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Home-sharing goes from nuisance to opportunity

Some multifamily managers are evolving their approach to home-sharing, introducing professional management to add an ancillary income stream and, in some cases, burnish a millennial-friendly image.

With Airbnb-induced problems ranging from late-night guests bumping suitcases and music in hallways to tenants illegally letting rent-stabilized apartments, multifamily managers have long been less than keen on Airbnb and other home-sharing platforms.

As some hoteliers saw Airbnb users as a threat to their business, managers of multifamily property viewed home-sharing users as a threat to the culture, safety and even insurance profiles of their buildings. Two years ago, PERE reported how landlords were grappling with the burgeoning use of home-sharing through a mix of restrictions and even, in some cases, legal action against home-sharing tenants.

Across the US, a patchwork of state and local laws has made home-sharing almost impossible for multi-state managers seeking standardization. The state of New York, for example, outlawed apartment-sharing rentals for fewer than 30 days unless an owner is present. Despite the restrictions, many tenants operate illegal home-shares: Airbnb has over 50,000 listings in New York City, the company’s largest US market, according to the New York Times. In total, Airbnb had 4 million listings in 191 countries as of August 2017, according to its website.

Now, however, some managers are evolving on home-sharing, with some seeing it as a potential boon to their bottom lines.

The growth in home-sharing, with platforms such as Airbnb, VRBO and others, is impossible to ignore. Investment bank Morgan Stanley counted 15 million Airbnb users worldwide in 2015 and predicted the number would jump to 40 million in 2020, according to a November 2017 report. The firm expected Airbnb to generate about 155 million room nights in 2018 in just the US and Europe, up 14 percent year-on-year.

Landlords have not found a one-size-fits-all approach to home-sharing yet, but many are experimenting with management models that enhance their revenue while protecting the character of their buildings.

“Some multifamily managers have evolved and are willing to pilot home-sharing concepts as potential ancillary income streams,” Green Street’s John Pawlowski, who leads residential research coverage for the Newport Beach, California-based advisory firm, tells PERE.

This comes with a word of caution, however: “As of today, most of the multifamily managers that are piloting it don’t see it ever becoming a meaningful component of their business. They are just testing it to study the business model with minimal resources now.”

Predictably, private equity real estate giant Blackstone is one manager testing the waters. The firm, which declined to comment, is piloting a professionally-managed, rather than tenant-managed, short-term apartment rental program at select properties across its portfolio.

Other private equity real estate managers tell PERE they are setting aside a small number of units in current or to-be-developed multifamily buildings for short-term rental purposes. Rather than allow tenants to rent out their own units, the landlords contract out the management of these few apartments to a local operator that can oversee the guest experience, from booking to cleaning. The apartments give landlords an ancillary income stream and can be a marketing differentiator for potential tenants, who can host friends or family in the same building for short-term stays without sharing their own apartment.

Start-up property management companies that enable such rental efforts are attracting capital from the industry. San Francisco-based AJJK, for example, raised $15.5 million in a February funding round with capital from groups including Barry Sternlicht’s family office and property technology firm Fifth Wall Ventures. The San Francisco-based start-up operates upscale apartments as short-term rentals, working with major landlords such as Hines to set aside blocks of units for short-term rentals. AJJK’s platform, Lyric, is positioning itself as a brand comparable with Hilton or the W to appeal to wealthier clientele than the average Airbnb customer.

Greystar Real Estate Partners is working with another type of start-up to manage short-term demand. The Charleston, South Carolina-based private equity real estate firm, which manages over 425,000 multifamily units and student housing beds globally, inked a partnership with San Francisco-based Urbandoor last year to provide fully furnished corporate apartments in multiple cities, including San Francisco, New York and Chicago.

“This platform has allowed participating owners to offer their inventory directly to corporate renters and capture more of the available rental premium,” Greystar chief executive Bob Faith says. “The emergence of the home-sharing economy has changed how residents view their homes and resulted in challenges for owners and property managers… We are looking at many options related to home-sharing.”

Purpose-built Airbnb buildings

Another approach centers on positioning an entire building as home-sharing-friendly. In the fourth quarter of 2017, Toronto-based Brookfield Asset Management said it would work with Niido, a partnership between Airbnb and Miami-based Newgard Development Group, to buy apartment complexes in Florida and reposition them to allow tenants to rent out their units through Airbnb for up to half the year. The landlord will get a 25 percent cut of the tenants’ profits. The groups’ first building is being outfitted with keyless entry, common spaces and storage units for residents to secure their belongings. Brookfield, which declined to comment, bought an 88 percent ownership stake from Niido in one Orlando, Florida multifamily property for $58 million, with plans to invest up to $200 million in other Niido properties, according to its Q4 earnings. New York-based private equity real estate firm Silverpeak Real Estate Partners, which also declined to comment, committed $20 million to the partnership.

The scheme is part of Airbnb’s Friendly Buildings Program, a platform to work with multifamily landlords to control Airbnb use. Owners can see when residents are renting on Airbnb, control hosting activity and receive a portion of hosts’ revenues. Airbnb says the program can help with tenant attraction, “including those with lifestyles that depend on the flexibility offered by home-sharing.” In an October survey of 270,000 apartment renters, the National Multifamily Housing Council and research firm Kingsley Associates found that about half of respondents under the age of 25 are interested in the opportunity to generate additional income through short-term rentals.

As Green Street’s Pawlowski points out, any revenue created from home-sharing-related programs is unlikely to move the needle immediately for a multifamily giant like Brookfield, which oversees a multifamily portfolio valued at $7.5 billion, according to data provider Real Capital Analytics. But as millennials and future generations of renters grow up in the sharing economy, the pilot programs of today could turn into standard practice tomorrow.