The challenge
2018, Buenos Aires (Argentina)
PIX Argentina is a Real Estate development company that works regularly for one of the main universities in Argentina. The university expressed its intention to provide their students with a high-quality residential-living experience.
With the objective being to meet the expectations of the university, PIX Argentina needed to address the challenge, both from the operational and commercial perspective, as well as from that of the infrastructure and impact of the real estate variables on the business model.
PIX Argentina entrusted The Innova Room with the design of the business model for the specialized student living accommodations for the university.
How We Did It
The Innova Room proposed the following approach to define the student residence through two complementary areas of study:
Commercialization and Operation
- Understand the key points of the student housing business.
- Identify the expectations for the services and the infrastructure.
- Define the value proposition that will be offered to this segment of the market.
- Estimate the variables of occupancy rate and price.
Infrastructure and Real Estate
- Define the area where the student accommodations will be located.
- Dimensions of the building and its sales units (beds/rooms).
- Estimation of the maximum advisable investment.
- Analysis of the different options for investment and return.
- Definition of the best business model for joining developers and property owners (sale, rental, rent with purchase option, etc.).
Simultaneously, PIX Argentina initiated a contract with the owner family of the Ritz Hotel in Buenos Aires, and commissioned The Innova Room to evaluate it like a prototype, to test the defined business model.
Phases of the Project
A) Analysis of location and competitive set
The Innova Room conducted a general analysis of the destination in terms of the evolution of the current offer (establishments, rooms and places), its performance in terms of occupancy / prices, and future trends. Once the limits of the market were established for the new business model, the perimeter of the proposal area was defined with PIX Argentina. Additionally, the relevant competitors with similar value propositions were identified, based on quality and average price. Given the small amount of possible competitors in the area under study, the search radius was extended to the entire city to achieve a stronger analysis.
B) Definition of the Value Proposition
After the market analysis was completed, the following were defined: the value proposition, the positioning of the product in the market, the services that would be provided and the necessary infrastructure. The stakeholders involved in the operation were:
- University: client.
- Proprietary: lessor or seller.
- PIX Argentina: developer, short-term investor (refurbishment) and long-term investor (possible buyer).
- Operator: to be selected in the future by PIX Argentina and The Innova Room
C) Investment Design and Analysis of Scenarios
In industries like Hospitality (intensive in capital and human resources), it is important to establish the maximum advisable investment from the beginning of the development of the business model. In this case, the investment and its return were analyzed using a matrix system. Additionally, several scenarios were analyzed with different levels of investment and capacity (rooms and beds).
D) Designing the Proposal
Finally, a dynamic business model was presented to PIX Argentina, which allowed them to make decisions regarding:
- Ideal sizing of the first building unit.
- Ideal scalability and maximum scale of the business (both in number of rooms and in number of establishments).
- Proposal to be presented to the owner.
- Ideal operator profile to accompany PIX Argentina and the University in the development of the accommodation business for university students.
Results
As a result of this process, PIX Argentina adjusted its strategy for this entrepreneurship project and decided:
- To develop the portfolio under a model of Fix + Variable Rent, with purchase option for the developer.
- To operate the business with a local company identified by THE INNOVA ROOM, with whom they agreed a Letter of Intention.
Source of the images: The Innova Room
