Navigating Multifamily Short-Term Rentals in a Post-COVID World
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Navigating Multifamily Short-Term Rentals in a Post-COVID World By Jesse DePinto, Co-Founder & Chief Product Officer As if the Short-Term Rental (STR) world wasn’t complex enough, the spread of COVID-19 has turned the industry on its head, and inevitably, the multifamily world is feeling the impact as the two industries are now inextricably linked.
Navigating Multifamily Short-Term Rentals in a Post-COVID World
Contents
Introduction .................................................................................3
To Force Majeure, or to not Force Majeure ...........................4
Insult to Injury ..............................................................................5
Accelerated Convergence ...................................................... 7
Is There a Future for STR in Multifamily ................................ 8
Multifamily’s “OTA Moment” .................................................... 9
A Path Toward a Sustainable Future for STRs ....................10
So, What Broke Anyway? ..........................................................11
Beyond the Traditional Master Lease ...................................12
The Rise of Mixed-Use Communities ................................... 14
A Call for Industry Standards ............................................... 16
Proposed Standards for Mixed-Use Communities ............18
The Defining Moment ............................................................. 20
Industry Predictions ................................................................ 21
Final Thoughts ......................................................................... 24
2
Navigating Multifamily Short-Term Rentals in a Post-COVID World
Introduction
There is a growing population of multifamily professionals who are now in tight
spots with their Short-Term Rentals (STR) partners, who are sometimes left
with abandoned furniture, increasingly forced to make drastic and immediate
decisions, and worse, given very little information to guide quickly-evolving STR
strategies. My intention here is to provide multifamily professionals of all sizes
highly-biased yet well-intentioned content, written from the lens of an STR
founder who is also caught in the eye of the storm. My company, Frontdesk,
along with all other urban STR operators, are being supported by the multifamily
industry right now, so my intention with this content is to give back to this
incredibly supportive community in whatever, albeit minimal, way possible.
Frontdesk Suite
Pittsburgh, PA
Frontdesk Suite
Des Moines, IA
To Force Majeure, or to
not Force Majeure
Cheesecake Factory, among other prominent retail and hospitality chains, has
notified their landlords that they will be unable to pay rent in April. They are
using the Force Majeure, or “Act of God” clause in their lease agreements to
their defense, claiming COVID-19 as the reason. Yet the verdict is still out on
whether the courts will determine COVID-19 as an event significant enough to
trigger Force Majeure in real-estate contracts.
Commercial tenants aren’t the only ones missing April rent payments, many
residential tenants are also seeking relief after the Federal Government’s
eviction ban. The government is supporting property owners financed or
otherwise affiliated with government financings like Freddie Mac and Fannie Mae
by offering mortgage forbearance, but who foots the bill for the other 35% of
mortgages that aren’t given such mortgage relief? The FHFA (Federal Housing
Finance Agency) hopes that the private market will soon follow suit, but the
asset managers I’ve spoken with just aren’t so sure. Many landlords are getting
squeezed and forced to foot the bill while more and more misinformation
continues to spread that it’s acceptable for all tenants to not pay rent.
So, how do STR master lease agreements fit into all of this? Well, STR operators
are not normal multifamily tenants, and there’s no playbook here. Some STR
operators are choosing to invoke the Force Majeure clause, whether it’s in
their lease or not. Yes, there is an argument for invoking Force Majeure with
STR leases. But there is also an argument for taking a more partnership-driven
approach by having a conversation to seek a mutually-beneficial agreement in
these tough times, such as rent abatement, deferment, or revenue-sharing. In
reality, there is no one-size-fits-all approach because every property is unique
in its occupancy potential in both the short-term and long-term rental markets,
and every STR operator is unique in their ability to pay rent, retain partners, or
even their ability to survive this storm.
4
Frontdesk Suite
San Antonio, TX
Insult to Injury
There is no doubt COVID-19 poses proclivity to technology. But there
a crippling threat to the lodging was one difference, a big difference:
industry, among many others. These companies are tech-enabled
However, it’s important to point out real-estate companies, not tech
that the STR industry was facing companies. The proof is in the profit
challenges before COVID-19 was on margin.
anyone’s radar. Let me explain.
