Deal or No Deal: Can Airbnb and Multifamily Firms Work Together?

There’s something in the air regarding short-term rentals and the apartment industry.

James B. Clarke is the president and registered lobbyist for the Los Angeles Apartment Association (LAAA), an organization representing 7,000 apartment owners and managers across Los Angeles, San Bernardino, and Ventura counties in California. Clarke also happens to be personal friends with the L.A.-based lobbyist for Airbnb, the online lodging-rental site that last year claimed 17 million short-term residents across the globe.

And while it’s the stated position of the LAAA to oppose Airbnb and all short-term rentals in the markets it covers, given the right conditions, and provided with the right opportunity, Clarke knows exactly what he would do.

“If I owned a 16-unit building, and I lived in it, and I was in the city of Torrance, which doesn’t have rent control, as soon as a unit became vacant I would put it on Airbnb so quickly it would be unbelievable,” Clarke says. “Then , I’d rent it out on a weekly basis and probably get three times as much rent in a single month, especially if I’m down by the beach.

“Now, you’d have to be careful—if you have a building full of short-term rentals, you’ve turned yourself into a hotel with an entirely new tax structure. But could it be done? Sure,” Clarke continues.

Like most opinions on the prospect of Airbnb, HomeAway, or other short-term rental sites making a permanent play in the multifamily industry, Clarke’s comment is riddled with qualifiers.

Portfolio and asset size, the presence of dedicated on-site management, local ordinances surrounding rent control and the legality of home sharing, and, as always, location, location, location factor large into the relative impact of short-term rentals on multifamily.

Given such limitations, it’s unclear whether landlords are interested in using Airbnb as a strategic operations tool at all, or if the bigger upshot is in allowing residents to participate in home sharing, with a portion of the revenue stream kicking back to the owner.

What is clear, however, is that Airbnb is making an active and open overture to the apartment industry, and it’s an overture that some of the biggest names in multifamily are considering.

I’d rent it out on a weekly basis and probably get three times as much rent in a single month, especially if I’m down by the beach.

On Dec. 16, apartment industry patriarch and Equity Group Investments founder Sam Zell commented on Bloomberg (www.bloomberg.com/news/videos/2015-12-16/sam-zell-airbnb-has-approached-us) that Airbnb had approached several of the nation’s largest apartment owners. An article coincidentally appearing in The Wall Street Journal the same day confirmed that AvalonBay Communities, Camden Property Trust, and Zell’s own Equity Residential were in discussions regarding a revenue-share model.

Less than a month prior, recently minted Airbnb head of landlord partnerships Jaja Jackson spoke at the National Multifamily Housing Council (NMHC) OPTECH Conference, indicating that a ­multifamily-specific program was being piloted in California and could possibly roll out nationally at some point this year. But, like most technologies and innovations nascent to the apartment industry, it looks like Airbnb—disruptive or not—faces a prolonged multifamily maturation before anything resembling a national launch or even an official pilot program comes to fruition.

Listening Up

“There are currently no pilot programs or national rollouts,” clarifies Airbnb public affairs spokesman Christopher Nulty. “It’s much more accurate to describe what’s happening right now as a ‘listening tour.’ We’re having conversations with landlords to understand some of their concerns and to understand the areas where they feel there’s an opportunity to be part of the equation.”

Indeed, while representatives for AvalonBay, Camden, and ­Equity had no comment for this article, sources close to the discussions ­describe talks as slow-going, with parties only recently exploring the signing of nondisclosure agreements that could signal more-involved negotiations.

“How these new disruptive innovations ultimately play out is still to be determined,” says Rick Haughey, vice president of industry technology initiatives for the Washington, D.C.–based NMHC. “However, there’s evidence that these trends have staying power, so we’d like to see the industry in a position to have their concerns addressed and have more control than they have today if indeed this trend follows others, like online ratings and reviews, and becomes an established reality.”

Nulty says the conversations are being guided by two overriding principles: the desire that any agreements take place in markets with clear laws allowing for home sharing, and in “primary-resident only” situations, where hosts are de facto renters living in the unit as their primary legal residence. Not that Airbnb shies away from its business objectives beyond those requirements.

“One of our strategic advantages is offering people a very unique, authentic, and local experience in a city,” Nulty says. “Multifamily units dominate cities, so there’s an obvious reason why we’re having this conversation, and an obvious opportunity for us to build our ­inventory in key markets.”

The concept of primary residence is an important one, as it goes a long way—although perhaps ultimately not far enough—in assuaging critical concerns surrounding the risk profile of a transient, short-term renter demographic. Mark Durakovic is principal officer and vice president of management services for Kass Management ­Services, which boasts a portfolio of 5,000 rental and 4,000 condominium units across several Chicagoland submarkets.

