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Staying power
29 November 2009 By David Clerkin, Markets Correspondent
When Tom Walsh was getting married, the major items on his ‘to do’ list included offloading his bachelor pad in Dublin city centre.
Unable to get the price he wanted for the Temple Bar apartment, Walsh asked his brother to let it out to tourists on a short-term basis. It was to be the start of a business that now has 100 staff involved in letting more than 600 serviced apartments to corporate and leisure travellers in big cities around the world.
‘‘We were taken aback by the demand and decided to do it in a bigger way," Walsh said of his early exploits as a two-man, one-apartment operation.
In 2004, he quit his job as an engineer in charge of operations at Henkel Loctite’s chemical and biomedical plant in Dublin to focus on the new business.
Five years on, Walsh’s Stay city.com operates under the Stay Dublin, Stay Birmingham, Stay Paris, Stay Amsterdam and Stay Liverpool brands. It offers self-catering accommodation to travellers looking for a cheaper or less-restrictive alternative to staying in hotels.
‘‘Our clientele are in the two main camps you’d see in any accommodation provider - we’ve a very strong corporate following and a very strong leisure following," said Walsh. He is undaunted by the threat posed to tourism and corporate travel by the economic recession.
‘‘Typically, people are now looking for value, and we’re seeing this as a massive opportunity to build a pan-European brand," he said.
‘‘It’s an immature market in Europe. What we’re trying to emulate are the mature markets in the United States and Australia."
As grounds for his optimism, Walsh cites impressive figures from across the Atlantic. There, the serviced accommodation industry is worth $20 billion and offers up to 100,000 units to budget-conscious travellers.
His timing may be better than it looks at first glance.
While international travel is an obvious casualty of economic downturns, Walsh said occupancy was holding up well in the cities where he did business.
For example, holidaymakers still making their way to Paris - one of the locations where Walsh said demand remained ‘‘sky high’’ - may be looking for cheaper accommodation than in the past. Instead of slumming it in a downmarket hotel, they can get higher quality accommodation for much the same price by opting for what Walsh called his ‘‘limited service hotel’’ option. Although guests must look after themselves on the food front, they are offered similar levels of service to hotels, with access to 24-hour reception, room cleaning and - better than most Irish hotels - free wi-fi internet access.
According to Walsh, many tourists and corporate travellers prefer the freedom of being based in a serviced apartment - with their own living room, kitchen and space to work on a laptop - than a confined hotel bedroom.
Those in charge of corporate travel budgets are more likely to favour the cost-savings in serviced accommodation ahead of hotels for employees on the move, he said.
Walsh’s business model is relatively simple. He has a fulltime team on the lookout for suitable accommodation. That’s usually a single block of apartments containing between 40 and 200 units, although the firm’s ‘‘sweet spot’’ is blocks of about 100 units.
Staycity.com then signs leases of between five and 25 years with the owner of each apartment, with rent reviews typically every five years. While it is usually easier to deal with single owners of blocks, Walsh has dealt with multiple owners in a number of locations.
The lease agreements provide for heavily discounted rents in the first year, a factor which Walsh said gave the business time to get on its feet and develop a steady stream of business. ‘‘Our business model runs above breakeven in year one. We need some capital, but not a huge amount. The business is more cash-generative than cash-hungry," he said.
In recent years, Staycity.com has benefited where developers struggled to find buyers for completed apartment blocks. Instead of the complexity of renting units to individual tenants, property owners are turning to Walsh for a less complicated way to generate a rental stream. But he expects to rely more on purpose-built units in the future.
‘‘It’s quite a nimble business model," he said. ‘‘Our growth has come from blocks built and planned by developers and for which we became an alternative use. From now on, our growth is going to come from linking up in joint ventures for purpose-built accommodation."
He said depressed property markets offered him greater opportunities. Just as Michael O’Leary buys most of Ryanair’s planes when the aviation industry is in a downturn, Walsh is finding it more favourable to sign long-term leases now than it was two years ago.
After all, paying lower rents means Staycity.com needs fewer customers to break even.
‘‘Even though the market is challenging at the moment, provided you’re buying well - and, in our case, leasing well - your model is robust," he said.
The company received a boost in 2007, when its path crossed with Irelandia Investments, the investment vehicle belonging to the family of businessman TonyRyan. Irelandia took a 20 per cent stake in Staycity.com, with an option to increase this to 40 per cent if certain conditions were met. Irelandia’s Declan Ryan became chairman of the firm at the time.
The rest of Staycity.com is owned by Walsh, his brother and Gary Wickham, a former colleague of Walsh’s at Henkel Loctite, who is now Staycity.com’s chief operations officer. Walsh has plans to increase turnover from €16 million this year to €60 million by 2013, a target he describes as ‘‘not daunting’’. However, it will require opening up to four new locations each year for four years.
Walsh plans to build on the success of the firm’s Birmingham operation, in place since 2006, by moving into other British cities, including Edinburgh, Glasgow, Manchester, Cardiff and Bristol. There is also a plan to grow revenues from agency deals in Florida and Rome, where Staycity.com acts as a reseller of short-term lets, but does not operate properties itself.
Depending on the city, Walsh said that between 50 per cent and 70 per cent of total bookings were generated directly through Staycity.com’s website.
He said this showed how the brand had established itself among business and leisure travellers.
The balance comes from generic multi-city accommodation sites such as Hotels.com. Walsh also sources business through more conventional marketing channels, such as advertising in the inflight magazines of Ryanair and Aer Lingus.
Although an Irish company, it has had little difficulty in sourcing customers from across Europe, according to Walsh.
In Liverpool, for example, visitors from Spain are the secondlargest customer category (after British).Walsh attributes this to the presence - for the time being at least - of a Spanish manager and Spanish top scorer at the city’s best-known soccer club.
Next year, Walsh will also sign the first of a series of deals in London, where he hopes eventually to have between 500 and 1,000 units. But is it risk y to expand in Britain when consumer spending across the continent is under threat?
‘‘Britain is not as turbulent as Ireland," said Walsh. ‘‘We’re seeing good strong evidence of stabilisation, and we’re able to forecast with more accuracy." It’s all a far cry from engineering and chemicals, but Walsh said the switch from multinational executive to entrepreneur has been well worth his while.
‘‘I absolutely always was going to work for myself. It’s hard work, but it’s very rewarding," he said.
Founder and chief executive, Staycity.com
Age: 42
Home: Dartry, Dublin
Family: married toAlja and has two daughters
Car: Jaguar
Last book: Titan: The Life of John D Rockefeller Sr by Ron Chernow
Staycity.com Founded: 2004
Location: Dublin, with operations in Birmingham, Liverpool, Paris and Amsterdam
Employees: 100
Shareholders: Irelandia Investments (Ryan family),Tom and Gerard Walsh, Gary Wickham
Turnover: €16 million.
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