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Airbnb Announces Apartment Development Plans

airbnb rental apartment development plans

Digested from Bloomberg

Airbnb will open its first home-sharing community next year in Kissimmee, Fla., just outside of Orlando, creating greater buzz and controversy about how short-term rentals could impact apartment management.

Working with Miami-based developer Newgard Development Group, Airbnb is designing a 324-unit apartment building that will carry the Airbnb name. The project, which has been in the works for the last year and a half, is scheduled to open Q1 2018.

Within the next two years, Newgard and Airbnb plan to collaborate on another 2,000 Airbnb-branded units in six new communities across the southeastern United States. According to Harvey Hernandez, CEO and Founder of Niido, powered by Airbnb, which will manage the properties, Miami is likely to be the next location. Hernandez is also Founder and CEO of Newgard, which has been developing real estate in Florida for several years.

Revenue from short-term rentals will be split with Newgard receiving 25 percent of the rent, Airbnb earning 3 percent and the resident pocketing the remainder.

Hernandez says the writing of the lease terms is underway and should be finalized in the next few weeks.

The building, called Niido Powered by Airbnb, will feature keyless entry and on-demand concierge services, such as cleaning and luggage storage. Residents will have access to an app, which is integrated with Airbnb, to will help them manage guest stays remotely, including everything from overseeing check-ins to arranging cleaning and linen services, according to CNN’s Sara Ashley O’Brien.

The cleaning services will be covered by the cleaning fee charged when guests book. Hernandez says the portioned income Niido earns from short-term rentals will help to cover its technology and maintenance costs.

At this community, residents may sublet their apartment homes on Airbnb for as many as 180 nights per year. There are no limitations for residents who opt to rent a single bedroom or room within their apartment, while they are still residing there. Residents are limited to leasing only one apartment home in the community, Hernandez says.

“We do not want to turn this into us enabling our residents to run a business inside their apartments,” Hernandez says. “This opportunity is created for residents who want to supplement their income so that they might be better able to pay their rent."

Hernandez says residents will be screened via the standard process typically used by market-rate apartments, including credit checks and background checks. Home-sharing guests will be screened through Airbnb’s process of vetting them through news- and Internet search-based methods currently used by Airbnb for guests registering on its platform.

Apartment homes in the Kissimmee property will average 1,040 square feet and will feature a range of bedrooms per unit, based on market demand. Rents will be set based on market conditions.

Hernandez says onsite staff hiring has begun and more information will be provided in a few weeks. “We are looking to hire from within the apartment industry and we expect to hire from our very best competitors,” he says.

Eric Frank, Managing Partner, Cardinal Group Investments, Denver, says Airbnb and similar services are here to stay and are only growing in popularity.

“Landlords will need to have clear policies and a means of enforcement if they hope to control this trend, let alone profit from it,” Frank says. “Ultimately a building that is 100 percent Airbnb units is just a hotel, so I am not sure that the trend mentioned in the article will become mainstream in apartments. The big debate for apartment owners will be whether there is more benefit in allowing residents to use the service and profit from their home, or more downside by upsetting other residents who object to their neighbors taking part. We are probably not too far off from the Airbnb policy of individual properties being a prominent marketing feature displayed front and center on advertisements, and it would be equally important for properties allowing it to promote that advantage as it would be for properties prohibiting it to promote the security they provide by disallowing it."

But Frank thinks that allowing Airbnb carries risk for managers because the residents can keep a majority of the profit, while the manager deals with all of the complaints and problems. Legislation provides another hinderance.

“Legislation in cities throughout the country is generally trending toward restricting Airbnb (and similar services) to a certain number of days annually and only for an individual’s primary residence," Frank says. "These laws, which were largely crafted to protect owners in single-family neighborhoods, strictly prohibit the owners of multifamily properties from meaningfully taking part in profiting from this trend."

“The real opportunity for owners will be if and when the restrictions loosen to allow owners of multifamily properties to directly offer up units into the Airbnb pool. This could be a tremendous way to create value for owners who are looking to back-fill vacancy during the lease-up stage, deal with seasonal occupancy swings or to drive revenue by leasing at a premium for overnight stays. If this were to play out, it could be one of the best value-add strategies for apartment owners since the allowance of condo conversions. To the extent the owners can truly profit, I think the tune of the industry would change to be more accommodating.”

One Florida-based apartment industry professional says there will be myriad regulatory challenges, and Osceola County and the City of Kissimmee are going to have concerns with how this will all be administered.

“Not the least of which: How they will collect those additional short-term rental taxes, bed taxes, etc. The fact that it looked like they are trying to dark-horse it a bit is definitely going to make these entities pay more attention,” that professional says.

“And if the resident is making money off of short-term rentals—and the community is collecting rent on the apartment and receiving a portion of the Airbnb rental--is that double dipping? [Is the community] going to try and control which Airbnb users they approve to use their apartments? Are fair housing implications there because these are really apartments and not hotels?”

Says another Florida-based apartment professional, “There are potential zoning and code issues that will be a problem, as most multifamily zoning does not allow transient or short-term rentals. However, the area around Disney where the 324-unit is proposed has some special zoning that does allow that type of short-term rentals—something most other areas do not have.”

Hernandez says that he is working with local municipalities on meeting zoning and other regulations and that the development in Kissimmee (and future locations) will be in areas where those regulations are favorable to the home-sharing concept. “We will comply with all local rules,” he says.

Since being founded in 2008, Airbnb has drawn fire from both apartment operators, who say it violates zoning regulations and acts as an illegal hotel. Hernandez says Niido provides a way around those concerns by building a community that enjoys home sharing. “Niido eliminates barriers by encouraging home-sharing and creating solutions that deal with building and municipality regulations,” he says.

JaJa Jackson, Global Partnerships Director at Airbnb, told Bloomberg. “We’re trying to make sure that home-sharing is not done in the shadows. This partnership shows how landlords, developers and Airbnb can work together.”

Last year, Airbnb presented an olive branch to the apartment industry by offering large building management companies as much as 15 percent of earnings from hosts in their buildings.

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