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A Tipping Point on Airbnb?

February 2018

Typically, press releases in our industry are more “promotion” than news, but a press release issued Dec. 18 might just be a critical exception to prove that rule.

This release announced that Brookfield Properties has invested $200 million in Niido, a new home-sharing concept launched in partnership with Airbnb. The investment will fuel developments and acquisitions of communities that will be branded as “Niido powered by Airbnb.” Residents in these communities will be able to rent their units through Airbnb for up to 180 days per year. The communities will also be “optimized for home-sharing and flexible living,” though details were not provided in the release.

Why might this be a tipping point? Until now, participation with Airbnb has seemed to be mostly smaller operators. I have a strong sense there are some bigger players testing out allowing various forms of home-sharing, but they’ve been doing so in a very quiet and secretive manner. The only large company to publicly stake out a strong position is Aimco, and they did so by suing Airbnb in an effort to prevent home-sharing.

Now, for the first time, a large company is publicly on record that they are openly investing in this concept, and in partnership with Airbnb; and few, if any, companies are respected more and are more thoughtful about their approach than Brookfield.

I don’t want to get too excited about this development. While $200 million sounds like a lot of money, it’s actually rather small compared to Brookfield’s $68 billion asset base…and, according to the press release, only $20 million is going immediately into the first community in Kissimmee, Fla.

My read is that this is a form of “R&D” in this space. But it’s significant in that 1) it’s a real investment; 2) it’s in partnership with Airbnb; and 3) it’s very public. This supports two “business maturation flows” we’ve all observed in highly disruptive technologies.

The virtual is becoming real. 2017 marked the year that Amazon bought Whole Foods and thus moved into a physical retail presence. Analogously, Airbnb is putting its brand onto real estate assets and thus is no longer sticking purely to a virtual presence.

Efforts, particularly legal strategies, to stem the tide of technology disruption in the face of large and compelling consumer interest rarely work in the long run. Just look at how record companies have failed to stem the tide of file sharing (now streaming). There was a short-term “win” in essentially putting Napster out of business, but that was at best a Pyrrhic victory. Record labels would have been better served taking the money they spent on lawyers and invested that in building their own streaming service, and perhaps (metaphorically) that’s what Brookfield is doing. With respect to Airbnb, Aimco has already lost their first lawsuit though they may appeal and are involved in other suits against the topic (My prediction: Aimco loses while lawyers make a lot of money).

I’ve been on record for at least two years that short-terms rentals simply represent a different demand stream, one that is willing to pay a premium. Rather than fighting it, I think forward-looking operators should decide where and how they want to include it in their demand management mix (provided, of course, each solution meets local laws and regulations).

How can and should you allow residents to participate? You can share directly in the revenue stream and/or you could charge the equivalent of an amenity fee to allow sub-leasing through these platforms.

Where, and with what business terms, should you let a third-party rent apartment homes from you, pay a premium rent and allow them to re-sell through these platforms?

There’s a growing business in corporate/business rentals, from just a few days to direct purchasing of multi-month stays. How do you want to participate in that demand stream?

Do you want to directly participate by furnishing these units and renting directly through the platforms yourself?

There’s no objectively right or wrong answer to any of the above; however, it behooves all operators to create a conscious and purposeful approach. If Brookfield thinks there’s value in testing this out, wouldn’t you agree?

Donald Davidoff, President of D2 Demand Solutions.

Read more about Aimco Suffers Setback in Airbnb Lawsuit