While Durakovic acknowledges the use of Airbnb by some of his renters, he says the bigger risk is from nonresident, short-term rental investors attempting to secure blocks of apartments under less-than-sincere auspices.

“This past summer, we had a group of individuals approach us to rent a group of apartments claiming that it was for ‘company ­purpos­es,’ ” Durakovic says. “Immediately, that raises red flags for us, and we were correct; it was a group looking to rent and lease units on Airbnb as a business venture.”

Since Kass Management’s leases explicitly prohibit home sharing, the venture group was turned away, and Durakovic says that a simple but stern review of those lease stipulations is usually enough to discourage future Airbnb activity from the few residents his firm has caught in the act.

A Completely Different Animal

Still, Durakovic finds the “sharing economy” concept of Airbnb—that of an online brokerage between seekers of short-term rental units and holders of available units—intriguing as a strategic multifamily business tool, even if he remains uncertain about using it himself or allowing residents to engage with it.

“Opportunity? Competitive challenge? Thorn in our side? Future possibility? Can I say ‘all of the above’?” Durakovic offers. “Because of how prevalent Airbnb has become, owners, managers, and developers are beginning to look at that facet of the business to see what they can do to innovate with it and take advantage. But in terms of a management structure, it’s a completely different animal.”

Maureen Vaughn is the vice president of marketing and communications for the Habitat Cos., a Chicago-based apartment owner, manager, and developer with a 23,000-unit portfolio spanning five states. Vaughn has likewise been keeping tabs on Airbnb’s industry conversations, even as she questions the suitability of home sharing and short-term rentals at her properties.

“It’s a smart move for Airbnb to get out in front of the industry conversation, and we’re certainly like any company that wants to grow and looks at what the trends are and how we should participate,” Vaughn says. “Certainly the prospect of Airbnb could look very different even a year from now, but even with the increase in urbanization across our portfolio, we simply don’t want to be in the short-term rental business.”

While there are some limited multifamily business models that could ostensibly embrace short-term rentals, even Airbnb’s own industry conversations suggest a resident-centric hosting model as most likely to emerge in wider practice.

“What we’ve heard from landlords is that they’re not interested in getting into the corporate business of short-term rentals with their apartment buildings, and neither are we interested in getting into that business with them,” says Nulty. “Our conversations have been focused squarely on allowing residents to do this.”

Who Can It Be Now?

Therein lies the rub for multifamily operators, who see a revenue sharing deal between residents, Airbnb, and themselves as perhaps the ultimate hands-off ancillary revenue program but question the effectiveness of residents at managing—and, in particular, screening—their own renters.

While Airbnb provides some basic qualifying tools to hosts, and claims no guests are anonymous, the home sharing process is ­nevertheless bereft of the rental payment history, credit, and criminal history background screening that’s standard operating procedure at apartment communities across the country.

Nulty says that primary-residence Airbnb hosts have a vested ­interest in protecting their property, as well as the neighborly relations in their community, and that they have a track record that speaks for itself.

What we’ve heard from landlords is that they’re not interested in getting into the corporate business of short-term rentals with their apartment buildings, and neither are we interested in getting into that business with them. Our conversations have been focused squarely on allowing residents to do this.

“This past summer, 17 million people stayed on our platform between Memorial Day and Labor Day,” Nulty says. “In that time, our multinational call center received only about 300 to 350 calls that were considered high-priority issues, out of 17 million. That’s the sort of responsibility we see on our platform, and we’re proud of it.”

Nevertheless, some operators counter that it’s not just the risk management that’s worrisome—it’s the specter of a transient renter demographic jeopardizing the sense of community they’ve worked so hard to create.

“The fact is that these people aren’t screened, and our residents are sensitive about this,” Vaughn says. “They want to know who their neighbors are and are not in favor of a transient environment. People notice those things. The whole idea of investing in community with amenities, events, and environment is dependent on people knowing their neighbors. I don’t agree that residents don’t know about Airbnb rentals happening at their property, or that they’re not paying ­attention.”

Whether the screening issue is resolved as Airbnb continues its listening tour and corresponding conversations with major multifamily players remains to be seen, but it’s important enough to have the attention of the NMHC.

“We think screening is one of the biggest issues up for discussion, and we’re glad that they’re having those discussions, because whether we like it or not, it’s happening in our communities,” says Haughey.

If nondisclosure agreements indeed get signed between Airbnb and some of the top apartment REITs, it’s likely that any details of a working framework won’t emerge until after those conversations are finished.

While Nulty says the home sharing giant is interested in talking to landlords large and small, and that it wants to participate in policy and community discussions with all parties, some multifamily scions remain skeptical.

“No one has reached out to us yet, and we have over 7,000 members,” says LAAA’s Clarke. “You’d think they might attempt to reach out, but perhaps we let our position be known so well that there has simply been no attempt. Either way, there’s no real partnership with them in our markets.”