Airbnb sees blue skies in NYC

While the website is taking heat from the hotel industry, it says number of Big Apple users is on the rise

Oct.October 31, 2011 07:24 PM
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Top row, from left: Company founders Joe Gebbia, Nathan Blecharczyk and Brian Chesky. Bottom row: A sampling of some of the deals listed on Airbnb last month and their nightly rates (from left): apartments on the Upper West Side, on the Lower East Side and in Harlem

In late June, a San Francisco woman blogged about a nightmare experience renting her apartment through the increasingly popular online listing service Airbnb. She had returned from a week of business travel to “an apartment that had been ransacked” and burglarized, right down to an allegedly photocopied Social Security card.

Horror stories followed from other locations, too, throwing the three-year-old Airbnb, then on its way to raising more than $112 million in fresh capital and securing a valuation of $1.2 billion, under a national microscope and prompting elected officials to flex their regulatory muscles. (The company counts actor Ashton Kutcher and a slew of venture capitalists as investors.)

New York State had, less than a year before, enacted legislation that banned renting out Class A residential spaces — apartments intended only as permanent, rather than transient, residences — for less than 30 days. The move was prompted, in large part, by complaints from those living next to apartments rented on the website, as well as from the Hotel Association of New York City, a trade group that was concerned about short-term rentals eating into the city’s hospitality business.

The horror stories reignited calls from the city’s real estate and hospitality industries to crack down on residents who were treating their apartments as de facto hotel rooms — and cheap ones at that. Last month, The Real Deal found a furnished one-bedroom on West 91st Street advertised for $139 a night. Downtown, on Greenwich Street, a studio (espresso maker and queen bed included) was going for $150 a night. And, that is as the average daily rate for a Manhattan hotel room hovers north of $260.

From the industry’s perspective, Airbnb is in violation of a state law that took effect in May and, through its occasional noncompliance, escapes operating costs like taxes, and the cost of fulfilling safety requirements and providing on-site labor. The law, aimed originally at landlords running apartment buildings as hotels, allows short-term rentals — ostensibly Airbnb’s bread and butter. But there’s one gray area: The owner or the tenant must be in residence during the rental period.

And therein lies the rub — a lot of Airbnb listings advertise entire apartments, rather than individual rooms.

From Airbnb’s perspective, it is operating, as spokeswoman Emily Joffrion put it in an email, “an open marketplace where people can list their extra space.” Also, the company’s terms of service agreement, which users must agree to, requires compliance with local and state laws.

The legislation and the controversy don’t appear to have hurt Airbnb in New York — at least according to the company, which provided The Real Deal with data on how many users it has in the Big Apple.

Until now, there has been little beyond anecdotal evidence regarding Airbnb’s impact on the New York hospitality industry (third parties, like brokerages and hospitality consulting firms, do not track the site).

Joffrion said that the number of city properties listed through the service had increased, on average, 35 percent per month since September 2010. In mid-September it had more than 6,000 total properties in New York City, including 2,000 priced as monthly rentals.

Most of the company’s New York listings, Joffrion claimed, “are situated in neighborhoods through Manhattan and Brooklyn, [in areas] where there are few hotels.” The priciest New York deal to date through the site, she said, was $15,000 for 52 nights at a one-bedroom, two-bathroom loft in Soho. The longest local reservation so far was for 162 nights for a one-bedroom apartment on Flushing Avenue in Brooklyn; the renter paid $11,000, she said. (Neither comes close to the Airbnb world record holder: $46,000 spent for a Paris apartment for 10 months.)

At the summer’s peak in August, the average New York Airbnb host rented his or her New York home for 16.1 percent of the month — or five days. The average Airbnb stay in New York was six nights as of mid-September — about twice the average for the city’s hotels.

“Unlike hotels, we don’t measure occupancy on availability,” the spokeswoman said. “This stat is calculated on nights booked per month, so again, we aren’t looking at apples to apples in this comparison.”

The bad publicity emanating last summer from San Francisco, its home base, did force Airbnb into what its top executive called “a crash course in crisis management.”

In late July, CEO Brian Chesky, who founded the company with Nathan Blecharczyk and Joe Gebbia, announced in a blog post that Airbnb would, starting Aug. 15, cover up to $50,000 in losses or damage due to vandalism or theft for those renting out their homes. The policy was also extended retroactively to anyone whose home had already been damaged. In addition, the company introduced a 24-hour customer service hotline.

Despite the bad publicity, Airbnb listings over the last year have jumped coincidently with explosive growth in New York tourism. In 2010, the city drew a record 48.8 million tourists, who pumped over $31 billion into the local economy, according to the Bloomberg administration.

More are expected for 2011. That means there should be enough visitors to satiate both hotels and Airbnb listings — except, say, hotel owners in some segments of the industry at certain times of the year. For example, during off-peak months, like January and February, Airbnb’s Soho lofts and Brooklyn one-bedrooms can dent the demand for New York’s more affordable hotels, sources say. This is where the impact of the site is felt by the industry most acutely.

“When we sell rooms for $119, and someone in Brooklyn lists for $59, or even in Manhattan, it puts us at a singular disadvantage,” said Vijay Dandapani, president and COO of Apple Core Hotels, a chain of five Midtown inns, including the Comfort Inn Times Square, and vice chairman of the Hotel Association of New York.

This dent doesn’t mean the industry has started pricing itself against Airbnb’s rates, which can be as low or as high as apartment owners and tenants want them to be (The Real Deal found rooms at the Comfort Inn Times Square available for early this month starting at $239.99 a night, while a one-bedroom on nearby West 43rd Street was listed on Airbnb for $120 a night for the same period).

Instead, New York’s hotels and Airbnb seem to be eyeing each other warily. The site is barely into its fourth year and the industry is barely out of the recession.

“Everybody is consciously, on some level,” Dandapani said, “aware of what’s going on with Airbnb.”

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