April 29, 2023 |
Updated April 29, 2023
The online short-term rental platform rolls out a new program that subleases apartment units, while raising questions and offering opportunity.
Airbnb’s legacy of market disruption has moved from privately owned homes into multifamily buildings as the legal lines of leasing continue to be stretched into new configurations. In November 2022, Airbnb announced the launch of Airbnb-friendly apartments, a program that allows renters to sublease their units with the proceeds being split three ways between the resident, owner-operator and Airbnb.
The program includes residents already living under a lease and seeks to recruit those looking for a new space that can be legally sublet. At launch time, Equity Residential and UDR, both REITs, were already onboard along with Greystar, the largest apartment management company in the U.S.
“The multifamily industry, especially our partner buildings, have responded positively to Airbnb-friendly apartments because it’s given them access to new demand and additional marketing opportunities for their units,” said Jesse Stein, Global Head of Real Estate with Airbnb. “In addition to attracting more [residents] to fill vacant units, building owners can take a share of host revenue, which can cover the cost of administering the program, further advertising it, reinvesting in community beautification or adding additional services and personnel.”
Airbnb’s program is currently operating in more than 175 buildings in over 25 markets in the U.S. with plans for future growth. “We have already expanded the program with existing partners and are in touch with new potential partners frequently,” said Stein. “Our goal is for anyone who wants to rent an apartment and host on Airbnb to be able to do that, regardless of location.”
Airbnb has also recently teamed up with Sentral, an owner-operator firm that specializes in short-term rentals. Sentral’s investors include the Bozzuto Group, Highgate Hotels LP and Iconiq Capital. Sentral controls about 3,000 furnished and unfurnished units in several U.S. markets that are participating in the program including Los Angeles, Atlanta, Denver, Miami and Scottsdale, Ariz.
“The partnership is fueled by renters who are seeking more flexible leasing options,” said Lisa Yeh, Chief Operating Officer with Sentral. “According to Airbnb, over a three-month period, renters who hosted in Airbnb-friendly apartment buildings hosted on average nine nights per month and earned on average $900 per month.” Sentral limits its program to a maximum of 150 nights per year, subject to local laws and restrictions.
The continued expansion of flexible leasing models is a trend that welcomes digital nomads and features highly amenitized apartment units that function like hotel rooms. Airbnb’s move is a logical progression. “I think partners are responding to their commitment to enhance the living experience for their residents,” said Stein. “They understand that flexibility and affordability matter more than ever before. The pandemic changed how we work and live, with flexibility still top of mind for many.”
According to Airbnb’s recent stats, the number of nights booked from long-term stays has stabilized at about 20% of their total gross. The company interprets those numbers as proof that people are travelling, staying for a while and working while on the road. The market offers potential to anybody with rooms for rent.
“Owner-operators are always looking for ways to attract new residents,” said Sarah Yaussi, VP, Business Strategy with the National Multifamily Housing Council (NMHC). “For a certain subsect of the renter pool, having the ability to sublet their homes on a short-term basis is an attractive proposition. I don’t know if recent shifts in market economics are going to push a lot of them down this path. This model has to make sense for the residents, the community culture and the location.”
By leveraging Airbnb’s online marketing muscle, the challenge of finding and qualifying short-term renters is simplified. “One of the many advantages of working with Airbnb is tapping into their wide network of members and renters who use their platform and are in search of flexible living options,” said Yeh.
Challenges to the model
Many local jurisdictions and individual buildings maintain caps and restrictions on short-term rentals. Several highly sought travel destinations have recently enacted a variety of new restrictions on Airbnb’s standard business model including Aspen, Colo., Atlanta, Dallas, Montreal, Oahu, Hawaii, Palm Springs, Calif, and Sarasota, Fla. Paris, Barcelona, Amsterdam, Miami and Santa Monica, Calif., already have strict regulations in place to protect hotels. Despite the legal hoops, Paris has over 60,000 listings on the Airbnb site.
