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Page 30 — Multifamily Properties Quarterly — November 2017
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Airbnb
sharing economy and rapid disrup-
tion to traditional business models, the
resistance of the multifamily industry
to Airbnb’s inevitable entry into long-
term rentals is somewhat alarming.
Obvious concerns lie within the archaic
liability and regulatory framework that
have guided our industry for decades.
However, ingenuity is rewarded in the
new economy, and proactive landlords
able to get ahead of this transformation
could reap a tremendous competitive
advantage.
The first hurdle to Airbnb’s acceptance
among landlords is local regulatory
policy. Cities across the country have
battled Airbnb in the admirable interest
of affordable housing preservation. Crit-
ics argue Airbnb reduces the rental sup-
ply thus driving up rents, an undeniably
accurate assessment in small vacation
markets likeVail and Aspen.Yet, the
correlation falls dramatically in large
metro areas where Airbnb accounts
for only a fraction of the total housing
stock; studies have found virtually no
impact on rents in markets with a small
percentage of commercial Airbnb rent-
als (e.g., units rented less than 180 days
annually).
No matter the verdict, Denver has
taken one of the most progressive and
socially sustainable approaches to regu-
lating short-term rentals. As of Janu-
ary, Denver requires hosts to obtain a
license to offer short-term rentals with
the requirement that the property be
the hosts’ primary residence.This effec-
tively mitigates many of the negative
externalities created by Airbnb by, in
theory, eliminating absentee landlords.
Airbnb bookings reached an all-time
high in Denver in September with a 67
percent (and growing) licensing compli-
ance rate. Looking at the last six months
of revenue, Denver stands to collect
nearly $11 million in taxes fromAirbnb
hosts in 2018 – a figure that could bal-
loon if apartments are added to the
short-term rental pool.
The primary concerns cited by apart-
ment landlords in regard to short-term
rentals are safety (80 percent), liabil-
ity (74 percent) and quality of life (74
percent), according to a NMHC survey.
However, platforms exist to help alle-
viate some of these concerns. Airbnb
conducts background checks on its
members and provides host protection
insurance through its Friendly Buildings
Program. Pillow Residential, a short-
term rental compliance start-up, takes
this a step further by integrating five
layers of liability protection.
While several apartment real estate
investment trusts have declined part-
nering with Airbnb in recent months,
Equity Residential is piloting the Friend-
ly Buildings Program on its 554-unit
Vista 99 development in San Jose, Cali-
fornia, while Ironton has partnered with
Airbnb on its 69-story Jersey City Urby
deal in New Jersey. In October, Airbnb
announced the logical next step in this
programwith a 324-unit apartment
development through a JV with Florida-
based Newgard Development Group.
Virtu Investment’s Archer Tower prop-
erty in Denver is an equally compel-
ling case study.Virtu teamed up with
Pillow Residential to enable tenants to
rent their units on Airbnb, facilitating
a revenue-sharing agreement between
the owner (10 percent), Pillow (10 to 20
percent) and the tenant (70 to 80 per-
cent). For their share, Pillow coordinates
advertisement, key swap and profes-
sional cleaning.Virtu is offering resi-
dents discounted monthly lease rates in
exchange for participation.
The program has received a warm
reception from residents at Archer
Tower, according toVirtu COO Blake
Hayunga. He noted a 20 percent
increase in applications since inception
with a 50 percent penetration rate on
new leases. Hayunga views the program
as an amenity that empowers residents
to “monetize slack in the economy”
where tenants can profit from their
empty apartments.While revenues are
reinvested in the property, Hayunga
also anticipates significant bottom-line
improvement through strong occu-
pancy, low turnover and the ability to
increase rents while maintaining afford-
ability.
On any given day, there are numerous
Airbnb listings for Class A apartment
units in Denver disguised as “downtown
condos”with host instructions to avoid
interaction with neighbors and man-
agement.The nightly Airbnb rate for
one of these listings in a popular Lower
Downtown high-rise apartment is $399,
resulting in host revenues of roughly
$299 (after factoring in the 10 percent
landlord fee and the 15 percent fee to
Pillow). Assuming the tenant rents the
unit 15 nights per year, her effective
monthly rent declines 16 percent, from
$2,291 to $1,917, resulting in annual
savings of $4,485.With savings of this
magnitude, the competitive advantage
gained by an Airbnb-friendly building is
truly staggering.
It wasn’t long ago where pet-
friendly buildings were an industry
anomaly. Today, 98 percent of Denver
apartments allow pets to some degree
as bottom line rewards far offset the
inherent risks to landlords. As home
sharing becomes an increasingly cov-
eted amenity – synonymous with pet
spas and yoga studios – landlords may
no longer be able to resist financial
incentives created by Airbnb. As the
saying goes, if you can’t beat them,
join them. ▲
Note: After this article was submitted, a
Nov. 5 Wall Street Journal article reported
that Veritas Investments, San Francisco’s
largest landlord, is partnering with Pillow
Residential and Airbnb to pilot the Friendly
Buildings Program.
Blake Hayunga, Virtu Investments
Airbnb bookings reached an all-time high in Denver in September with a 67 percent (and grow-
ing) licensing compliance rate. Looking at the last six months of revenue, Denver stands to collect
nearly $11 million in taxes from Airbnb hosts in 2018.