After WeWork made a splash with
The fuel that grew in the STR market its IPO struggles, private investors
is the venture-backing of many high- scrutinized the plethora of tech-
growth startup companies. On the enabled companies that argue for
heels of Airbnb’s success, a number tech-company valuation multiples.
of clever STR management companies Many of these unicorn-bound STR
(many of Frontdesk’s competitors) operators, as well as startups in
followed in Airbnb’s footsteps by many other industries, were met
raising their own massive rounds with similar fates to WeWork: not
of funding. These management only were they struggling to raise
companies looked and smelled future financing rounds based on
like Airbnb, with their high-growth their inflated valuations, but they
nature, booming industry and their were actually relying on those future
5
Navigating Multifamily Short-Term Rentals in a Post-COVID World
funding rounds to continue growing. which leads to compressed margins,
They were inherently unprofitable. which leads to an increased burn
Any mention of layoffs pre-COVID is a rate, and ultimately setting the STR
good indicator of the STR operators operator up for failure to fulfill rent
most at risk of default today. obligations when the going gets
tough. Large balance sheets and
So, why should multifamily massive funding rounds certainly help,
professionals care? We are now but as we’re seeing COVID unfold,
reminded in this post-COVID world the largest players are perhaps the
that any commercial tenant’s ability most vulnerable to economic shocks
to pay is not only correlated with the due to their low margins and reliance
amount of their cash reserves. An STR on VC funding to keep the lights
operator’s ability to pay rent is more on. In winner-take-all markets with
accurately a function of their cash high gross margins, Reid Hoffman’s
runway (Cash Runway = Total Cash Blitzscaling technique of growth-
Reserves / Burn Rate), especially in a at-all-costs makes sense, but in the
downturn. This formula is important capital-intensive world of real-estate,
to consider before signing a master the risk of hypergrowth outweighs the
lease with dozens of units, because reward.
it may lead to STR market saturation,
Frontdesk Suite
Fort Worth, TX
Navigating Multifamily Short-Term Rentals in a Post-COVID World
Accelerated Convergence
If there’s one company that fits Daniel continued to describe to me
squarely in between the hospitality the two categories of multifamily STR
and real estate industries, it’s operators today who are predicted to
RealPage®. If you haven’t seen it yet, face two different fates:
here’s a link to the webinar that they
released, titled COVID-19: Impact 1. Professional STR Operators
on Short-Term Rentals. RealPage 2. Not-So-Professional STR
is not only the leading real estate Operators
technology provider, but they also
know a thing or two about the STR Generally speaking, the 80/20 rule
space with their Kigo business unit, applies here as well, estimating that
which was acquired in 2014 and has 20% of the STR units managed by
been rapidly growing ever since. I had not-so-professional operators, or
a chance to catch up with Daniel P. bad actors, are bringing 80% of the
Bowen, General Manager at Kigo, A harm to the industry. For example, Vice
RealPage Company, to probe into his uncovered a nation-wide scam in late
mind. 2019, causing both owners and guests
to double-check their references. In
Daniel mentioned on the RealPage the multifamily context, these bad
webinar that “This black swan event actors are the same tenants that are
is forcing a convergence of short- listing on Airbnb, Vrbo and other STR
term and long-term. These multifamily listing sites without explicit permission
operators are going to realize that by their landlord, resulting in lease
their exposure to these events is violations. The professional operators,
larger than they thought.” I asked on the other hand, are not only given
Daniel to elaborate. explicit permission to operate by the
“
landlord, but they are also the most
likely to ensure safety & security
I think that this event
standards are implemented by default:
has accelerated the
Unique lockbox codes for every stay,
convergence of the
criminal background checks on all
short-term and long-
reservations, and 24/7 active noise
term rental industries
monitoring and enforcement in all
by probably three units, for example.
years. Everyone in the
industry has seen it Daniel’s thesis? The 20% of bad
Daniel P. Bowen coming, some have had actors will likely die off quickly, while
GM their head in the sand, the remaining 80% of the more-
and most are realizing professional STR operators may
this has to happen survive but not unscathed: They will
faster than previously
”
soon be held to higher standards.
intended. The question is, who defines these
standards? Let’s come back to that.
