Airbnb Is Getting a $200 Million Boost to Build Its Hotel-Like Apartment Business

If you can’t beat ’em, join ’em, as the old saying goes. That seems to be ringing true for some multifamily housing developers, who are just now beginning to explore the opportunities of building “Airbnb-friendly” apartments.

Today, you can count Brookfield Property Partners and Silverpeak Real Estate Partners as two of those landlords who see dollar signs in working with homesharing giant Airbnb.

Brookfield Property Partners announced it has entered into a $200 million equity investment program with Niido, a new hotel-like concept that Airbnb announced in October, and Silverpeak Real Estate has committed $20 million to the venture. Niido is being run by Miami-based Newgard Development Group and the $220 million being invested is going to Niido, not to Airbnb.

Their investments signal a shift in how landlords and developers are beginning to view Airbnb at a time when their peers are still fighting the company. Apartment Investment & Management Co. (AIMCO) is currently suing Airbnb to stop its tenants from illegally renting out their units on Airbnb.

Brookfield, in particular, is a major global commercial real estate player. Brookfield Property Partners has approximately $68 billion in total assets, while its parent company, Brookfield Asset Management, has more than $265 billion in assets under management. Its investment in Niido shows the company’s willingness to embrace homesharing, rather than fight it.

A Win-Win?

So why would landlords want to partner with Airbnb?

In short: because it can make them money. When Airbnb launched its Friendly Buildings Program in September 2016, the company sought to deliver a lucrative value proposition to multifamily housing providers: If you let your tenants rent out their apartments on Airbnb, we’ll make sure you get a cut of those profits, too.

Since the program’s launch, Airbnb said it had accumulated more than 10,000 listings globally within the program as of August 2017.

A survey conducted by homesharing platform Pillow, which has partnered with Airbnb to provide property management services for the Airbnb Friendly Buildings program, said that of all the nights booked on Airbnb in 2016, 65 percent were for apartment or condominium buildings. And a survey conducted by the National Multifamily Housing Council and Kingsley Associates showed that 49 percent of renters under the age of 25 expressed interest in using homesharing to supplement their incomes.

Pillow CEO Sean Conway told Skift that today’s news shows that “Airbnb is here to stay” and that he sees the ability to rent out one’s apartment as an “amenity that will be on every renter’s checklist, just like high-speed Internet. I think it’s just proof in the pudding.”

“I think it’s pretty interesting to see this trajectory over the last two to two-and-a-half years,” said Chris Lehane, Airbnb’s head of policy. “When I started here, in the fall of 2015…you had the housing industry really trying to understand and figure this stuff out and generally keeping their distance. You flash forward to today and you have industry leaders — including industry visionaries, and I certainly put Harvey [Hernandez, the CEO of Niido] and Niido in that category — who are lining up and knocking on the door to figure out ways to partner and work with us. That’s not to say we’ve had a great relationship with every single developer or landlord out there.”

Rick Haughey, vice president of industry technology initiatives for the National Multifamily Housing Council, said that “initial reaction was negative” but “the discussion has evolved” although there is still “no consensus in the industry on how they feel about short-term rentals.”

Lehane continued, “You’re now really seeing developers in the private sector understanding where their consumer base is and where it’s going and what they are looking for and how they can participate in the economics here. At the end of the day it’s going to cost money to build housing, you have to figure out an economic model that’s going to work consistent to what consumers that are out there [want]. We can identify ways for developers to earn more money than they would have otherwise and do so in a way that helps tenants afford their housing and helps tenants be able to make extra money themselves.”

Kevin Choquette, a real estate development financier and founder of Fident Capital, told Skift earlier this year he thinks Airbnb was prompted to debut its Friendly Buildings Program primarily because of the blowback from landlords who were frustrated by tenants subleasing their apartments.

“They recognized potential for damage to the brand and the opportunity for market expansion,” he said.

Choquette said that if Airbnb can work with developers to designate or even design units that are “Airbnb-ready” or “Airbnb-friendly” and “figure out what kind of economics, control, and transparency owners would need to open up more rooms to the Airbnb platform,” this could be a sort of win-win situation for both parties involved. And early signs seem to suggest that Niido Powered by Airbnb is exactly that solution.

Of Brookfield and Silverpeak’s investment, Choquette said, “I commend them for bringing traditional (‘institutional’) equity into an innovative program. For the most part, the real estate industry seems very slow to change and is behind the vast majority of industry innovations. Better said, it’s just not that innovative. This is a pretty inspired move for old-guard equity to take, and I’m curious to see how it plays out. I suspect they will do well.”

