer.
“We have 2 models in place. One is the master lease where we would rent out the whole building for 10 years with an option for renewal,” Zikra began.
“The second model, a revenue sharing scheme, is where we essentially operate the building on behalf of the developer, investor, or real estate owner, and we pay them a fixed percentage of the net revenues. In this revenue sharing model, they can generate up to 40% more returns in comparison to the traditional rental approach.”
Why you may ask?
In the current inflationary times, prices of building materials are going up and rental yields are going down.
“The rental is a commodity. At the end of the day, what differentiates one property from another is brand creation, setting up the building, and putting in place proper amenities, all of which help property assets become more valuable,” Zikra clarified.
“We also realized that we are collecting a lot of data about rental sizes, occupancy percentages, and revenue per rented unit. These are helping developers decide what to build.”
And when it comes to master leases, the first model, developers there are guaranteed returns over an extended period, even in the event of a real estate downturn.
“We get a discounted rate when leasing in bulk, as we take on 50 to 100 units plus, and developers are guaranteed a big chunk of rental income. To mitigate our risks, we have a very detailed underwriting process with every contract that we sign, which typically includes clauses that allow us to exit, tying those clauses to rental indices or other economic factors.” Zikra said.
Stella Stays: In good times or bad
The really interesting thing about Stella Stays is that it delivers a product that surprisingly works well in times of prosperity or insecurity.
“Our business model works well when the economy is doing great and when business and tourism travel is vigorous. However, there are many use cases in an economic downturn as well when residents are not sure whether they should sign a one-year contract. Potential tenants want the flexibility of payment options, contract terms, and the ability to upsize or downsize.”
According to Zikra, “Hotels had extremely low occupancy rates during COVID times, “while we maintained an 85% occupancy rate across all of our properties, and 75% was from the residents of the city looking for that new model of flexible rental, where they can cancel anytime.”
Tenants: Trendy, flexible, and practical spaces
A community-driven living concept is at the core of Stella Stays’ offering to tenants, featuring, whenever possible, co-working and communal spaces as part of the accommodations and rental contract.
In Riyadh, Stella Stays enjoys a 100% long-term and corporate tenancy from companies such as management consulting firms or startup founders, who get together in a co-working space to meet like-minded people.
“Those staying with us from the beginning are the early adopters, the tech-savvy, the next-gen. Our unique concept of building and community experience allowed us to differentiate and set up a pricing strategy that works based on the added value that tenants are receiving,” Zikra explained.
The co-working space becomes an amenity in most Stella Stays buildings like the gym or pool usually is.
“Within the app, we incorporate things such as personalized services, showing the best coffee shops or the best gyms in the area, all of which we pre-screen. We’re trying to make the transition into a neighborhood or a city as easy as possible by creating the neighborhood and city guide for our guests and residents,” Zikra said.
“In Egypt, where we are launching, the building has a cinema room and a large open kitchen area where tenants can gather. The “cool” amenities allow us to blur the lines between short-term and long-term bookings. It’s a furnished apartment in a great building. The longer one stays, the better the pricing incentive is.”
Tenants also get to enjoy apartments with different interior design perspectives catered to the length of their stays.
“We will dedicate a certain number of floors for shorter-term units and others for longer-stay units. Short-term units are vibrant to match the personas of the people that rent them for their holidays, while longer-term ones focus more on neutral colors, extra comfort, and have all the amenities that make sense for extended living,” Zikra illustrated.
Zikra said that Dubai, Riyadh, Jeddah, and New Cairo are the main focus areas for Stella Stays.
“Lots of growth potential for great accommodation spaces in the UAE and Saudi. The population in Saudi, in particular, is young and entrepreneurial. In New Cairo, developers are looking to differentiate themselves from the competition with new concepts,” Zikra explained.
“People love staying with us because they just need to show up and start living. It’s smart, hassle-free, and socially alive. We call it residential hospitality.”