7
Frontdesk Suite
Minneapolis, MN
Is There A Future for STR
in Multifamily?
So, with a handful of STR operators Donald pointed my attention to the
either going out of business or firmly Great Recession where many well-
seeking rent relief during the COVID known corporate housing operators
lockdowns, will multifamily operators sparked negative publicity for not
move away from their STR partners paying rent and leaving landlords
once and for all? Donald Davidoff, high and dry across the country. Well,
founder at D2 Demand Solutions and corporate housing is still alive and well
a thought leader in multifamily yield today, and other than Gables and a
management, doesn’t think so. handful of other ambitious and niche
“
property management companies,
Some STR companies will most of the corporate housing
merge or go out of operations are still handled by third-
business, creative party operators like VIP & National
destruction in the long Corporate Housing. If there is a
run. The industry will playbook for the relationship between
come back, there’s STR & multifamily operators post-
enough big business COVID, it would be to examine how the
behind it. It will suffer corporate housing giants navigated
Donald Davidoff post-Great Recession in 2008 while
Founder and undercapitalized
companies will churn, but keeping in mind the big difference
it will come back. There between these two recessions: stocks
could very well be another plummeted in 2020 in a matter of
10-year bull market on the weeks, not months.
”
other side of this!
8
Navigating Multifamily Short-Term Rentals in a Post-COVID World
Multifamily’s “OTA
Moment”
I believe that the multifamily industry years to solve their vacancy problem,
as a whole is currently facing an hotel owners/operators flocked to
inflection point as it relates to STR. OTAs (Online Travel Agencies) like
This could be the moment in history Airbnb, Expedia and Booking.com over
that defines the relationship between the past decade to solve the same
these colliding industries. Not only problem. Hotels operators today will
do multifamily operators have more be the first to admit that they are too
options to choose from in light of their heavily-reliant on OTAs, but that’s just
STR lease re-negotiations, but they the way it is in 21st-century hospitality.
also have just enough data from the Rather than avoiding OTAs, hotels
past few years to see how this will constantly work toward diversifying
really play out in the coming 10-years, their channel mix and reinforcing their
in both good times and bad. direct-to-consumer brand in efforts
to reduce reliance on any one supplier
So, will multifamily operators finally of leads.
bring their STR operations in-house?
Will they ban STRs in their communities So, is multifamily looking at their “OTA
altogether? Or will they pick up where moment” head-on or in the rearview
they left off before the world hit mirror? Well, my personal opinion
“pause” and simply use this learning is that the multifamily industry’s
lesson to beef up their master-lease opportunity to regain control left the
agreements? moment that real estate developers
broke ground on properties with STR
Well, let’s look at the hospitality revenue as an underlying assumption
industry for comparison. Just as for profitability. But that doesn’t mean
multifamily owners/operators have that it’s too late to take action.
worked with STR operators over the
“Ifhaven’t
multifamily operators
formed a formal STR
strategy, now is the time.
”
- Daniel Bowen, GM at Kigo
9
Frontdesk Suite
Phoenix, AZ
A Path Toward a
Sustainable Future for
STRs
We’re too far in at this point to turn are a financial and operational risk will
back now and kiss STR goodbye in likely not hold up as well today. STRs
urban multifamily properties. When are here to stay. Rather than avoid
your owner complains that the the disruption, why not embrace it,
multifamily property you manage using it as a tool to outperform your
is below the average submarket competition?
occupancy rate, the excuse that STRs
10Navigating Multifamily Short-Term Rentals in a Post-COVID World
So What Broke, Anyway?
Before we work toward a sustainable followed suit, accelerating the Master
path forward for multifamily STRs, Lease model.
“
let’s look at what got us into this
mess in the first place. If there’s one Companies like Sonder,
thought leader who excels at making Lyric, Stay Alfred, etc.
accurate STR industry predictions, it’s have taken out huge lease
Simon Lehmann, Co-Founder at AJL commitments. Very few of
Consulting and previous board them will survive, simple
member and/or executive to as that. None of them can
companies including HomeAway, Simon Lehmann service their debts. This
Co-Founder
Vacasa and Phocuswright. model will disappear just
”
as quickly as it evolved.
