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Airbnb Offers Landlords an Incentive

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10/11/2016 | 03:55am EDT

Home-rental giant Airbnb Inc. is trying to charm apartment landlords with a program that gives them some extra revenue if they allow tenants to rent their units out on the site.

Airbnb last month announced an offering that allows apartment owners to take a cut of the revenue from Airbnb guests in their buildings. The program has the potential to add millions of apartment units to Airbnb's inventory of short-term rental properties.

So far, though, the program has few takers, as landlords remain wary of lawsuits, regulatory hassles and ticked-off neighbors.

"I don't see it gaining much traction," said Margette Hepfner, senior vice president for client services for Lincoln Property Co., which manages or owns 175,000 units across the country.

Ms. Hepfner said Airbnb has tried to respond to many of her biggest concerns, but added that "There's just inherent risk in allowing unknown guests to come onto your property."

Airbnb, formed in 2008, has found success helping travelers find short-term quarters in private homes. Its number of annual guests has soared to 100 million this year from 21,000 in 2009, according to the company. After its last fundraising round, the closely held company was worth $30 billion.

But appealing directly to apartment landlords is essential for Airbnb's future growth. That is because big chunks of the housing stock in the most popular destination cities are in the form of apartments, and standard apartment leases forbid tenants from subletting without the landlord's permission. That limits the pool of participants in the places travelers most want to go.

The company has made an effort to ease landlords' initial anxieties about the program, offering insurance and providing them with information about which tenants are renting units out on the site to aid with enforcement. It said landlords would only be allowed to participate in markets where Airbnb is allowed under local laws.

So far Airbnb has had little success winning over big landlords. Buildings containing only about 1,000 units have enrolled in the program, a sliver of the 26.5 million mid-rise or high-rise apartment units nationwide. Airbnb declined to provide the names of any landlords participating in the program.

Three of the country's largest landlords, AvalonBay Communities Inc., Essex Property Trust and Camden Property Trust, said they decided not to participate. They declined to give a reason.

"In private conversations there is a huge interest in how to do this better than it was done before. Those same executives aren't interested in bearing the scrutiny," said Jaja Jackson, Airbnb's head of landlord partnerships.

Apartment giant Equity Residential, which owns 80,000 units mainly in coastal cities such as New York and San Francisco, confirmed it is piloting the program in one of its buildings, Vista 99, in San Jose, Calif., which the website describes as a "resort-style community."

But many building owners are concerned that cooperating with Airbnb would open them up to lawsuits, tangles with municipal regulators and hassles with other residents who don't want transients in their buildings. Reports of wild parties and property damage at some Airbnb properties have stoked concern.

New York state lawmakers in June passed legislation now awaiting the governor's signature that would slap a $7,500 fine on users who advertise illegal short-term rentals on Airbnb. The state outlaws the rental of any home for fewer than 30 days.

Under Airbnb's new plan, called the Friendly Buildings Program, if landlords allow tenants to lease units on Airbnb, they have an opportunity to take a cut of the nightly revenue at a suggested rate of 5% to 15%.

But for a one-night, $200 stay that means the landlord would make $30 or less, an amount that many landlords say doesn't justify the hassle.

A September survey by the National Multifamily Housing Council found that 42% of apartment owners weren't interested in a partnership program with a short-term rental company such as Airbnb. One-third said they were open to a partnership program and the remainder said they didn't know.

The respondents cited safety issues as their top concern, followed by liability and insurance and quality-of-life concerns. About 40% of landlords said they had taken action against a tenant who used Airbnb, including a warning letter or lease termination.

Mr. Jackson said he has talked to roughly 1,000 apartment landlords since he started his campaign in February 2015. "Airbnb in general was quite scary to some executives," he said.

Cortland Partners, which owns 36,000 apartment units primarily in the Southeast, in a recent survey found that nearly 40% of residents would be significantly less likely to renew their leases if the company allowed tenants to rent out units on Airbnb.

"You could have folks who would normally not pass the background check who could present a danger to children or other residents and you wouldn't know who they were," said Melanie French, executive vice president at Cortland Partners.

Analysts said landlords run a risk by not participating in Airbnb's new program given the threat the company poses to the status quo.

"It's a behavior that their tenants are going to engage in regardless of what stance the landlord takes," said Dave Bragg, an analyst at Green Street Advisors. "It could take a while but I think it will prove to be very good for both Airbnb and apartment operators."

Stocks mentioned in the article
ChangeLast1st jan.
AVALONBAY COMMUNITIES, INC. -5.10% 152.1 Delayed Quote.-27.47%
CAMDEN PROPERTY TRUST -2.74% 83.34 Delayed Quote.-19.24%
EQUITY RESIDENTIAL -0.16% 62.58 Delayed Quote.-22.54%
ESSEX PROPERTY TRUST, INC. -1.35% 225.51 Delayed Quote.-25.04%
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