Quantcast

The Real Deal Los Angeles

Sand dollars

Homeowners in Coachella see stratospheric profits in peak season rentals amid growing concerns about short-term leases
By Natalie Hoberman | April 20, 2018 06:00AM

Beyoncé during her 2018 performance at Coachella, and The Cielo Rock Estate (Credit: Getty Images)

This year, it was estimated that roughly 125,000 people would show up to the Coachella Valley Music and Arts Festival during the weekends of April 13-15 and April 20-22 to see Beyonce, Eminem and the Weeknd headline the trendy festival.

With the growing popularity of the event, another trend has emerged in the Coachella Valley — and it’s helping Angelenos pocket several thousands of dollars. Young entrepreneurs are raking in immense profits by buying homes in the desert region for the sole purpose of renting them out in the festival season.

“Even if it’s an $800,000 house and not that special, [renting out] a four-bedroom house for every festival will pay all your property taxes in a short week,” said Madison Hildebrand, a luxury broker at Pacific Union.

Festival rentals provide an “opportunity to part-time residents to make an investment knowing that they also have additional revenues that they can subsidize, and that has made a huge boom in the real estate industry,” said Aftab Dada, managing director at the Hilton Palm Springs.

On home-sharing platform Airbnb, options for the Coachella festival weekend start at $300 a night for a single bed in a shared room and range up to $2,000 for a three-bedroom house. A private home in non-peak season might cost an average of $200 per night, with the luxury homes clocking in at $700 per night.

Richard Bartholomew, an Agency broker based in Palm Springs, said large estate properties will rake in anywhere from $50,000 to $100,000 for a single weekend. The average house, he added, will probably rent for three times the standard price.

“I have clients that usually don’t do vacation rentals, but they’ll move out of their house for those two weekends because it’s such a cash flow,” Bartholomew said.

The increase in festival rentals has even contributed toward an uptick in home prices in the region, sources said. In just one year, the median home price in the Coachella Valley rose 13 percent, to $390,000, in February 2018, according to Market Watch, which tracks home values for the California Desert Association of Realtors. That’s an increase from $200,000 in February 2002, when the festival was still in its infancy.

“You have big celebrities like Leonardo DiCaprio who are bringing the young, hip crowd to Palm Springs,” said Martin Beaurivage, CEO and co-founder of the concierge service Elite Luxury Homes. “All of these A-listers bought houses, and still the property value is not even 30 percent in comparison to property in L.A.”

Beaurivage’s company is just one of many that have sprung up to serve ancillary needs created by the local music festivals. Elite Luxury Homes arranges a VIP experience for clients attending the events. The firm, which serves companies looking to host events, as well as individual partygoers, takes care of finding a home for groups, as well as arranging a driver and security and even snagging a few VIP passes to the festival for a 20 percent service fee.

The leases Elite arranges rake in anywhere between $15,000 to $80,000 for the weekend, with a four-night minimum stay. From that, homeowners will net about $10,000 to $50,000 from a single weekend, Beaurivage said. Most of the homes are also pocket listings and not found on typical home-sharing platforms, which adds a level of exclusivity to the experience.

Rumor has it Beyonce dished out $75,000 a week to crash at a desert mansion this year, according to Hildebrand.

Hospitality’s not hurting

Although the hotel industry has come out in full force against home rentals in other markets, those in Coachella Valley are far more friendly to the trend.

“All of us in the Valley consider vacation rentals as complementary to the hotel industry,” the Hilton’s Dada said. Unlike other major metropolitan markets in New York or Chicago, our business is in the weekend. All of us unanimously support the vacation rentals.”

Like the Coachella Festival’s effect on home prices, the event has a similar influence on hotel room prices, though not quite as drastic. Rates can start at $300 a night for a hotel room and range as high as $900 during the festival weekends, up from the usual $125 to $400 nightly rate, Dada said.

The increase in rates has been growing steadily each year. In 2012, the revenue per available room for April had grown 123 percent from the year prior, according to a Palm Springs report from hospitality data firm STR Global. More recently, that number has skyrocketed to 240 percent year-over-year growth.

The Hilton Palm Springs hotel often sells out a year in advance of the festival dates, with most people securing rooms even before the lineup of performers is released, Dada said. The hotel is already all booked for 2019.

Legislating rentals

Despite support from the hospitality sector, the fate of many of these short-term rentals will be decided in June, when Palm Springs residents will get to vote on an ordinance that could eventually phase out rentals in the city.

As is the case in Los Angeles, city officials in Palm Springs have been trying to find ways to curtail home-sharing platforms like Airbnb from exacerbating California’s housing shortage (see our story on page 46).

In March 2017, the city passed a short-term rental ordinance limiting landlords to 36 rentals a year and prohibiting such rentals in apartments. Vacation rentals taking place in apartments have until Jan. 1, 2019, to shutter all operations.

In the fiscal year 2016 to 2017, tax income from vacation rentals clocked in at $7.58 million, according to a report published by the City of Palm Springs. By December, the total number of registered vacation rentals or homeshares was 1,986.

On June 5, voters in Palm Springs will decide whether they want to modify the city’s rental ordinance to phase out short-term rentals in residential zones. Should the measure pass, the city could lose more than $200 million annually, as well as 74 percent of available vacation units, according to an economic impact report published by consulting firm Tourism Economics.

The Agency’s Bartholomew said many don’t expect the vote to pass. “Palm Springs in particular gets so much tax revenue from their vacation rental business,” he said. “It’s what Palm Springs is all about.”