I must admit, last week's acquisition of Smith Travel Research (STR) by the CoStar group took me by surprise. And it wasn't just me - few observers of either the hospitality or multifamily industries expected it. As the dust settles after a seismic move, let's take a moment to think about some of the possible implications of this acquisition.

First, this is a big acquisition. Although not quite at the same dizzying heights of the 2014 Apartments.com takeover, $450m for a data company (i.e., not a product like an ILS that drives prospects to its customers) is extraordinary. But STR is no ordinary data company. It is not an exaggeration to say that STR is the foundation upon which property analytics are built in the global lodging industry. For decades, STR has been the gold standard for property performance and property underwriting. Nobody plays in this critical niche at the same level in multifamily.

For CoStar, who now have the habit of entering new markets with a strategy of going very big, the strategy makes perfect sense. Overnight they have become the uncontested, dominant force in hotel analytics. The merger on this scale creates many exciting opportunities, including a couple of potentially important ones for multifamily.

Time to revisit multifamily benchmarking?

In the spirit of wild speculation about what the future could hold, let's focus first on benchmarking. (I apologize in advance to those of you who know me and are familiar with my views and experience in this arena!) Despite its similarities to multifamily, hospitality does benchmarking very differently. 

To summarize, a long time ago, hotels began contributing their daily revenue performance information to an industry data exchange operated by STR. STR collects two simple numbers: Average Daily Rate (ADR - equivalent to "net effective rent") and occupancy. A third number, "RevPAR" (Revenue Per Available Room), is calculated by multiplying occupancy by ADR. RevPAR is without question the most important metric in the lodging industry.

Not only do hotel companies have the luxury of universal metrics that establish revenue performance relative to peers as a fact; they also have easy access to the information. STR has always been a data provider and has never been in the software business, so getting reports is a simple matter of signing up for a subscription service. Contrast that to the multifamily industry, where the only revenue benchmarking tools are software applications that come with oodles of functionality and a price tag to match. The vendor-centric approach also places a ceiling on the amount of data that can ever be available for benchmarking purposes, a problem that does not exist in lodging.

In an ideal world, the arrival of a gold-standard organization that does real estate benchmarking the way it ought to be done could raise CoStar's game elsewhere. There have been numerous attempts over the years to create an "STR for multifamily," none has delivered on the vision so far. What if the STR team started to work on multifamily benchmarking under the auspices of a data provider with CoStar's pervasive multifamily reach?

The overlap on short-term rentals

Readers of this blog will be familiar with our views on short term rentals (amusingly also known by the acronym "STR"). The distribution and revenue management decisions behind both short term rental units and hotel rooms are very similar. The same intermediaries are involved in both industries, with Expedia, Booking Holdings and Airbnb (since their acquisition of HotelTonight) dominating.   

With hotels competing directly with STRs, often on the same websites, there is a natural overlap between the two industries. While there are analytics that solve the multifamily pricing and (increasingly based on the news of the funding of Beyond Pricing) short-term rental pricing problems, there are still gaps. Most notably, the industry lacks a good way to trade off short and long-term revenue for its units.

Let's take the happy path one more time: perhaps the union of leading multifamily and hospitality data providers might lead to improvements in the way that we report and make decisions about STRs. However, in our acronym-fixated industry "STR STR reports" would probably need to be called something else, were they to happen.

For those interested in pricing and revenue management analytics, consider coming to the inaugural "FLEX - Flexible Rentals Investment" conference in San Francisco in a few weeks’ time. D2 will be taking part in a workshop where we will explore the nascent but hugely exciting area of STR pricing. Hopefully, we'll see you there!