Simon has been arguing for years
now that the Master Lease bubble will
soon burst. Master Leasing, otherwise Until the Black Swan of 2020 known
known as Rental Arbitrage, is the act as COVID-19 reared its ugly head, the
of renting a property long-term and multifamily industry was thought to
then re-renting it on a short-term be immune from this foolish spending
basis on Airbnb, Vrbo, or other vacation of venture capital. A Master Lease
rental listing sites. After WeWork’s IPO appeared to be a great deal for the
struggles in 2019, the industry seemed multifamily operator: Guaranteed
to finally agree with Simon that Master revenue, high renewal rate, virtually
Leasing is not sustainable, but by then no marketing cost, and liability that
it was too late: VC-backed Master is offloaded to the STR operator.
Lease startups like Sonder, Stay Alfred, But now, in a post-COVID world,
Lyric, and Domio had already raised the multifamily industry is realizing
many hundreds of millions and were that when the STR operator feels a
aggressively signing apartment units squeeze, so do they. According to the
by the tens of thousands via 1-10 year WSJ, Sonder “has negotiated more
lease commitments. Most sales teams than $20 million in [rent] concessions
in this cohort were rewarded based on and hopes for more.” To make matters
the number of leases signed with no worse, these STR operators are often
incentive to sign the more profitable the sole tenant of a given multifamily
leases. Predictably, soon after, the building.
get-rich-quick real estate copy-cats
Frontdesk Suite
Atlanta, GAFrontdesk Suite
Milwaukee, WI
Beyond the Traditional
Master Lease
So, if Multifamily STRs are here to stay, but the Master Lease bubble is thought
to have popped, what will these agreements look like in 2021 and beyond?
Moving forward, STR agreements must be sustainable to the STR operator,
without reliance on venture capital subsidies, in order to also be sustainable for
the multifamily owner. We’re seeking a win-win outcome in both good times and
in bad.
Here are a few proposed alternatives to the traditional long-term Master
Lease:
• Shorter-Term Master Lease • Revenue-Sharing Agreement: 25-
Agreement: 12-month or less 50% management fee with no
commitment with a rent guarantee, rent guarantee, similar to hotel
allowing for units to more easily flex management agreements, allowing
back into the long-term market for shared risk/reward between
pool when travel demand dips. owner and manager.
• Undersaturated Master Lease • Hybrid Agreement: 25-75%
Agreement: 10% cap on STR leases management fee with a 25-50%
per property with a rent guarantee, market-rate rent guarantee, also
allowing for adequate diversity allowing for shared risk/reward
in revenue streams, along with between owner and manager
maximizing profitability for each STR but also providing a guaranteed
unit. minimum to show the CRE lenders.
12Navigating Multifamily Short-Term Rentals in a Post-COVID World
• Technology Services Agreement: another day by reducing their April-
10-25% management fee for all June rent obligations, and it’s a win
remote management services like for the property owners who get
dynamic pricing, digital marketing, compensated for their generosity in
customer service, screening, the short term in exchange for making
access, and security management, above market-rate rent on their STR
where the property is managing units when travel rebounds. After all,
the on-site needs like furnishing, why would a multifamily owner share in
cleaning, and lock-outs. the STR downside without also sharing
in the upside?
We may very well be moving beyond
the traditional Master Lease As Steve Winn, Founder and CEO at
agreement in multifamily STRs sooner RealPage, said during his presentation
than anyone thought to be possible. at the 2019 Flexible Rentals
In fact, many STR operators today Conference, “It’s only a matter of time
are converting their Master Lease before the owner raises their hand
Agreements into Revenue-Sharing and says ‘I want a disproportionate
Agreements of sorts, at a rapid pace, share of this yield’ - it’s coming.” The
and that’s a good thing. It’s a win good news is that most STR operators
for the STR operator who gets to live want this as well.