A new ordinance in New York City requires hosts to register their properties and provide proof that they live in the units they are renting while also complying with local zoning and safety requirements. Violators can be fined up to $5,000 in penalties.
Airbnb currently lists nearly 40,000 properties in New York available for rent and it’s estimated that 10,000 could be in violation of the new rules.
While Airbnb is often cast as an existential threat to the hotel industry, others believe there are two separate markets with plenty of business for both. “There will always be people who want a hotel experience, and there are people who want a short-term rental experience,” said Yaussi. “There are a lot of factors that determine which lodging option might be right for someone. I do think it’s noteworthy that you are seeing some major hotel brands move in this direction of having private home rentals in their portfolios.”
What if the neighbors complain?
In addition to the municipalities’ objections, there are also concerns from the people who live next door. The NMHC/Grace Hill Renter Preferences Survey Report gathered input from over 221,000 renters, living in 4,564 communities in 79 markets. It asked respondents, “If you knew that a property allowed residents to list their home on short-term rental sites, how would that affect your opinion of the community?” The answers reveal concerns for some, as 44% said it would have no affect on their opinion, 27% said it would negatively affect their opinion, 19% said they would not rent at that community and 10% said it would positively affect their opinion.
The numbers also revealed some demographic differences related to age as older renters tend to be less interested and less likely to rent where short-termers are allowed, whereas younger renters were more open to the idea. The concerns included 49% citing security, 32% saying noise, 10% were concerned about the sense of community being disrupted and 5% worry about non-residents using community amenities.
The numbers – who makes what?
The multifamily business works on the same heads-in-beds formula as the hotel industry. Airbnb’s new program is taking careful aim at prospective hosts who are looking for a building to move into that offers the ability to sublease. Their site offers an earnings calculator to help tease out the numbers.
The calculator reveals that a monthly rental in Los Angeles that goes for $2,449 could generate an average of $1,110 in weekly income. In Atlanta, which has restrictions on short-term rentals, a $1,678 month rental could earn the renter $642 a week. Depending on the market, local laws and building restrictions, there’s usually a cap on short-term rentals between 80–120 nights a year.
A turbulent past
Airbnb has been on a wild ride since 2008, when two of its co-founders, Brian Chesky and Joe Gebbia, rented out their San Francisco loft during an industrial designers’ conference to subsidize their rent. They expanded the online concept into a startup that quickly attracted over $100 million.
Airbnb has weathered charges of hosts practicing discrimination and a 96% drop in bookings during the pandemic. They pledged $250 million in payouts to hosts who suffered from cancellations and laid off 1,900 people in 2020. In December of the same year, they went public and raised $3.5 billion in its initial public offering.
They have stopped doing business in Russia and China and are frequently tangled in disputes over house parties. The firm has absorbed competitors, been accused of worsening housing affordability and continues to battle with the hospitality industry and municipalities that consider the rental units as unlicensed hotels.
As of January 2023, Airbnb has a market cap valuation of $63.3 billion, making it the 232nd most valuable company in the world. In November 2021, it hit a peak cap valuation over $131 billion.
An uncertain future
Clouds of a national recession remain on the horizon. Airbnb’s entrance to the multifamily flexible lease party may be late or may provide a jolt of new revenue where rent growth has flattened. Depending on what’s going on in the local market, owner-operators ignoring the newest ways to handle short-term rentals may be swimming against the tide.
“Flexible living is the new normal,” said Jon Slavet, Chief Executive Officer at Sentral. “The Sentral Homeshare program enables our residents to earn extra money safely and easily while they travel, helping them defray their rent and be an integral part of our communities. It’s life on their terms.”
These short-term rentals, like everything else in the universe, must evolve as time passes. They have already started to do so.
“I think short-term rental platforms and models have definitely evolved over time as they’ve encountered various market challenges,” said Yaussi. “Many have listened to the building owner and resident concerns around security and noise. They put systems, processes and technologies in place to help mitigate those issues—whether it’s an easier and automated check-in process for guests or noise monitoring or something else.”
Scott Sowers is a freelance writer for units Magazine.