Airbnb—If You Can’t Beat ‘Em, Join ‘Em?

By Stuart Eisenberg, Partner, BDO USA

As Airbnb reshapes the future of real estate, some multifamily and hospitality participants appear to be moving from resistance to acceptance of the short-term rental industry giant. As they continue to feel its disruptive impact, some REITs and other landlords are wondering, “If we can’t beat them, why not join them?”

This change in attitude could be prompted by the financials. Rather than resisting its impact or taking costly legal action on tenants using Airbnb, landlords are looking to cash in on this movement.

A study conducted by Pennsylvania State University’s hospitality school found that 29 percent of Airbnb hosts were “full-time,” defined as users who rent their properties more than 360 days per year. Moreover, of the revenue generated by Airbnb in 12 major metros nationwide during a 13-month period, more than $500 million, or 39 percent, went to hosts operating more than one unit.

It’s long been noted that some long-term renters who list their residences on Airbnb are infringing on the terms of their leases by collecting revenue they’re not entitled to. For landlords, the high cost to pursue legal action against these tenants has limited upside.

Instead, they are eyeing partnerships with tenants to share this substantial revenue stream. Doing so could allow tenants to operate more openly and free up more of the housing stock for home-sharing. But as they navigate this uncharted territory, both parties could face several potential pitfalls:

1. Significant legal and regulatory risks akin to those faced by hotels

While the legality around short-term rentals varies among markets, New York state has been a notable battleground between regulators and Airbnb lobbyists. A 2011 law makes it illegal for New Yorkers to rent an entire apartment for less than 29 days, posing significant risk for hosts renting out primary or secondary residences on Airbnb. In other markets, some cities have passed home-sharing regulations and Airbnb has begun collecting hotel tax on top of rental cost in certain jurisdictions with looser hotel laws.

2. Potential scrapes with local government regulators

Regulators are increasingly cracking down on tenants who collect revenue on Airbnb without permission. New York state has introduced a bill that would prohibit hosts from advertising illegal units and require landlords to notify tenants that illegal short-term renting may result in eviction. A similar ballot initiative in San Francisco failed late last year, but Airbnb continues to feel the pressure and has indicated a willingness to work with local government. Most recently, Bloomberg reported the company will begin sending letters and emails bimonthly to San Francisco hosts, urging them to register with the city and report their rental activity on a quarterly basis.

3. Increased insurance, security and maintenance costs

Though Airbnb hosts can individually screen guests before approving rental requests, insurance and security measures beyond what might be typical for long-term rentals are necessary to protect guests, hosts, other building tenants and physical property. Allowing more tenants to dwell in a single space requires a bigger investment in cleaning and upkeep for each new guest, and hosts will also need to invest in remaining competitive in the growing marketplace of unique and luxurious Airbnb listings.

Despite the pitfalls, the revenue stream shows no sign of drying up, and it’s likely that REITs and other landlords will increasingly consider embracing Airbnb as a source of additional revenue.