Frontdesk Suite
Cincinnati, OHNavigating Multifamily Short-Term Rentals in a Post-COVID World
The Rise of Mixed-Use
Communities
Mixed-use communities* vary in of the property owner to individual
use, with buzzwords including co- renters. It creates sustainability.
living, living-as-a-service, travel Owners, managers and residents
apartments, STR, hospitality suites, can all get behind this. We see it
resident home-sharing, and flexible intuitively when older people rent out
living. But they share the common rooms in their homes. That sharing is
challenge: managing a wide diversity good for them socially and financially.
of occupants, all living together in Why not for everyone who wants it?
a harmonious way, with the goal of Where we have failed is focusing on
increasing the property NOI (Net master leasing, which creates financial
Operating Income). benefits for the owner and master
lessee, but less clearly for existing
On stage at the inaugural FLEX Flexible residents.”
Rentals Investment Conference in 2019,
Steve Lefkovits, Executive Producer Steve also agrees that the digital
at Joshua Tree Conference Group, nomad lifestyle is a real thing and it’s
captured the energy in the room by not going away. In fact, Airbnb may
saying: be at the forefront when the digital
nomad lifestyle hits the mainstream.
Brian Chesky, Airbnb’s CEO, mentioned
“
during a Skift Livestream recently
Let us recognize that he thinks this will be a “huge
that we are at part of Airbnb,” Chesky said, referring
the dawn of to multi-month or “indefinite stays,”
a whole new with some people opting to avoid
Steve Lefkovits
asset class in rental leases. In fact, monthly stays
”
Executive Producer were already 15% of Airbnb’s business
multifamily.
before the pandemic, and are
currently at near 50%. This trend may
very well be accelerated by COVID
when WFH (Work-From-Home) turns
into WFA (Work-From-Anywhere).
I caught up with Steve to hear more on
the topic. “Homesharing is one key to One might argue that monthly stays
urban affordability,” Steve points out. on Airbnb are just a means for survival
“When renters can rent their homes, and a passing fad in light of the
they earn money, which helps them current travel restrictions across the
stay tenured in the community. You’re globe, but I would argue that Airbnbb
passing on the wealth generation is simply accelerating its play into
14 * Mixed-Use Communities: Usually 5-20% short-term units, effectively an apartment. Compared to Apart-Hotels: 100% short-
term apartment-style units, effectively a hotel.Navigating Multifamily Short-Term Rentals in a Post-COVID World
the long-term rental market in light heat of the last recession, proving
of COVID (see Airbnb’s acquisition of that consumer habits stick, and this
Urbandoor and their investment into crisis might be the catalyst needed to
Zeus Living in 2019 for context). Their finally propel Airbnb into the long-term
core travel business was forged in the rental market.
“Iwill
think [monthly stays]
be a huge part of Airbnb.
” - Brian Chesky, CEO at Airbnb
Frontdesk Suite
Jacksonville, FLFrontdesk Suite
St. Louis, MO
A Call for Industry
Standards
Mixed-use communities may make reliable operators. Mickey Kropf,
sense economically for both the former Co-Founder & COO at Rented.
owners and residents, but the com, decided to start his own STR
bigger challenge remains that most management company Vector Travel
multifamily communities were not based on firsthand experience. Vector
physically designed to accommodate is known for going all-in on revenue-
this cutting-edge use of space. The sharing agreements while others
STR technology toolkit could be used went the way of the master lease.
to help us unlock the utopian, and not For all the master lease operators
dystopian, future for these mixed-use who focus on arbitrage, there are a
communities. Technology ranging from handful of reputable service-oriented
instant screening to smart access management companies, like Vector
control is already in use today to Travel, who put an emphasis on
maximize the safety, comfort, and the neighbor experience, including
security of all community occupants. standards such as noise monitoring,
But technology alone can’t manage background screening, and client-
these new-age communities. We need facing dashboards.
proper execution and repeatable,
16Navigating Multifamily Short-Term Rentals in a Post-COVID World
industry responds right now. This is a
“
crucial time in our industry. We need
We strive to be to lead within the industry to coalesce
a good steward and create new standards.”
of the asset
and a good Simon Lehmann, Co-Founder at AJL
Mickey Kropf neighbor to the Consulting shares a similar sentiment,
”
CEO
residents. citing a recent Phocuswright study,
revealing that the top reason travelers
stick to traditional accommodations
like hotels is due to safety concerns.