What Niido Is and How It Works

Niido Powered by Airbnb apartments are leased on an annual basis first as primary residences, and tenants are then able to rent out their units for up to 180 days per year. Special technology and services make it easier for tenants to rent out their units on Airbnb, including the use of a Niido app that is integrated with Airbnb to include calendar management, amenity bookings, and keyless entry. Tenants keep 75 percent of their profits, minus any taxes or fees owed to Airbnb, and the landlord — in this case, Niido — keeps the other 25 percent.

Conway said that ensuring there are “proper controls” and plenty of “transparency” is crucial for these types of residential models to succeed. While Pillow is a partner of Airbnb’s, he also noted that Pillow does not have a formal agreement to work with Niido as of yet, although both companies have been in conversation with each other.

Although Airbnb and Niido are adamant that the community is not a hotel, the model does borrow many hospitality-inspired techniques and strategies. All sites will have a “Master Host” who serves as a concierge for travelers. And, like many co-living residences popping up today, Niido Powered by Airbnb will have plenty of communal spaces, similar to a traditional hotel.

Niido pays for the construction or remodeling of all of its communities and acts as an owner-operator, but has “partnered” with Airbnb to be able to use its name and sync its services and technology with the company. If that model sounds familiar, it’s because it is similar to the relationship that hotel owners might have with their hotel management/brand companies. What’s not clear is how much — or even if — the company behind Niido pays to use the Airbnb name and to have access to its technology.

With this new infusion of more than $200 million from Brookfield and Silverpeak, Niido hopes to open at least four Niido Powered by Airbnb communities in the U.S. in 2018. The first is scheduled to open in early 2018 in Kissimmee, just outside Orlando, Florida. Three others are planned elsewhere, but Hernandez, the Niido CEO, did not confirm where they would be located, only noting that the company is eyeing the Southeast. A Bloomberg report notes the company is looking at developing Niido communities in Miami, Fort Lauderdale, and Tampa.

While the first property is a newbuild with 324 units, Hernandez said that future Niido communities may also be developed from existing apartment complexes.

“We’re going to see more and more inventory like this,” Conway said, noting that his company is also working with multifamily housing developers on similar concepts. “These are basically hotels without a name on it. They have the amenities that people want, and residents are staying there because they are beautiful. There are lots of large multifamily housing operators who are starting to adopt this amongst the community. It takes take a long time to build something like this, but to actually include this in an existing apartment is a lot easier and quicker.”

Still, Conway added, “It’s still homesharing. You’re living like a local. You feel it. You’re staying in someone’s primary residence. It’s a different feel from hotels.”

What This All Means

So what does this mean for the apartment industry? Haughey said this could have an impact on corporate housing unit reserves and could potentially change the apartment business model. “I think that’s longer term, but I think it has the potential to disrupt the apartment industry and potentially the apartment lease, which traditionally has been long term,” he said. “This may bring about more flexibility with the lease.”

He also said that Airbnb isn’t alone in its pursuit of disrupting the apartment industry, and named companies such as Pillow and others who are finding a way to disrupt the business model as well.

Haughey said the apartment industry is “still all over the place” in dealing with this growing trend, but said, “The trend is growing toward solving the problems and trying to come up with an agreement that works for all the parties. But the majority, I feel are anti-short-term rental, but moving toward trying to come to some solution that works for everybody.”

As Skift noted last week, it’s clear that Airbnb — like many of its major hotel competitors — wants to give consumers more choices with regard to where and how they stay around the world. That’s why the company is making it easier for bed-and-breakfasts and boutique hotels to advertise their rooms on its platform. And it’s also why the company is looking more into having Airbnb hotels of its own — although these Niido Powered by Airbnb communities are more like co-living models than traditional hotels.

As the company pursues that eventual IPO, growth will be crucial, even as the company today has more than 4 million listings worldwide. Another key part of that IPO puzzle will be achieving profitability, which Airbnb chief financial officer Laurence Tosi and Lehane also said was achieved this year. A source familiar with Airbnb’s financials told CNBC that Airbnb saw its 2017 bookings increase by approximately 50 percent over the previous year.

So, as much as Airbnb markets itself as being different from “mass-produced” hospitality companies, perhaps the company isn’t all that different after all? At least with Niido and some of its other moves as of late, Airbnb — like landlords — is beginning to see the benefit of the old adage that if you can’t beat them, you might as well join them (and try to do it better).