As a mainstay of the American Dream–family home ownership– is declining, the land barons of the twenty-first century have been busy using that foundational yearning to disguise their true intent.
Dressing a corporate crusade as a defense of the small investor is a trick as old as the hills. It’s especially useful when the actual behavior –if known–of the corporate entities involved would be considered repugnant.
This was the crux of the successful petition drive leading up to the San Diego City Council’s rollback of regulations aimed at the overnight stay market locations in
My point in writing this column is not to opine on the specifics of the City Council’s regulations or debate the merits of rent control. I favor both in some reasonable–and I don’t know what that is–format.
We’ll never get to the question of what is or isn’t reasonable as long as the framing of these discussions depends on a faulty premise.
At this point, there are more than 5 million “hosts” using the service to book guests. I’ve had good experiences staying in AirBnb’s while traveling, and don’t think there is any way of reversing the trend.
The nefarious nature of AirBnB lies not in its intent, but in its climb up the investment ladder. The mantra of grow or die dictated by the nature of modern day funding mechanisms–the hedge funds and their ilk–created a new real estate investment paradigm.
Mom n Pop aren’t the future of the company. In fact, I’ll bet they’ll be increasingly marginalized in the not-very-distant future, as soon as the company works through its challenges in the regulatory arena.
Let’s go to Forbes for a look at what’s really going on:
And while most assume these are mom-and-pop operations — a rented out garage apartment down the street, your neighbor’s granny flat out back, or an open vacation home in the off-season — stats show that more and more pros are joining the game and leveraging this multi-billion dollar industry.
In fact, the National Multifamily Housing Council estimates that about 65% of recent Airbnb bookings were in multifamily buildings — places like apartments, condos and even in-the-works hotels.
The model seems strange for landlords and property managers who have historically made cash off long-term leases and rent costs. But when you dive down deep, there’s a lot of cash to be made — saved, even — by allowing shorter term tenants.
As the company heads towards its long-awaited Initial Public Offering (now postponed until sometime in 2020) it is increasingly turning to the real estate industry for growth and political muscle.
In Europe, the company is now partnering with Century 21. Renters are offered Airbnb-friendly leases, allowing sublets on the platform. In return, the landlord and Century 21 get cuts of 23 percent and 7 percent of the host’s take, respectively. And AirBnB still gets its cut.
The political muscle is especially as important and more localities, often responding to
But in the face of growing resistance from the hotel industry and increasing concerns about the impact of its service on cities, Airbnb’s campaign of earnest hosts will not be enough to win over lawmakers. It needs supporters who have substantial clout with politicians, and who see the value in its service not just as a way to help pay the mortgage but as a consistent revenue stream. These real estate company relationships could help to solidify Airbnb as a welcome and reliable service within communities, turning it from upstart to institution.
In other words, it needs to befriend the real estate industry.
Currently, Airbnb is piloting a number of tests designed to incentivize landlords and developers in several markets. In 2016, Airbnb launched its Airbnb Friendly Building Program, which lets United States landlords authorize their tenants to sublet on Airbnb, in exchange for a cut of the profits. (Today, an unreleased number of buildings, housing 26,000 units, take part in the sublet program, in return for a cut of between 5 and 15 percent of the host’s profit.) In 2017, the company partnered with a real estate developer to launch Airbnb-branded apartments (“powered by Airbnb,”) designed for short-term rentals. By shoring up its relationship with landlords and real estate companies, Airbnb is creating a new class of advocates who, it hopes, will help pressure regulators to make peace with Airbnb.
So, in San Diego, when it came time to fight back against an ordinance whose impact would have dimmed future prospets for institutional and corporate investors, the money to fund a recall effort was easy to raise.
What those Mom n Pop folks who fronted for the industry locally don’t see coming will be the drive to consolidate and/or incentivize available properties driven by a need to cut costs once the company goes public.
The Wall Street Landlords opposing Proposition 10.
