West Eleventh Residences in Downtown Miami was an ongoing project – albeit still in its early stages – when Airbnb came along.
“Jesse Stein from the real estate department contacted developers in South Florida,” said managing partner Ryan Shear of the project developer Property Markets Group (PMG), “and it just developed from there.”
Shear told Commercial Observer last week that only eight of the 659 condos in West Eleventh, where owners are encouraged to list their units on Airbnb to serve the surrounding tourist market, have so far remained unsold. And he attributes some of that success to the short-term rental platform.
“They’re on the list, but that’s not the main reason,” Shear said of Airbnb. “Projects are really driven by the economics, market conditions, price and product — developer, brand, architecture. They definitely help, but the brand is not the revenue driver. The revenue driver is a much more global reason.”
However, there are other projects in the works where PMG and Airbnb would collaborate. It is too early to name them, he said.
Airbnb discovered a market years ago that had always been there, just that people didn’t know it. By offering extra rooms and vacation homes online, hosts were able to tap into a market of people who were tired of paying extra to stay in a hotel. But Airbnb also found a group of people who were less happy about this discovery – people who feared late-night parties, transients in their neighborhood, the unsettling way Airbnb was unsettling neighborhoods where everyone at least thought they knew everyone.
Then they discovered condominiums.
Condominiums are a growth market for short-term rental services like Airbnb, said Stein, who Global Director of Real Estate. There has always been a desire for Airbnb to expand beyond its traditional market – as far as a company founded in 2007 can have such a tradition – which consists of renters looking to sublet space in apartments. Airbnb sees condominiums as a part of the market that is just beginning to grow and could become a significant part of its offering in the coming years.
“We always thought the rental base would be the first phase,” Stein said. “But ultimately, the idea of renting your home should be pervasive in every real estate asset class, from multifamily to single-family to condominiums and so on and so forth.”
Although Stein declined to provide any figures, he said the success of the condominium initiative has been greater than Airbnb could have imagined in its wildest dreams.
“Consumer demand for the product is exceeding all of our expectations,” Stein said. “If I were to use a sports analogy, I don’t even think we have our second batter in the first inning. We have the first batter and it’s like one ball, one strike. We want to expand beyond the core.”
“We engage with these developers before they even develop,” Stein said. “We’re there from the beginning, throughout the process. We make sure the condo documents are done correctly.” But Airbnb avoids being pushed into certain segments, he added. “We’re not a hard brand. We believe developers know their markets.”
Does the ownership stake help drive the company’s growth in the condo space? “It’s just different customers,” Stein said. “It could be their primary residence, it could be their vacation home. I wouldn’t say it hurts our rental business. It’s all based on customer demand.”
Although Airbnb is a publicly traded company, its investments in condominiums do not appear to be mentioned in its regulatory filings. It was not mentioned in the first-quarter earnings report, released on May 8, nor in the second, released on August 6. It was not mentioned in either the first- or second-quarter earnings calls. Stein declined to detail how much the company is investing in condominiums. An Airbnb spokesperson stressed that the company does not financially support these developments.
But Airbnb is by no means alone in this practice. It’s common across the short-term rental industry, says Jamie Lane, vice president of research at AirDNA. The company says it sifts through data from listings across the industry to identify trends, and advises individual hosts on how to maximize profits from excess space.
AirDNA announced in July that it had found around 1.7 million listings on Airbnb and other short-term rental platforms. Of these, around 260,000, or about 15 percent, were condominiums.
Condos as a short-term rental option have been around for so long that they have actually slowed in the last year, Lane said. Before the pandemic, the number was growing about 12 percent annually, but over the past two years, the number of condos on Airbnb and Vrbo, a competitor, has increased by about 2 percent.
“We expect supply growth to essentially stagnate over 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 more difficult. We saw demand pick up very quickly in 2021, driving occupancy rates to record highs.”
In Miami, a market geared toward tourists and beachcombers, Airbnb has partnered with some of the market’s most powerful condo developers. On District 225, a 343-unit high-rise condo project near Miami’s waterfront, it worked with Jorge Perez’ Related Group, the largest condo developer in South Florida and what Stein calls Airbnb’s “first partnership.” The project, which is sold out according to its website, invites homebuyers to be “hosts on Airbnb,” a designation done in partnership with the company, Stein said. (Calls to Perez were not returned.)
PMG’s West Eleventh Residences in downtown Miami is packed with amenities like a pool with private lounges and an entertainment center. Condo prices average about $800,000, according to an April study. Wired Magazine history.
The Wired The article called Miami “ground zero” for the connection between condo development and the short-term rental industry, with more than 10 projects either in development or already open that combine the two. “Almost all of the supply in Miami, aside from a few luxury buildings, is Airbnb-friendly, which wasn’t the case before,” Stein said. “The consumer wants the ability to monetize their space.”
Furthermore, it is almost like plug and play.
“These units are easy to build, sell quickly and can be furnished nearly identically if needed,” said hospitality consultant Ric Mandigo of CBRE (CBRE) in an email. “Building new from the ground up can alleviate some of the safety and design concerns that have plagued short-term rental companies since their inception.”
There are “external risks” associated with listing condos on short-term rental websites, Mandigo and his colleague Andrew Hartley, CBRE’s hotel consulting director for the Northeast, said jointly in an email. “As short-term rentals became more popular, the industry was almost entirely unregulated,” they said. “Over the years, the short-term rental industry operated under a patchwork or set of rules that were different in each market. But over time, regulations became more stringent. At its strictest, New York City effectively priced short-term rentals out of the market.”
A noise control law would apply regardless of whether the unit is rented or purchased, said AirDNA’s Lane.
“(New York is) the exception rather than the rule,” he said. “Many markets have implemented restrictive regulations, but many of them changed course when they saw the negative impact of that, when they saw the community backlash to the restriction of property rights.”
“We’ve seen technology evolve to mitigate many of these issues,” Lane said of the problems associated with renting out spaces to guests on a short-term basis. “Many homeowner associations that allow short-term rentals have a mandatory noise monitoring device — and we even see it in city ordinances — that can alert guests when they’re being too loud and notify the owners.”
Kevin Davis, CEO of hotel and restaurant group JLL (Americas), said in an email that condo owners would have to abide by the same local laws as other hosts, “unless they have specific zoning exemptions or other regulations that would allow them to operate without restrictions.”
Asked if this was just another variation on the market’s long-standing interest in timeshares and hotel condos, Shear, the Miami developer, replied: “Yes and no. Is it the same concept? Yes, but that’s like saying MySpace is the same as Facebook. It’s not a brand new idea that never existed, but I think Airbnb has managed to take it to a higher level, to one that’s much more seamless.”
CORRECTION: This article has been updated with the correct unit count at West Eleventh Residences.
