airbnb and landlord dealReal Estate Law
Rent your place on Airbnb? The landlord wants a cut
Revenue-sharing model would allow apartment dwellers to market rooms through lodging website
Three of the nation’s largest landlords have held discussions with Airbnb Inc. about allowing apartment dwellers to market rooms through the company’s global network in exchange for a slice of the revenue.
Equity Residential, AvalonBay Communities Inc. and Camden Property Trust have had discussions with Airbnb in recent weeks about joining forces, executives at each of the companies said. They all said they are interested in pursuing a revenue-sharing model with Airbnb but would need to work out details.
The moves hold the potential to expand Airbnb’s access to rental units across the country and further formalize a business that has grown from a matchmaking service for couch-surfers into a real threat to established hotels.
Airbnb’s service has long run afoul of many apartment companies’ contracts. A truce could allow a bigger portion America’s housing stock to be used as hotel rooms, potentially adding thousands of new listings to Airbnb’s books by allowing tenants to openly use the site rather than handing over their keys on the sly.
Equity Residential is the largest publicly traded U.S. apartment operator, with about 108,000 units, according to the company, while AvalonBay is the second largest with 83,000 units and Camden owns about 59,000 units, according to the companies.
“A lot of our hosts are renters,” said Christopher Nulty, an Airbnb spokesman. “Any solution we would be able to identify would be a win-win-win for everyone involved.” Earlier this year, Airbnb tapped a former San Francisco real-estate executive for a position dedicated to forging partnerships with apartment operators.
Home dwellers who use Airbnb’s website to list rooms or entire homes for rent pay Airbnb a percentage of the nightly rate. But most apartment leases have restrictions that forbid tenants to sublet or to do so without permission. That has made many of the apartment dwellers who advertise their units on Airbnb’s website subject to possible eviction, a hurdle to Airbnb’s growth thus far.
Nevertheless, Airbnb, founded in 2008, now lists about 322,500 accommodations in the U.S., up 80% from a year earlier, according to the company. It generated $340 million of revenue in the third quarter, on bookings of $2.2 billion, according to an investor presentation earlier this year reviewed by The Wall Street Journal.
Airbnb’s valuation has ballooned as home dwellers and travelers have embraced the service. As of last month the San Francisco-based company was valued at $25.5 billion, almost matching Equity Residential’s $28 billion market capitalization.
“You just can’t turn your head or keep your head in the sand over what’s going on,” said David Santee, Equity Residential’s chief operating officer. A potential deal is “just a way to figure out how can everybody coexist, bring transparency and figure out a way that everybody can win.”
Kristy Simonette, chief information officer at Camden, said the company is in early talks with Airbnb about a partnership. “While it’s a little scary, we do think there’s a play there,” she said.
Tim Naughton, chief executive of AvalonBay, said in a conference call in late October that the company is deciding “whether we want to embrace it.”
Airbnb has struggled to win support from some local political officials, tenants groups and rental property owners, however. Critics warn that apartments could essentially be converted into hotel rooms, depleting the rental stock in cities with housing crunches, such as New York, San Francisco and New Orleans.
Such a deal could place Airbnb under additional scrutiny from lawmakers by seeking to legitimize the use of apartments as hotel rooms. Lawmakers in some cities are seeking to crack down on the practice, arguing that it takes units off the market for local residents and that apartment buildings don’t adhere to the same fire and safety codes as hotels.
“I’m sort of appalled that Airbnb thinks the next answer to their problem of not running a legal business is to try to convince some number of landlords … that they can get in on the deal,” said New York State Senator Liz Krueger, a Democrat and vocal opponent of Airbnb.
Executives at the three apartment companies said they plan to examine local laws carefully to ensure they don’t run afoul of them. Mr. Santee, of Equity Residential, said they would only let residents rent units out on Airbnb occasionally, ensuring they don’t get converted into full-time hotel rooms.
Airbnb officials have said in the past that the vast majority of its users are renting out their apartments only occasionally on the site, helping them afford rapidly rising rents in those cities.
Some landlords are hostile to Airbnb because tenants are able to make money off their units with no direct financial benefit to the landlord. Others are concerned that having people staying in their buildings who haven’t undergone the same background checks puts existing tenants at risk of having to deal with noisy partyers or unsavory characters.
Airbnb officials said residents have an incentive to screen candidates looking to stay in their homes. The website also allows hosts to rate guests, providing a check on unruly users.
In San Francisco’s recent battle over Airbnb, the San Francisco Apartment Association, a landlord group, joined forces with tenant groups to support Proposition F, a ballot measure that limited the number of nights a year a unit could be rented out to 75.
Landlords and tenants “are normally at one another’s throats,” said Dale Carlson, co-founder of ShareBetter San Francisco, which helped lead the fight for the ballot measure. Instead, he said, the groups wrote the anti-Airbnb measure together. “The apartment association catered lunch and it wasn’t poisoned,” he said.
Major landlords, such as Related Cos., have moved to evict New York tenants who rent out their units, citing local laws that prohibit renting out a multifamily unit for less than 30 days if the resident isn’t present.
Airbnb got its start appealing to travelers seeking a less corporate, more informal local experience than traditional hotels. But as the company grows, it has been seeking ways to formalize its business, such as by offering to pay hotel taxes in some municipalities and venturing into the professional vacation rental business by developing software that would help link property managers to the site.
But landlords could stand to benefit from a hookup with Airbnb. They could impose a fee to tenants for allowing them to rent out their units, apartment executives and analysts said.
Landlords also could find it easier to pass along rent increases. If tenants can get $300 a night renting their room from time to time, it is easier for landlords to keep pushing steep rent increases, the apartment executives and analysts said.
“For those that are pushing the threshold of affordability, maybe they can do an Airbnb or two a month,” said Wes Golladay, an analyst at RBC Capital Markets. “Maybe it’s affordable and they can stay.”