New Luxury Apartment Feature: Revolving Doors.

If you're moving into one of L.A.'s new luxury apartment complexes, you might notice that some of your neighbors don't stick around very long.

That's because they really don't live there.

Instead, they're among the growing legion of business travelers and new arrivals who are driving a boom in the "extended-stay" housing market.

"It's, in a word, the hottest part of the hotel industry right now," said Alan Reay, president of Costa Mesa-based Atlas Hospitality Group.

Extended-stay housing refers to apartments that are leased out, often to big companies, for anywhere from a week to several months. They usually offer hotel-like amenities, including maid service. Companies use them to house their employees who are transferred to L.A. for short-term assignments. And permanently relocated employees often take extended-stay units while they search for a house to buy.

Rather than build new projects devoted exclusively to extended-stay housing, such as L.A.-based Oakwood Corporate Housing has traditionally done, the industry is now increasingly leasing up blocks of units in new luxury apartment buildings around town.

"For all intents and purposes, Oakwood is going into the franchise business," Reay said.

Though Oakwood and project management companies such as Legacy Partners Residential have dabbled in leasing over the years, the new push is a huge increase over what has been done before.

Hundreds of units in such highly publicized apartment complexes as the new Legacy at Westwood and the Medici Apartments in downtown have been leased to extended-stay outfits. Those outfits, in turn, are subleasing individual units out to corporations and others for extended-stay use.

"People didn't even talk about extended-stay two or three years ago when we got started like this," said John Blem, area manager for Homestead Village Inc., a subsidiary of Security Capital Group Inc. that has four extended-stay complexes with 497 units in L.A. County. "Now it's really a phenomenon. (But) if demand drops, we'll all be scrambling again, like we were a few years ago."

And therein lies the beauty of subleasing.

Owners of extended-stay facilities, like the owners of all sectors of real estate, suffered widespread foreclosures during the early 1990s, when the L.A. economy sank into recession.

By subleasing units in existing apartment buildings, rather than buying or constructing buildings of their own, extended-stay operators can avoid such disaster if the booming demand suddenly ends.

Meanwhile, owners of L.A.'s new raft of luxury apartment complexes are also benefiting from the trend because they are able to quickly lease up their buildings to extended-stay outfits, often at rental rates in excess of the amount individual renters would be willing to pay.

Among those participating in the practice is industry giant, L.A.-based Oakwood Corporate Housing, a division of Oakwood Worldwide.

Oakwood has increased its portfolio to 2,700 local extended-stay units, up 40 percent from two years ago. And that expansion has been facilitated by the company's decision to move away from building or purchasing apartment buildings, and instead focus on leasing units at newly constructed luxury complexes.

Other, newer competitors such as Marriott's Execustay have posted similar growth numbers, and even profit-hungry REITs have moved to get a piece of the highly lucrative market.

"REITs are looking desperately for ways to expand sources of permissible income," said Jim de Bree, a tax partner in the real estate group at Deloitte & Touche. "If they can lease out apartments to an (extended-stay) operator at a premium, that's the best deal they can get going."

However, the strategy has taken a number of high-end apartments off the tight L.A. housing market. Oakwood expects to control 100 units at The Medici by the time the downtown project is fully completed, and already has 25 units at PCS Development's recently revamped Premiere Beverly Hills.

Oakwood spokesman Robert Philips said demand for those units is driven by a number of factors. Newly hired employees who need time to find a home in L.A.'s tight housing market comprise some of the clients. In addition, the number of international executives staying at such facilities has also increased, fueled in large part by a globalization of the entertainment industry.

L.A.'s tech boom has also contributed to the need for temporary housing for "laptop nomads," consultants who hit town to set up benefits and operating systems for startup dot-coms, Philips said.

Pricey digs

Marriott's Execustay is carving out a niche by directing possible long-term hotel guests to its extended stay units, which come at a premium when compared to apartments.

Still, when leased for weeks at a pop, they can be significantly cheaper than hotels. A month at an Execustay-brokered apartment in L.A. County costs $2,700 to $2,900 for a one-bedroom unit, $3,000 to $3,200 for a two-bedroom, and $3,500 to $3,700 for a three-bedroom.

Oakwood charges $3,475 for a one-bedroom unit with maid service at the Premiere Beverly Hills. Oakwood pays L.A. property owner PCS Development a top-of-the-market rent and both make a healthy return.

In L.A. there is no shortage of clients willing to pay for the convenience of short-term use of furnished apartments with cable TV, a kitchen and laundry. Oakwood's steady customers include everyone from government officials to consultants with Big Five accountancies and even entertainers with Cirque du Soleil.

"(The attraction) is being able to walk into an apartment, to be able to cook and clean, and all you have to do is bring your clothes and run to the grocery story," said Michele Morrison, a corporate housing specialist for Oakwood's units at the Premiere Beverly Hills. "It makes things very nice and easy."

The demand for extended-stay housing is broad-based, coming from small and large companies. For them, it's all about cutting costs. "Corporate America is realizing it makes sense to use corporate housing. It's cheaper," de Bree said.

In L.A., Oakwood caters to the major Hollywood studios, which often turn to the firm to house actors and others in the entertainment industry who come to town for special projects. Among its properties preferred by studios or in choice locations are the 597-unit Oakwood Marina del Rey and its 1,150-unit Oakwood Toluca Hills.

But much of Oakwood's future growth is likely to come from leasing existing apartments, not building new ones.

Hot competition

The sector's high profit margins have attracted interest from a number of new players.

For example, Denver-based apartment and management company Aimco is looking to grab a piece of the local action for itself.

The firm has already opened 37 extended-stay corporate units at its 1,200-unit Warner Center in Woodland Hills in the past four months. Plans call for increasing that to as many as 120 units by the end of the year.

"We believe we can give superior service because the staff on the properties is us, essentially," said Aimco senior vice president Bruce Terwilliger.

Oakwood's Philips agreed that service is becoming more crucial as competition heats up.

"What's happening with the larger players is that the bar is being raised in terms of providing service, providing things like 24-hour staff and even an extra set of dishes at Thanksgiving," he said.

Still, dealing in extended-stays definitely has advantages over acting as a landlord in long-term apartment leases.

"(Clients) don't put a lot of wear and tear on (units), and they pay the top market rate," Palmer said.