David Krauss, founder of Rent “Safety & Cleanliness are the most
Responsibly says “The future of the important standards we need to
industry will be driven by how the STR create.”
Frontdesk Suite
Columbus, OHNavigating Multifamily Short-Term Rentals in a Post-COVID World
Proposed Standards for
Mixed-Use Communities
To summarize, industry standards, specifically those around safety and security,
are not only critical for the well-being and happiness of long-term residents
in a mixed-use community, but they are also critical for increasing consumer
demand for STRs. It seems that conceptually, our industry agrees here. But
practically speaking, who is actually creating and enforcing these standards?
Well, multifamily owners and operators who sign leases or other agreements
with STR operators may be in the best position to enforce standards. If you’re
a multifamily owner or operator, and you’re not already asking these questions
to your STR operator or adding these requirements into your agreements, you
may be missing a large opportunity to reduce the risk profile at your mixed-use
community.
Criminal Background Screening: Are Secure Building Access: Are you
all STR reservations screened to providing unique access codes for
the same standards as long-term every stay? Is it possible for past
residents in the community? Who guests to gain entry to the building
is your screening provider? Are you after checkout? Do you ensure that
compliant with local fair housing codes aren’t provided until a guest
laws? has completed their ID verification
and criminal background screen?
ID Verification: How are you verifying
their information? How protected Guest Risk Scoring: Do you have a
are you against fraud? Does the blacklist to prevent bad actors from
name on the reservation match the coming back? Are you accepting
name on the credit card or the ID? reservations from guests with no or
negative reviews on Airbnb? How do
Active Noise Monitoring: At a you handle local reservations?
minimum, do you install Wi-Fi enabled
noise sensors in all units? How do you Property-Facing Dashboard: Will you
monitor the noise alerts throughout provide a daily occupancy report, or
the night? What is your average % a live dashboard to show me who’s
uptime for these sensors? Do you in my community at all times? Will
set the noise thresholds to match this share the guest’s screening
the community quiet hours? How do results, the number of people on
you calibrate the sensitivity of the the reservation, and guest contact
sensors? information in case I need it?
18Navigating Multifamily Short-Term Rentals in a Post-COVID World
Compliance Enforcement Policies: Community Perks: What do my
What exactly are your house rules, residents get out of this? Do they
and how do you enforce them? get discounted stays for friends and
What happens when a guest is family in our community? Do they get
disruptive? Which local security firm promo codes for stays in your other
do you partner with? Are they on-call communities? Do you offer to help
24/7/365? manage their Airbnb units?
24/7 Boots on the Ground: If any Insurance Protection: What
issue should arise, how quickly would insurance do you offer besides OTA
your local manager arrive? Are they host guarantees? Is our building
also on-call 24/7/365? Do I have listed as a co-insured? What’s your
permission to call their cell phone to per-incident and your aggregate
wake them up if needed? total coverage?
24/7 Neighbor Hotline: How do you Certified Staff: Do you hire
resolve disputes with guests and cleaners in-house? If not, how do
long-term residents? Is that our job you vet your providers? Are you
or your job? Do you have a 24/7/365 running background checks on your
hotline where our residents could cleaners? What level of training do
reach out with any issues or answer you provide before they are granted
any of their questions? Do you have access codes to our community?
a trust and safety team?
A Note on Revenue-Sharing Agreements: Perhaps one of the most under-
appreciated values of revenue-sharing agreements is the direct alignment it
creates between an STR operator and multifamily owner, as it relates to the
balance of risk vs. reward. For example, owners who expect guaranteed monthly
rent payments as opposed to a share in the revenue are more incentivized to
reduce their STR risk (ie. minimum stay restrictions, minimum price restrictions,
and prohibited OTA channel restrictions) at the cost of the STR operator’s
margin and sustainability. By sharing in both the risk (bad actors) and the reward
(revenue), the owners and STR operators can work more collaboratively toward
win-win solutions to strike the proper balance.
