Back when the idea of renting out an airbed mattress in his apartment was just a glimmer in Airbnb founder Brian Chesky’s eye, a pair of Irish brothers saw the potential in the short-term letting market.
From an apartment in Temple Bar back in 2004, Tom and Ger Walsh have built up a business creating and letting aparthotels from Dublin to Birmingham, and from Marseille to Edinburgh.
Unlike Airbnb, Staycity runs its own properties, and has recently moved into creating purpose-built serviced apartments under the Wilde brand. Now it's gearing up for the next phase of growth: Ger has left the business to pursue other interests in the tech space, while Tom has recently moved the team into suitably hipster premises in a historic building in the Liberties.
Among the table-tennis tables, in-house gym and industrial chic decor is space for 65 employees, with room to grow to 120.
It’s a far cry from the early days in Temple Bar. Turnover this year will hit €70 million, up from €60 million in 2017. And the growth plan is clear – revenue of 500 million by 2022.
“You can see a straight line of sight to your growth,” says the affable Walsh, adding that, at the moment, Staycity has 2,000 “keys” or rooms operating. By this month, it will have committed to about 7,000. From there, the goal is to more than double that over the next four years to position Staycity as the largest European aparthotel operator by 2022.
“It will be challenging to get to 15,000 but we think we can do it,” he says.
After that, an IPO could be on the cards.
“I don’t really want to think of selling out,” he says, “but we’ll have plenty of options if we can build the company to the scale we want it to”.
Starting his own business was always on the agenda for Walsh. An engineer by profession, his first job out of college was with Loctite, the adhesive specialist now owned by Henkel. He joined the company in 1989, but time outside of the office was soon spent on his own business idea.
“I really always wanted to work for myself,” he says. It was the early 1990s and the Celtic Tiger was still in its infancy, but Walsh saw some opportunity in property development. So, having raised some money from friends and family, he joined forces with his father to appraise some sites.
“But we weren’t ever quite able to make the prices they were asking. The prices were going up like that,” he says, showing a steep incline with his arm, “so it didn’t quite work; we almost got it off the ground but didn’t.”
However, soon after he “semi-stumbled” on what would become Staycity. He was looking for somewhere to set up home with his wife. And while the couple had considered the suburbs, their heart was set on the city centre.
So they walked around Temple Bar, jotting down a list of addresses of derelict buildings that had potential.
Off they went to Vietnam on their honeymoon, but when they returned, they saw an ad in the paper listing one of these addresses for sale.
“It was an amazing set of coincidences,” he recalls. The property was a recording studio of some note. U2 and Sinéad O’Connor were just some of the stars who had recorded at Sound Track Services –- and living in a home where U2 had laid down Desire had some appeal for Walsh.
Planning to convert the premises to a home came “easily enough”, and they changed the premises into a duplex apartment with a roof garden. But when the couple started a family, they started to think once again of moving somewhere with more space.
“But we didn’t want to sell it because we felt it was special to have a place where U2 recorded,” he says. While the obvious solution to maximise revenue might have been a corporate let, “that wasn’t really going to work in Temple Bar”.
He discussed options with his brother, Ger, who at the time was finishing a computing degree in Trinity College Dublin. Ger made a website for the property, targeting tourist lets. It went live on the Sunday and a booking came in straight away for the following Friday.
“So we had to pack up and leave!”
The ease with which the apartment could rent, and the cash flow it generated, planted the seed of the potential for something greater in the minds of the brothers.
“We decided to build a business plan around it . . . We saw a lot of demand, but very, very few people were renting apartments in Dublin for the tourist market.”
It was 2004, Dublin was booming, and so the brothers leased a block of 27 apartments from developer Liam Carroll in the Italian Quarter near Millennium Walk, subsequently renting a further portfolio of 27 apartments on Augustine Street – which they still have.
In 2005 the company moved into Amsterdam, and the following year into Birmingham.
Walsh had scaled back to a part-time role in his job with Loctite, and was spending the rest of his time on the tourism business.
“We couldn’t really afford to pay a salary out of this job,” he recalls. “It was overly cautious maybe, but that’s the way we did it”.
And it wasn’t always easy.
“When we started the company, we worked absolutely morning, noon and night. We had to make every penny work very hard. There were a set of challenges. We never had enough people and you were trying to learn your business at the same time”.
However, by 2006, Staycity had a portfolio of some 120 properties under its control, so he took the plunge and joined his brother, who had worked in Staycity since leaving Trinity, full-time in the business.
Since launching with just one apartment back in 2003, the Staycity model has evolved. The company moved into Amsterdam, for example, by virtue of a commission model with a local company; their partner company controlled the apartments, while Staycity placed customers and earned commission on the transactions.
“But we weren’t in control of the guest experience so we discontinued that a couple of years later,” says Walsh.
Now the company has a new model, with three parties at the table. There’s the developer, who’s going to build a turnkey property “with even knives and forks in it”; the pension fund or financier who’s going to fund the property and lease it back to Staycity, typically under a 25-year lease; and the operator, Staycity.
At the end of the 25-year period Staycity has renewal rights, which allow it to rent for further 10- or 15-year periods.
