Airbnb and short-term rental models have flipped the hospitality industry on its head. Since the launch of the Airbnb platform back in 2008, more than 5 million “hosts” have hopped on the bandwagon, helping the company rake in a jaw-dropping $2.7 billion to date.
And while most assume these are mom-and-pop operations — a rented out garage apartment down the street, your neighbor’s granny flat out back, or an open vacation home in the off-season — stats show that more and more pros are joining the game and leveraging this multi-billion dollar industry.
In fact, the National Multifamily Housing Council estimates that about 65% of recent Airbnb bookings were in multifamily buildings — places like apartments, condos and even in-the-works hotels.
The model seems strange for landlords and property managers who have historically made cash off long-term leases and rent costs. But when you dive down deep, there’s a lot of cash to be made — saved, even — by allowing shorter term tenants.
Throw in the fact that many long-term leasees are renting out their units on Airbnb anyway (the NMHC found that 43% of property managers have had short-term rentals occur without their approval), and you’ve already got the demand — landlords just need to stake their claim.
Apartments Turned Hotels
How can they do that? Multi-family developers and property managers are taking a few different approaches. First, there’s the pop-up hotel, a la WhyHotel.
Clelia Peters, founder of MetaProp — an early investor in WhyHotel — explained the model: “WhyHotel works with developers during the lease-up period, when often a significant portion of units lay fallow. It takes those fallow units and basically turns them into furnished, amenitized hotel units.”
Peters said approaches like this, which blend hospitality with residency, have been picking up steam as of late.
“There has been a proliferation of these models — things that exist in the hybrid space between the existing residential leasing models and Airbnb,” Peters said. “So, it’s hyper-amenitized, often furnished units that require a shorter term commitment. We’re seeing more and more models like this popping up.”
According to Zak Schwarzman, another partner at real estate-focused VC MetaProp, the trend’s uptick is a no-brainer.
“It’s no surprise that companies in this category with a clear value prop are receiving a warm reception from the multifamily community,” Schwarzman said. “WhyHotel offers developers significant newfound revenue by managing their yet-to-be-rented inventory as short-term hospitality during a building’s lease-up period. Who would say no to that?”
Stay Alfred uses a similar model, offering an upscale short-term hospitality experience — only in vacant apartment units in prime locations. Once those units are identified, Stay Alfred furnishes them, rents them out and even staffs the building.
For property managers, this can mean everything from more cash and lower operational costs to reduced unit turnover and improved brand awareness, according to Kurt Ramirez, founder of Nine Four Ventures — an investor in Stay Alfred.
“Multifamily owners and developers are faced with constant operational and leasing challenges, and finding partners such as Stay Alfred that increase efficiencies in both are very welcome,” Ramirez said.
Leveraging An Already Existing Trend
There are also models like YOTELPAD Miami’s, which takes a proactive approach to the inevitable leasee-turns-landlord dilemma. The downtown condo community is the first in the city to allow short-term rentals without restrictions.
“We’ve heard many stories of residential buildings having to deal with owners who are trying to skirt local legislation by renting out their units on a short-term basis,” said David Arditi, founding principal of Aria Development Group, the developer of YOTELPAD Miami. “They are typically not allowed to do so given condominium association and zoning restrictions. We thought, why not do something that addresses this head on and gives people the option to do what they are asking for?”
It’s also a major marketing point for the brand, as it offers potential condo buyers an added revenue stream — not to mention more flexibility in their properties.
“We believe the short-term rental option was something the market was seeking but was not being addressed adequately,” Arditi said. “The profile of buyers in the Miami market is largely non-local. Whether they are absentee owners or investors, there’s a strong desire to have the ability to rent units on a short-term basis. It creates maximum flexibility for the owners. People can use their apartment every day if they want or can rent it out 365 times a year, and everything in between.”
Pillow, a start-up based in San Francisco, is another example of how multi-family developers are leveraging the short-term rental trend. The model essentially amenitizes short-term renting, making it a perk for both landlord and resident alike.
Using Pillows’ tools, property managers can completely control all short-term rental hosting in their buildings, as well as share in the revenue, ensure local regulatory compliance and insure against damages. San Francisco’s largest multi-family developer Veritas Investments announced it would start using Pillow late last year.
Still More to Come
Multi-family’s entrance into the short-term rental game may be a little late — but if Airbnb has anything to do with it, it’s likely to expand significantly in the coming years.
Last November, the company announced plans to create APIs that would allow landlords, property managers and multi-family operators to integrate with the Airbnb platform directly. This would mean direct management of bookings, payments and more.
Airbnb also has the Airbnb Friendly Buildings program, which affords revenue-sharing options for multi-family residents and their landlords/property owners. This has been in operation since 2016.
But according to Ramirez, the continued growth of multi-family short-term rental offerings depends on mortgage lenders.
“Over the years we’ve seen the multifamily space begin to embrace the opportunity that partnering with an alternative accommodations brand can bring, and lenders are beginning to do the same — albeit at a slower pace,” he said. “As institutional lenders become more comfortable with this new paradigm we expect to see an increase in short and mid-term stay alternatives financed by debt and paid down by traditional cash flows.”