Frontdesk Suite
St. Paul, MNNavigating Multifamily Short-Term Rentals in a Post-COVID World
The Defining Moment
Bill Gates called COVID-19 the “defining doesn’t seem to be as robust as
moment of our lifetimes.” Similarly, once promised by a handful of STR
the pandemic is also proving to be operators.
the defining moment in the early STR
industry. Never before in this young Maitri Johnson, Multi-Family Vice
industry have we seen so many lease President at TransUnion Rental
agreements being renegotiated Screening Solutions, says “It’s a
simultaneously. Virtually all urban STR standard for property management
operators are begging for some form companies to do criminal background
of rent relief right now, whether it’s checks, so why is it allowable for STR
early terminations, rent concessions, operators to not be held to the same
reassignments, etc. standard? It’s still not widespread
enough, it needs to be standard
In a moment where most see practice.”
problems, Aryn Self, Dallas-based
“
attorney at Munsch Hardt Kopf &
Harr, PC, sees opportunities. Aryn In this uncertain
has negotiated many STR contracts environment, trust
in her career, typically representing becomes even more
multifamily owners and operators. of a currency. Having
the confidence and the
“
comfort to know that
This crisis could be an every reservation has
opportunity to sit down had a background screen
Maitri Johnson gives the owner at least
and renegotiate.
VP another thing not to
Multifamily owners &
operators typically turned have to think about.
a blind eye to operational It’s an opportunity for
issues when their STR an STR operator to
”
operators were paying differentiate.
Aryn Self rent on time. But now
Attorney that the agreements are
reopened, they see an Paying a third-party like TransUnion
opportunity to better or Autohost to manage the STR
enforce the claims that background checks and risk scoring
were made when the lease may eat into the bottom line, but
”
was originally signed. there’s value in the credibility of these
brands. These pioneers are providing
the STR industry with the first set of
Aryn specifically mentioned criminal multifamily-approved tools, which is
background screening as a common great. But background screening is
pain point for owners. The process just the tip of the iceberg.
20Frontdesk Suite
Charlotte, NC
Industry Predictions
As hard as it is to predict the future amidst such an uncertain time, it is fun. So
please, humor me here.
1. Many leases will trade hands, collateral. Many landlords will
and some landlords may even have both the blessing and the
insource their STR operations. curse of inheriting fully-furnished
If massive layoffs and closure apartments, as a subtle memory
of units are any indication, it’s of those one-trusted, and now
likely that one of many of the insolvent, STR partners. They could
STR behemoths will go out of choose to rent the unit as-is as a
business, merge, or become long-term furnished apartment,
acquired as distressed assets. but in reality, most dense urban
Airbnb may even be one of the markets will have more supply than
buyers. The STR market has been demand for long-term furnished
ripe for a private-equity-style leases. Alternatively, they could
rollup given how fragmented and choose to dip their toes into STRs
regional this service-oriented by offering mid-term furnished
business is. So, what happens to leases, or they could choose
all of that furniture in units that to go all-in and use a tool like
aren’t included in an M&A roll- ApartmentJet to self-manage the
up? Well, either it will be sold as STR units, especially if they have
pieces, moved into storage, or reason to believe there is a high-
left with the property as profit potential.
21Navigating Multifamily Short-Term Rentals in a Post-COVID World
2. Flex Rentals will be the new also compete for this emerging
Short-Term Rentals. As with any market between hospitality and
Darwinian environment, the STR real estate, advertising more
operators who can best adapt aggressively for mid-term rentals.
to the post-COVID world will have
the highest chance of survival. 3. Revenue-Sharing Agreements
Furnished apartments can easily will outnumber Master-Lease
be advertised as weekly or Agreements with Urban STRs.
monthly rentals just as easily as Many STR operators saw the
nightly rentals. We are already writing on the wall post-WeWork
seeing an incredible amount of but pre-COVID. We, as an
STR units that are now hitting the industry, recognized the inherent
market as medium-term rentals risk associated with guaranteed
and, as such, tenants will form rent payments. Coworking
new apartment-hunting habits. startups like Industrious came
Not only will they add Airbnb to out during the WeWork struggles,
their search along with Zillow singing the praises of their
and Apartments.com, but they revenue-sharing/management-
will also come to understand model agreements, as they
that there are financially-viable are more resilient in any future
options other than signing a expected economic downturn.
