Developers Team With Airbnb Right From the Start to Fill Condos

Shear told Commercial Observer last week that only eight of the 659 condominiums in West Eleventh, where owners are encouraged to list their units on Airbnb to serve the surrounding tourist market, had yet to be bought. And he attributes some of that success to the short-term rental platform.

“They’re on the list, but it’s not the number one reason,” Shear said of Airbnb. “Projects are really driven by the economy, market conditions, price and product — developer, brand, architecture. They’re definitely helpful, but the brand is not the driver for sales. The driver for sales is a much more global reason.”

Nevertheless, there are other projects in the works that will involve a PMG/Airbnb collaboration. It’s too soon to name them, he said.

Airbnb years ago found a market that was always there, only people didn’t know it. By listing extra bedrooms and vacation homes online, it enabled hosts to tap into a market of people tired of paying premiums to stay at a hotel. At the same time, it also found a class of people who made this discovery less pretty — folks who feared late night parties, transients in their neighborhoods, the worrisome way it unsettled neighborhoods where everyone at least thought they knew everyone else.

Then they discovered condos.

Condominiums are a growth market for short-term rental services such as Airbnb, said Stein, the company’s  global director of real estate. There was always a desire to take Airbnb beyond its traditional market — to the extent a company founded in 2007 could have a tradition — which has been renters looking to sublet spaces in apartments. Airbnb sees condos as a piece of the market that is just beginning to grow, and could represent a substantial portion of its offerings in years to come.

“We always thought to ourselves that the rental base was the first phase,’’ Stein said. “But, at the end of the day, the idea of hosting your home should be ubiquitous with every real estate asset class, from multifamily, to single-family, to condominiums and so on and so forth.”

While Stein declined to provide figures, the condo initiative has succeeded beyond Airbnb’s wildest dreams, he said.

“Consumer demand for the product is way above any of our expectations,” Stein said. “If I were to use a sports analogy, I don’t even think we have our second batter up in the first inning. We have the first batter up and It’s like one ball, one strike. We are looking to expand beyond the core.”

“We are getting involved pre-development with these developers,” Stein said. “We are there from the ground floor, on the entire process. We are [making sure] the condominium docs are drafted the right way.” Airbnb stays away from trying to pigeonhole itself into certain segments, though, he added. “We are not a hard brand. We believe developers know their markets.”

Is the ownership of units helping drive the company’s condo growth? “It’s just a different consumer,” Stein said. “It could be their primary home, it could be their vacation home. I would not say it’s taking away from our rental business. It’s all based on consumer demand.”

Though Airbnb is a publicly traded company, its investment in condos does not appear to be mentioned in its regulatory filings. It was not mentioned in its May 8 first-quarter earnings report, nor in its second, released Aug 6. Neither was it mentioned on either its first- or second-quarter earnings calls. Stein declined to set forth what the company was investing in condominiums. A spokesperson for Airbnb emphasized that the company does not financially back these developments. 

But Airbnb is hardly alone in this pursuit. It’s a common thing among the entire short-term rental industry, said Jamie Lane, vice president of research for AirDNA, a company that says it scrapes data listing by listing from the entire industry and reports on trends, as well as serves to advise individual hosts on how to maximize returns from excess space.

AirDNA said in July that it found about 1.7 million listings on Airbnb and other short-term rental platforms. Of them, about 260,000, or about 15 percent, were for condos.

Condos as short-term rental options have been around so long that it has actually slowed in the last year or so, Lane said. Pre-pandemic, the number was growing about 12 percent a year, but in the last two years the number of condos on Airbnb and Vrbo, a competitor, has grown about 2 percent.

“We expect supply growth to essentially be flat for the next year, year and a half, before it starts growing again,” he said. “We have very high interest rates, which makes investing in a condo tougher. We saw demand come back really quickly in 2021, which pushed occupancy levels to record highs.”

In Miami, a market attuned to tourists and two-week beachcombers, Airbnb has teamed up with some of the market’s most powerful condo developers. At District 225, a 343-unit high-rise condo project near the Miami waterfront, it collaborated with Jorge Perez’s  Related Group, the largest South Florida condo developer and what Stein calls Airbnb’s “first partnership.” The project, which is sold out according to its website, invites condo buyers to “host on Airbnb,” a designation done with the company’s cooperation, Stein said. (Calls to Perez were not returned.)

PMG’s West Eleventh Residences in downtown Miami is loaded with amenities such as a pool with private lounges and an entertainment center. Condo prices average about $800,000, according to an April Wired magazine story. 

The Wired story called Miami “ground zero” for the link between condo development and the short-term rental industry, with more than 10 projects either in development or already open that pair the two. “Almost all the supply in Miami, outside of a couple of luxury buildings, are Airbnb-friendly, where historically they were not,” Stein said. “The consumer wants the ability to monetize their space.”

What’s more, it’s almost like plug and play. 

“These units are easy to build, quick to sell and if needed, furnished nearly identically,” said hotels advisory consultant Ric Mandigo of CBRE (CBRE) in an email. “Building from the ground up can alleviate some of the security and layout concerns which have plagued short-term rental companies since they began.”

There are “external risks” to listing condos on short-term rental sites, said Mandigo and an associate, Andrew Hartley, CBRE’s hotels advisory director for the Northeast, together in an email. “When short-term rentals started to become more popular, the industry was almost entirely unregulated,” they said. “Over the years, the short-term rental industry operated under a patchwork or rules that were different in each market. But, over time, regulations have become stricter. In the strictest case, New York City has effectively regulated short-term rentals out of the market.”

A law limiting noise would apply whether the unit is rented or owned, AirDNA’s Lane said.

“[New York is] more the exception than the rule,” he said. “Many markets have implemented restrictive regulations, but many of them have reversed course as they have seen the negative impacts of that, as they have seen the backlash of the community on restricting property rights.

“We have seen the technology evolve to help mitigate a lot of that,” Lane said of any problems of spaces being rented out to guests short term. “One thing that many condo associations that allow short-term rentals have — and we even see it in city ordinances — is a mandatory noise-monitoring device that can notify guests when they are being too loud, notify owners.”

Kevin Davis, Americas CEO of JLL (JLL)’s hotels and hospitality group, said in an email that condo owners would need to comply with the same local laws as other hosts “unless they have obtained specific zoning exemptions or other provisions that [would] enable them to operate without restrictions.”

Asked if this is just another flavor of the market’s longstanding interest in timeshares and hotel-condos, Shear, the Miami developer, answered, “Yes and no. Is it the same concept? Yeah, but that’s like saying MySpace is the same thing as Facebook. It’s not a brand-new idea that never existed, but I think what Airbnb was able to do was take it to a higher level, one that was much more seamless.” 

CORRECTION: This article was updated with the correct unit count at West Eleventh Residences.