Staycity “package it up” to an extent, working out how many units a property can fit, and the rent the pension fund will want.
“Almost everything in our portfolio is owned by pension funds,” says Walsh, pointing to a host of funds it works with, including La Salle Investment Management, Knight Frank pension managers and the ABP pension fund.
It’s a funding model which allows the founders to keep tight reins on ownership of the company.
Growing Staycity’s portfolio to 15,000 units, for example, requires funding of €3 billion, half of which will have been achieved by this month. Raising the funds themselves would have meant a significant divestment of ownership.
“They [investors] would own practically everything. We’d only own a little slice,” says Walsh.
Staycity was founded by the brothers, and ownership rests with them, the “family members we tapped for a few quid”, and some key executives. While Ger has left the business, he has retained his shareholding and still sits on the board.
Director Paul Dowling, also a director in power trading company ElectroRoute, has a 25 per cent stake in the business, while industry veteran Patrick Dempsey, who doubled the size of the Premier Inn brand when running Whitbread, owns close to 5 per cent.
The company has also taken on outside investment from time to time; in 2007, the Ryan family, through their Irelandia vehicle, took a 40 per cent stake in Staycity, though they sold out of this in 2015. The stake was bought back by the Walshes, with funding from Proventus Capital Partners.
In Dublin, Staycity has benefited from the tight supply of hotel rooms. But, with a flow of new properties coming to the market, could the pendulum swing too dramatically from under to oversupply?
Walsh concedes that “in great Irish style”, we could get the balance wrong and move too fast from undersupply to oversupply.
Staycity itself is behind several new developments in the city. It currently has about 179 units in Dublin, but none of it is custom-built new stock, so it has linked up with funders Tetrarch Capital and Bain Capital to build and bring its portfolio in the city up to about 1,000.
Off Townsend Street, it’s building a 202-room aparthotel, with completion set for 2020, as well as a 142 unit on nearby Mark Street. It has also agreed a third deal with Tetrach, although it’s not yet fully contracted, for about 250 units north of the Liffey.
Planning for its deal with Bain Capital, for a 343-room hotel off the fruit markets on Capel Street, is going through An Bórd Pleanála. It also has its eyes on Cork and Galway for future expansion.
The scaling up of Staycity in Ireland could be an opportunity for Irish pension funds, as the original financiers look to exit, and sell on the long income-producing asset.
“It could be an opportunity for our first Irish pension fund,” says Walsh.
Staycity’s ability to ramp up development in Dublin must also beg the question – how can they do it if residential developers can’t?
It isn’t necessarily cheaper. Last year, the Society of Chartered Surveyors put the cost of building a two-bed 79sq m apartment in the city centre at about €470,000-€578,000 a unit; Staycity is building a unit of about 28sq m for €100,000 – excluding land costs. When that is factored in, it can add anywhere from €30,000 to €100,000 to the cost per unit.
“Irish costs are expensive. Germany is considerably cheaper, while the UK is about 10 per cent cheaper. We’re close to London prices for construction,” says Walsh, adding that its deals were struck some time ago. “And looking at today’s land prices they weren’t bad land prices.”
But it’s not just about costs. Planning is another difficulty.
“In the UK, you get planning and you have it,” he says, noting that here you might get planning, but then it goes to An Bórd Pleanála and you have to wait for another five months.
“Hostility to scale and density, which to me is the essence of the city” is another issue, says Walsh, noting how higher density can make construction more cost effective. He rues the missed opportunity to build higher than five stories along the docklands.
“You’re never getting that land back again. They built it at a quarter of the density it could have been built at,” he says, querying also the amount of vacant land in the city. “You don’t have to be very far from the absolute centre of Dublin, looking at a famous landmark like City Hall and there could be a complete brownfield area that could take hundreds of homes . . . There is something stopping the system getting those pieces of land.”
The business plan is being worked through, the targets are in sight, so is an exit also part of the plan?
For Walsh, selling out is of “no interest at all”. And it’s not like they haven’t been approached already.
“We kind of have constant knocks on the door, to be honest, either companies in the sector who want to grow by acquisition, or private equity,
“We’ve a fantastic team here, and we’re capable of executing our business plan on our own to become the largest European aparthotel company,” he says.
While a trade sale “is not attractive to me at all”, an IPO is one possibility. Continuing in private ownership is another.
With a German wife, Walsh has been influenced by that country’s strength in developing their own midsize companies – Mittelstand – and would like to achieve something similar in Ireland.
Growing by acquisition is also something they haven’t actively pursued.
“We’re fanatical about our guests; I’d hate to bring in 100 outsiders and have to bring them into our own DNA,” he says, adding that targets in any case, “aren’t so attractive”.
“It’s a niche product in Europe, it’s quite immature, so to find a target company that has the type of product in the locations we want is quite hard,” he says.
Name: Tom Walsh
Position: chief executive, Staycity
Family: wife, two daughters, aged nine and 14
Something you'd expect: he loves going on city breaks; London is a particular favourite
Something you wouldn't expect: he's going to be singing in the Royal Albert Hall later this year as part of the Alexandra College parents' choir