BYOF (bring-your-own-furniture) Venture Capital will likely now
12-month apartment lease. flow more to the sustainable
Given the uncertainty in the and resilient startups, and
world, they may pay a higher therefore the multifamily industry
rate to have the flexibility of a will likely have more pressure
month-to-month lease. Once to move away from master-
they experience the low friction lease agreements. After all, the
and instantaneous nature of multifamily property owners are
booking an Airbnb monthly rental, already sharing in the downside
the pressure for multifamily with the onslaught of STR lease
property managers to up their rent abatements and deferments
technology game will continue to happening now anyway, so why
increase (See “Virtual Leasing” not share in the upside as well?
for example). Airbnb and Zillow will
Frontdesk Suite
Kansas City, MONavigating Multifamily Short-Term Rentals in a Post-COVID World
4. Digital Nomads will go rebound, it always does, whether
mainstream. Yes, travel could it’s via V, U, W, L or my favorite,
very well have a slower rebound Nike-Swooshed-shape recovery.
than the rest of the economy, Booking Holdings (-17%), Expedia
and yes, business travel will likely Group (-40%) and other OTAs
take even longer to catch up, experienced massive drops in
but there is also a whole new valuation over the past month,
category of travelers emerging: along with Airbnb who just raised
The Digital Nomad. Working $1bn “in a combination of debt
from home will no longer be a and equity securities.” Wall
perk, it will be a requirement Street Journal wrote on April 7,
for any company seeking to 2020 that the $1 billion recent
attract high-demand tech-savvy investment included debt at a
employees. This newly-found 10% interest rate and “warrants
freedom that today’s knowledge that can be converted into
workers will find will propel the shares with a valuation for the
trend of digital nomads who can company of $18 billion.” Airbnb
keep up with the demands of a may be wishing they went public
legitimate career while living life in 2019 now, and they have upset
on the road. To appeal to these many hosts with their liberal
Digital Nomads, apartment COVID-related cancellation
leases could bend either in policy, but they are successfully
the direction of T-Mobile (no continuing to raise money and
commitment, flexible terms) they are winning over the guests
or ClassPass (long-term and the public with a trusted
commitment to a network of consumer brand. Ultimately,
apartments across the world, the host community will follow
not just one. For example, see wherever the travel demand
Landing). is found, even if they do so
begrudgingly, assuming Airbnb
5. Airbnb will come out ahead. can quickly pivot into the long-
While STR revenue fell off a cliff term rental market to continue
in Q2, the demand did not go delivering leads to their host
anywhere. Travel will eventually community.
Frontdesk Suite
Cleveland, OHFrontdesk Suite
Scottsdale,AZ
“One thing COVID is telling us is
that we have to stand together
closer than we ever did before.
”
- Simon Lehmann, Co-Founder at AJL Consulting
Final Thoughts
In summary, our industry greatly COVID-19 is not the first crisis faced
needs a set of industry-recognized by our industry, and it certainly won’t
standards for the safety, security, be the last. Multifamily owners and
and comfort of both the long-term operators are tough and they are
residents and the short-term guests. resilient. I have no doubt that they will
Multifamily short-term rentals are here get through this, and when they do,
to stay. As strange as it seems, this they will come out even stronger on
could be the best time for multifamily the other side.
owners and operators to redefine
their STR strategy for many years to
come.
24About Frontdesk At Frontdesk, we value safety, security, We are the preferred STR partner and comfort above all. We’d love to in over 100 apartment communities be considered your trusted short- and trusted by top NMHC Managers. term rental partner at your multifamily Our multifamily offerings range from community or organization. white-glove to white-label. Founded in January 2017, Frontdesk Learn more about us at: is a tech-enabled short-term www.stayfrontdesk.com/partner apartment rental startup based in Milwaukee, WI with over 500 suites in Want a free consultation? 28 cities across the United States. jesse@stayfrontdesk.com Disclaimer: The content here is for informational purposes only, should not be taken as legal, business, tax or investment advice or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any company that is mentioned here.
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