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Vacation Rental Provider Lyric Makes West Coast Debut in San Diego

Short-Term Stay Firm Helps Developer Lease Up Empty Units

Lyric, which leases blocks of space from apartment owners and rents out units as short-term vacation spots, opened its first West Coast location in San Diego, joining other alternative hotel firms like San Francisco-based Sonder in gaining traction in major cities nationwide.

In taking almost 15% of the units at the Park 12 apartment complex in downtown’s East Village, San Francisco-based Lyric is helping developers boost apartment occupancy and fundamentals as it expands.

Lyric and Sonder have built business models off the explosive growth of vacation rental sites including Airbnb, which allow individual house and apartment owners to make their spaces available for short-term stays. The companies make arrangements with developers and owners of large apartment properties to lease out significant blocks of otherwise unused units and then furnish and list them on vacation rental websites to customers for short-term travel stays. In this arrangement, Lyric and Sonder operate their own platforms, and each is the "host" of the units being rented out on sites such as Airbnb and Expedia.

Lyric announced it has leased 106 units at Park 12, located at 100 Park Plaza in San Diego, which has a total of 718 apartments and was opened in two phases in 2018 and 2019 by developer Greystar. The property is almost 25% occupied, according to CoStar.

While short-term vacation rentals booked through sites such as Airbnb have presented significant competition for traditional hotels, the apartment-focused providers including Lyric and Sonder have actually helped some multifamily developers in San Diego and other cities by leasing up units faster than they otherwise would have been absorbed by the market.

For instance, CoStar Managing Analyst Joshua Ohl noted that Greystar’s Park 12 has averaged about 30 units of leasing per month since its first units were delivered in August 2018. In addition, Greystar has added concessions of up to eight free weeks on new 15-month leases, and during one month was offering that same freebie on 13-month leases.

“Monthly absorption is a bit higher than most new buildings in the East Village, where 20-25 units per month during lease-up is the norm,” Ohl said, noting Park 12’s concessions have been similar to those of other new downtown properties as developers compete for new renters.

Ohl said it’s challenging to track absorption rates whenever an apartment community turns over a significant chunk of units to a short-term vacation rental provider. In the short term, it removes that stock from the market-rate rental universe, which could improve demand because there is less supply available.

Several multifamily developers have been responding to the fast-growing apartment inventory in downtown San Diego, where thousands of new units were added in the past three years and more are on the way. While downtown rents continue to rise, CoStar data shows the apartment inventory at the end of 2019 had expanded by 50% since the end of the recession, and downtown had posted a double-digit apartment vacancy rate for nine consecutive quarters.

Similar to prior makeovers in 12 other cities including, New York and Washington, D.C., Lyric plans to convert the San Diego units to fit its “Creative Suites” model reflecting demographics and other elements of the surrounding neighborhood.

The San Diego units are expected to have elements such as photography by up-and-coming local artists Caity Fares and William LeFevre. The rooms are designed to include a collection of vinyl records curated by East Village retailer FeeLit Records, and San Diego-based Bird Rock Coffee Roasters has agreed to supply the apartments’ in-suite coffee services.

Booked on the Lyric website, stays will be available for one to 300 nights, with visitors having access to existing on-site elements at the upscale Park 12, including saltwater and heated pools, lounge rooms and fitness center.

Officials said room prices will average $220 per night. That's higher than the San Diego average hotel rate of $171 as of December, though downtown hotel rates generally trend higher than the regional average, according to travel research firm STR, a company owned by CoStar Group, which also published CoStar News.

In a statement, Lyric co-founder and President Joe Fraiman said San Diego was chosen for its first West Coast room offerings because of its status as one of the top U.S. destinations for business and tourism. Lyric does not disclose financial details of its leasing arrangements with apartment developers.

Real estate economist Alan Nevin previously told CoStar News that providers such as Lyric and Sonder frequently lease large blocks of space from apartment developers before and during construction. This preleasing effect has often helped developers bring new properties to financial stability sooner than might otherwise have been possible, satisfying the concerns of lenders who are steadily raising financing standards in a competitive environment for new apartments.

“They help take up these large sections of buildings that otherwise would have taken a lot longer to get filled,” said Nevin, who heads economic and market research at San Diego-based consulting firm Xpera Group. He added the arrangement has also helped some developers minimize the need for assistance from deep-pocketed equity partners to get apartment projects built.

Lyric last year closed a $160 million Series B funding round led by San Francisco-based Airbnb. That round also involved several other high-profile venture sources, including developers Tishman Speyer and RXR Realty, as well as former Twitter executives Dick Costolo and Adam Bain.

Article via CoStar

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