Luxury hotels are at the elite end of the real estate investment spectrum. They occupy prime city center locations, and boast top-quality architecture and design, from sophisticated modern to elegant classical. And while they reap a healthy profit, they cost a lot to build, maintain and operate.
So they’re owned by big, powerful companies, and they’re definitely not something the individual investor could, or would consider investing in, right?
Wrong!
KDD Ukraine, a leading development company in Kyiv and Ukraine, is developing a new, exciting and innovative real estate direction in Ukraine – the apart-hotel – under the Standard One brand, or S1 for short. According to S1’s business model, the apart-hotel is owned collectively: the building is operated by the company, which maintains the building, provides utilities and services, and rents rooms out to guests.
Each “room” in the apart-hotel is in fact a fully-equipped apartment unit, in the form of a large hotel room, with en-suite kitchen and bathroom included, and decorated in an elegant and modern style. According to the developers, the services on offer are equivalent to those of a five-star hotel, but at the price of a four-star one.
Hassle-free
While S1 operates the apart-hotel, individual investors own the rooms and gain a hassle-free quarterly return on their investment. The level of return for an investor is pegged to the overall profitability of the apart-hotel – S1 reckons on an average occupancy rate of around 60 percent.
So according to Standard One Commercial Director Alexander Smyrnov, individuals looking to invest the Kyiv real estate market effectively become hoteliers!
“With us, the investor becomes an hotelier – they have a stake in the hotel and earn a return without worrying about how to manage the object and accommodate guests,” Smyrnov says.
“This is a stable passive income with significant profitability. We offer the investor not just real estate with repair services, but a ready-made business. The main advantage for the owners of hotel apartments with S1’s centralized management is that they gain highly profitable real estate without the hassle of operating it.”
Investors who don’t live in Kyiv can of course live in their property when they visit the Ukrainian capital: The quality of the accommodation and services available in the apart-hotel complex rival those of a five-star hotel. Terms of residency for the owner of a property can be up to one month per year.
Another benefit of the model is that the rooms can also be rented out long term.
“An important feature and advantage of apart-hotels is that they have kitchens and homely atmosphere, which means that when the market is in a period of crisis leases can be transformed into long-term ones,” explains Smyrnov.
While the model typically foresees rooms being rented on a per diem basis, as in a regular hotel, in periods of lower demand the rooms can be rented out as fully-equipped apartments for one or two residents. The target customers change from tourists to young professionals based in the city who are in the market for quality rented accommodation.
So in the event of a downturn in the market, such as during an economic recession or a global pandemic like the current COVID-19 crisis, an investment in an apart-hotel will continue to produce a return.
“Yields may decline for such a period, but it is a unique solution to keep the investment working,” Smyrnov says.
Act quickly
Smyrnov says going by the experience of the first project Standard One in Holosiivskyi district, Ukrainian investors are quickly catching on to the unique opportunities offered by the apart-hotel model.
“Initially, more was invested by our European and Israeli partners, since they’re already familiar with this format in their countries. But very quickly Ukrainian investors understood its advantages, and now two thirds of our partner investors are Ukrainians.”
“We’re glad we managed to create a revolution in the consciousness of Ukrainian investors so quickly!”
While the S1 Terminal project is still at the construction stage, those looking to profit most from the innovative apart-hotel model will have to act fast, Smyrnov says.
“Although there are more risks for investors in real estate at the initial stage, it’s always better to invest at this time. The price of a room is currently up to $88,000, but we predict that by the end of construction this will grow to at least $112,000. We plan a return at the level of 12-15 percent per annum.”
