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Institutional investors warming to Airbnb

Airbnb, the short-term apartment rental service, has long sold itself as a way for struggling tenants to make money on the side, exchanging free space in their apartments for some rent relief.

While the majority of “hosts” on the website still fit this description, some professional investors are starting to make money off of the service, generating profits by putting hundreds of apartment units for rent.

Photo by Tim Regan/ Flickr
Photo by Tim Regan/ Flickr

According to a new study from Priceonomics and Realty Shares, professional investors, those who own multiple properties that they do not live in, are starting to cautiously dip their toes into short-term rentals.

Most of the activity is coming from individual investors. However, there is also evidence that large companies are starting to show interest in the service.

Sean Conway, the co-founder of rental property management start-up Pillow, said that companies have approached him about looking after hundreds of apartments units for renting out through Airbnb. Conway, whose company specializes in short-term rentals, participated in the survey.

“We’ve had investors with 500 units come to us and say, ‘We want you to take all of them,’” he said, “and we say, ‘No way, we’re a start up!’”

His experience aligns with an earlier report from the New York Attorney General. According to the 2014 study, which was based on four years of subpoenaed data, six percent of hosts on Airbnb are renting out three to 272 units.

In New York City, renting out three units or more requires a large investment, something that is beyond the reach of the average Airbnb host. This segment of Airbnb’s host roster has generated the most opposition, with many suggesting that they are operating illegal hotels.

While professional investors remain a small minority, they have cornered a significant fraction of the city’s Airbnb market. In fact, they accounted for more than a third of all bookings and revenue in the city, in the process generating $168 million over the four-year period. Also, there were more than 100 hosts that had ten or more properties in their portfolio.

Airbnb’s headcount of multiple unit owners are much lower than in the Attorney General’s report. According to company records released last December, only 1.4 percent of hosts have three or more apartments on the site.

The company’s presence in New York City has been a contentious subject for years. Recently, city officials have renewed their condemnation of Airbnb’s service after researchers accused the company of doctoring its number for better PR.

According to a report from sharing economy opponent Tom Slee and Murray Cox of Inside Airbnb, the company delisted more than 1,000 units to make its numbers propagate the narrative that most of its users are middle-class people supplementing their income. The report was based on what was supposed to be a typical day, November 17. However, according to the pair, the company took out many entire home listings, many of which belong to multiple unit owners, shortly before that date.

“Far from being open and transparent, this report shows that Airbnb intentionally misled the press and elected officials in New York. The data clearly disproves Airbnb’s perennial argument that they want to work with city officials to protect everyday New Yorkers, fight illegal hotel activity, and remove “bad actors” from their site. Instead, it appears the company took extraordinary one-time measures to manipulate data and make themselves look good on one day in one city,” said State Senator Liz Krueger.

“This analysis calls into question the overall accuracy of the data Airbnb provided and how genuine Airbnb is about the ‘community compact’ they presented to NYC government officials and the media in December 2015. It raises two further questions: 1. Are there other discrepancies in the data Airbnb provided to the public?  2. Do these or other factual discrepancies exist in the offering documents Airbnb used to raise capital from investors?” added Council Member Helen Rosenthal.

While Airbnb continues to be a topic of debate for politicians, at least one legal expert sees it as a legitimate way of making money. “I don’t believe that there’s anything that the law has, that I’m aware of on the books right now, that would prevent an individual from owning multiple apartments and, if the building allowed it, then listing them for rent on Airbnb,” said Steven Barshov, a principal at law firm Sive, Paget & Reisel.

“If all of the units in one building are being listed on Airbnb and they’re not doing anything else in that building, then yes, I think they would have some issues. I don’t know that that describes the people that they’ve found on Airbnb. They own a unit here and a unit there. And their business model is not to rent those out long-term but to rent them out short-term. I don’t believe that is operating a hotel. That is buying an individual property, even if you buy multiple ones, and holding them out for short-term rental.”

Justin Flagg, the communications director for Senator Krueger, disputed Barshov’s assertion, saying that a 2010 state law (Senate Bill S6873) and a 2012 New York City law makes it illegal to rent out a unit in a multifamily building for less than 30 days when the permanent resident is not present.

“This model is taking a significant amount off of the rental market, making it no longer available to be rented out to actual residents and therefore is contributing to a crisis of affordability in this city. If this is actually the case, that large institutional property owners are getting involved, it only increases the problem,” he said.

Still, Airbnb hosts face possible penalties, depending on whether the building allows tenants to sublet. Barshov said that if the building does not allow subleases, tenants may be sued by their landlords, leading to eviction and penalties. This also goes for apartment owners in co-ops and condos. Depending on the co-op or condo’s rules, the host may even be required to shoulder lawyer’s fees.

“I think anytime a contract is violated, or at least provisions are violated, the penalties are always harsh and severe,” Barshov said.

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