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Private-equity giant TPG has started buying single-family homes in Florida vacation markets, where it is renting them out nightly as alternatives to hotels and short-term rentals on websites like Airbnb.
Other private-equity firms, publicly traded companies like Invitation Homes and many institutional investors have been active buyers of single-family homes for years, leasing their properties for a year or longer.
TPG is the rare large investment firm to buy up homes expressly for the purpose of renting them out daily. The firm hired Kasa, a New York-based hospitality firm that manages about 75 properties for daily lodging across the U.S., to manage the Florida homes.
A representative for TPG said that the Florida home-buying project is a “pilot program” and wouldn’t necessarily scale to large numbers if results fall below expectations. But the firm also said that Florida was the test ground, and if the program proved successful it would look to expand to other vacation markets.
TPG’s new program reflects the evolving nature of travel during the pandemic. Corporate travelers are extending their stays by tacking on a day or more of vacation, combining business and leisure trips in a phenomenon the lodging industry calls bleisure travel.
Executives at TPG are betting that bleisure travelers, more flexible remote and hybrid workers, and people traveling with families will want more room, a kitchen and greater privacy, making a spacious home preferable to a hotel suite.
If other big investment firms were to emulate this strategy and rent out homes nightly in major tourist markets, it would represent another potential threat to the hotel industry, which is already facing increased competition from short-term rental companies like Airbnb and Vrbo in many vacation spots.
Hotel operators have acknowledged that many guests want longer-stay options by investing more in extended-stay brands, many of which include larger guest rooms with kitchens and dishwashers to accommodate visits of a week or longer.
“People have more time to do bleisure,” Hilton Chief Executive Chris Nassetta said at a Fast Company event last month.
Both Hilton and Marriott International in recent months have unveiled plans for new extended-stay brands. Hyatt said it has preliminary commitments from developers for more than 100 hotels under its new brand Hyatt Studios, a higher-end extended-stay brand.
At the same time, TPG believes that by renovating the Florida homes, adding new furniture, and professionally managing them through Kasa, the private-equity firm can charge a premium rate compared with individual Airbnb hosts.
Sean Hennessey, head of a hotel consultancy and associate professor at New York University’s Tisch Center of Hospitality, said carving out a new lodging model can be a challenge, and it isn’t clear if the economics will work daily.
But he sensed an opportunity among more affluent travelers who have found the experience of renting from individual homeowners inconsistent.
“Some are disaffected and are looking for a higher level of quality and service,” Hennessey said.
TPG said it has acquired about a dozen homes in Fort Lauderdale, Pompano Beach and other Florida hot spots through one of its real-estate funds. The firm has purchased homes as recently as the first quarter, though along with other institutional investors it has paused most of its buying as soaring mortgage rates and tight supply of inventory for sale has limited opportunities.
“We started this pilot project almost two years ago as part of our longstanding thematic focus on leisure,” a TPG representative said. “As a result of changing market dynamics and the emergence of more compelling opportunities, we are concentrating our time and capital on other areas of the real-estate sector.”
While TPG’s purchase prices for the homes have varied, some have run to more than $1 million. In Fort Lauderdale, for example, the firm paid $1.3 million in March for a five-bedroom home with three bathrooms, a swimming pool and nearly 2,500 total square feet, according to real-estate firm Zillow and Broward County property records. Kasa recently listed the TPG home, which was furnished with a pool table and backyard grill, for $275 a night on Airbnb.
The business model is riskier than renting homes annually. Like hotel operators, TPG will have to resell a property each day. But it also offers greater upside by renting homes on a daily or weekly basis at rates comparable with similar vacation rental homes in the area, TPG said.
Another potential risk is the prospect of public backlash if TPG controls a swath of housing in a particular market.
Some housing advocates say that single-family rental companies and their all-cash offers make them more appealing to sellers, and that they are squeezing an already-tight supply of homes for sale.
While home-buying firms have said they are creating opportunities for renters to live in neighborhoods where they can’t afford to buy, TPG could face similar complaints if the program ramps up and has large ownership in certain towns.
TPG declined to comment on any public reaction.
Write to Craig Karmin at Craig.Karmin@wsj.com
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