David Sirota of Capital and Main, along with Andrew Perez of MapLight joined forces for a report published in the Guardian showing how the investments from California public employees and the state university system are being used to fund the opposition to Proposition 10.
Campaign finance records show entities controlled by the private equity giant Blackstone have been among the biggest sources of cash for opponents of the ballot measure. More than $5.6m has come from a Blackstone holding company and four of its investment funds.
But unlike typical corporate political donations, the Blackstone contributions didn’t come from the firm’s executives or corporate treasury. Instead, they came from pools of capital from investors, which include dozens of state and local pension systems, and public university endowments. The move has been described as the equivalent of mutual fund executives taking money out of customers’ accounts to make political contributions.
In effect, Blackstone’s maneuver means the opposition to the rent control initiative is being bankrolled by everyone from San Francisco municipal workers to university employees to public school teachers – all of whose retirement savings are in the Blackstone funds that have been tapped for the Proposition 10 fight.
Without getting too technical, let me inject a little history to put this in context.
Remember those mortgage-backed securitizations that got diced and sliced leading up the financial crisis of 2008?
Let me introduce you to rental-backed securitizations; the process of selling bonds backed by future rent checks. In 2013, Invitation Homes–owned by Blackstone– issued the first single-family rental-backed security for $500 million. Ten more companies have since entered the market, amounting to 37 securitizations and totaling $44 billion.
These larger companies are listed on the stock market, and by virtue of their size have made a key part of their financial strategy the extraction of additional revenue from their tenants in the form of fines and fees.
From an investigative report done by KCET:
Wall Street landlords like Blackstone’s Invitation Homes are accountable to their shareholders who are promised a high-profit margin. So far, the record of Wall Street landlords has been marked by unprecedented rent increases, a spike in evictions and a shifting of maintenance costs to tenants by nickel and diming their renters. Vanessa and Richard Bulnes learned the hard way. After years of fighting to get their corporate landlord to repair their roof and remediate the soil in their backyard — their landlord sent a maintenance person that informed them that he was responsible for 1,800 properties. Stories like this and countless more demonstrate their penchant for large rent increases and how challenging it can be to get repairs done by a very absent absentee landlord.
In California, rent increases by some of the largest Wall Street landlords have been astronomical. For example, Colony Starwood Homes reported that in Northern California rental renewal rates increased by 9-13%, the largest in the nation. This means that if tenants already living in a Colony Starwood home want to continue to rent, they must pay between 9 to 13% more each year. A survey conducted in early 2017 of Los Angeles County tenants renting from Invitation Homes and Colony Starwood shows consistently high rental increases in the Southern California market as well. Of the 100 tenants surveyed, 77% reported rental increases and the average reported increase was 9% or $171 per month.
These companies have acquired vast amounts of properties through proprietary software and algorithms allowing them to instantly bid on thousands of homes at auctions across the country.
Back to KCET:
It is not only tenants that are being harmed, but also prospective homeowners and communities located in Invitation Home’s “target areas” that are feeling the negative effects. Cash-carrying investors have been buying up many of the moderately-priced single-family homes, crowding out thousands of prospective first-time homebuyers. Not only is this making homeownership more difficult for many, but it leaves the neighborhoods where this is taking place with fewer homeowners.
Once again, my argument today isn’t on the merits of AirBnB regulations or city rent control ordinances. I’m speaking to whose stands to benefit from the way the current political discourse is being framed.
As is true with so many other areas of American capitalism, the myth of Mom n Pop is being used a shield for interests of the predatory persuasion.
It’s two sides of the same coin. Let’s try a new coin.
Finally, may I suggest The San Diego Free Press General Election Progressive Voter Guide, featuring websites, social media links plus more than three dozen candidate endorsements, along with yea or nay on 23 state, county, and city ballot
Also, for those of you with burning questions about the judges on your ballots: An Explainer on Electing Judges in California, including suggestions.
The November 2018 Cheat Sheet and Progressive Voter Kit has a little bit of everything, from our endorsements in a printable format, other voter guide info, and answers to questions about the process of voting.
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