Corporate Housing

Definition of Corporate Housing

In the context of commercial real estate and finance, corporate housing refers to fully furnished, serviced residential units—typically apartments or condominiums—that are leased on a short-to-medium-term basis. While traditional residential leases often span 12 months or longer, corporate housing stays generally range from 30 days to several months. These units are designed to be "move-in ready," including all furniture, housewares, utilities, and high-speed internet, serving as a professional alternative to extended-stay hotels.

Corporate Housing in Commercial Mortgages

From a commercial mortgage lending perspective, corporate housing is treated as a hybrid asset class. It sits at the intersection of multifamily residential property and hospitality (hotel) assets. Lenders and underwriters must evaluate these properties differently than standard apartments because the income stream is derived from premium rents rather than long-term lease stability.

Key Factors in Underwriting and Valuation

When a borrower seeks a commercial mortgage for a property intended for corporate housing, lenders focus on specific operational metrics that differ from traditional multifamily underwriting:

• Income Premiums: Corporate housing units command significantly higher rents—often 30% to 70% above market rates for unfurnished units. Lenders must determine if this "premium" is sustainable in the local market.
• Operating Expense Ratios: Unlike traditional apartments where tenants pay for utilities and maintenance, the owner of a corporate housing property typically covers all operating expenses, including housekeeping, utilities, and furniture depreciation. This results in a higher expense ratio that affects the Net Operating Income (NOI).
• Occupancy Volatility: Because stay durations are shorter, these properties face higher turnover and vacancy risk. Lenders may apply a higher vacancy factor during the underwriting process to mitigate this risk.
• Tenant Concentration: Lenders prefer properties where the "tenants" are reputable corporations or relocation agencies rather than individual travelers. Strong contracts with Fortune 500 companies can lead to more favorable loan terms and lower interest rates.

Risk Assessment and Cap Rates

The valuation of a corporate housing asset often involves a specialized Capitalization Rate (Cap Rate). Because the business model involves more active management and operational risk than a standard "buy and hold" residential property, appraisers may apply a slightly higher cap rate to reflect the increased complexity of the income stream.

However, for investors, the yield potential of corporate housing is often much higher than traditional rentals. A well-located property in a major metropolitan area or near a large medical or tech hub can generate substantial cash flow, making it an attractive prospect for commercial bridge loans or specialized permanent financing.

Management and Execution

Lenders heavily scrutinize the management team involved in a corporate housing project. Since the success of the property relies on constant marketing, guest services, and rapid unit turnover, a commercial mortgage is more likely to be approved if the property is managed by an experienced firm with a proven track record in the corporate housing or hospitality industry.