Site pushes a mom-and-pop image as fast growth brings scru­tiny

Los Angeles Times - - BUSI­NESS - By Tim Lo­gan

Airbnb started with three air mat­tresses on the floor of a San Fran­cisco apart­ment. Seven years later, it’s worth as much as Mar­riott.

The short-term rental gi­ant, which con­nects trav­el­ers with spare bed­rooms or en­tire homes, has raised enough in­vestor money to value the com­pany at $20 bil­lion. Airbnb “hosts” now list 1.2 mil­lion rentals world­wide.

Now the Sil­i­con Val­ley firm finds it­self caught between in­vestors’ ap­petite for fast growth and ris­ing protests over its ef­fect on neigh­bor­hoods and ho­tel jobs. The com­pany’s swift rise has come in a reg­u­la­tory gray zone, avoid­ing the strict rules gov­ern­ing ho­tels or tra­di­tional land­lords.

Airbnb con­tin­ues to pro­mote an image of help­ing mom-and-pop home­own­ers raise a lit­tle ex­tra cash, but its plat­form has drawn far big­ger op­er­a­tors who buy prop­er­ties to rent out full-time. That’s brought both prof­its and headaches, par­tic­u­larly as the com­pany con­sid­ers an ini­tial public of­fer­ing that could bring even more pres­sure for growth.

Cities from New York to Santa Mon­ica are try­ing to fig­ure out how best to zone, tax and over­see this new in­dus­try. As they do, they’re get­ting an ear­ful from ho­tel work­ers’ unions wor­ried about the ef­fect on their jobs, hous­ing ad­vo­cates wor­ried about a short­age of af­ford­able apart­ments and neigh­bors wary of strangers on their block ev­ery day.

Airbnb has re­sponded with a bat­tal­ion of lob­by­ists, es­pe­cially in big states such as Cal­i­for­nia and New York, along with beefed-up PR op­er­a­tions. It has hired vet­er­ans of Sil­i­con Val­ley, the Obama ad­min­is­tra­tion and big la­bor unions.

To Nathan Blechar­czyk, one of the trio of Airbnb co-founders who still run the com­pany, these are good prob­lems to have. It was just seven years ago that his friends Brian Ch­esky and Joe Geb­bia laid out those air

mat­tresses for peo­ple com­ing to a San Fran­cisco de­sign con­fer­ence. Now, ev­ery night, 400,000 peo­ple use their web­site to do some­thing sim­i­lar.

Like Google and Uber, Airbnb has even achieved that em­blem of dig­i­tal age ubiq­uity: Its name has be­come a verb.

“When we started, every­one thought you’d be crazy to al­low strangers to stay in your home,” he said. “Now all the fear is that every­one is do­ing it. It shows the power of this concept, and the op­por­tu­ni­ties here.”

But for the com­pany’s many crit­ics, these ques­tions cut to the core of Airbnb’s busi­ness model, and in some ways to the en­tire concept of the so-called shar­ing econ­omy, which in­cludes ris­ing car-shar­ing gi­ants such as Uber that also face vex­ing reg­u­la­tory bat­tles.

To Steve Unger, a Port­land, Ore., innkeeper who writes a blog on the short­term rental in­dus­try, it’s like Airbnb is two com­pa­nies.

One is what Unger calls “Good Airbnb.” That’s a web­site that en­ables peo­ple to rent out spare bed­rooms for ex­tra cash and meet in­ter­est­ing trav­el­ers over home­made pan­cakes. This is what you see in the com­pany’s ads and hear from the hosts Airbnb brings to tes­tify at public hear­ings.

Then there’s “Bad Airbnb,” a plat­form that al­lows land­lords to eas­ily rent whole apart­ments or homes to a pa­rade of strangers, tak­ing them off the tra­di­tional hous­ing mar­ket en­tirely. They op­er­ate as un­li­censed ho­tels where who-knows-what might hap­pen, and no­body seems to be re­spon­si­ble.

“I’d like to see the Good Airbnb flour­ish,” he said. “I’d like to see the Bad Airbnb go away.”

The thing is, Bad Airbnb makes a lot of money.

The com­pany charges a 9% to 15% fee on each list­ing, mak­ing big­ger rentals a lot more prof­itable. On a $360per-night three-bed­room apart­ment in Venice, for in­stance, Airbnb’s cut on a two-night stay in June would be more than $100. Rent the same dates in a $95-pernight spare bed­room nearby, and the com­pany col­lects just $29.

While the com­pany touts “home shar­ing” — the spare­room rental — in its ad­ver­tis­ing and po­lit­i­cal cam­paigns, nearly two-thirds of list­ings in L.A. and other big mar­kets are for whole units, ac­cord­ing to a re­cent study by the Los An­ge­les Al­liance for a New Econ­omy, a labor­backed think tank. Those units gen­er­ate 89% of the com­pany’s rev­enue in Los An­ge­les, the or­ga­ni­za­tion es­ti­mates.

Airbnb dis­putes the group’s study, but ob­servers say its find­ings sug­gest the com­pany has lit­tle in­ter­est in rein­ing in full-time opera- tors.

“Airbnb prof­its from transactions,” said Yassi Eskan­dari-Qa­jar, city poli­cies pro­gram direc­tor at the Sus­tain­able Economies Law Cen­ter in Oak­land. “There’s no in­cen­tive for them to put lim­its on how many peo­ple can do this, how much they can charge or how many homes they list.”

But, she notes, Airbnb is mind­ful of po­lit­i­cal pres­sure. And when pushed, it has agreed to changes.

It has worked out deals to col­lect taxes — which are typ­i­cally left up to hosts to pay — in sev­eral cities, in­clud­ing Mal­ibu. In April, amid protests in Venice, it booted about a dozen large full-time rental firms from its site in Los An­ge­les. Now, it’s try­ing to forge com­pro­mises with of­fi­cials in a num­ber of cities across the coun­try, in­clud­ing L.A., over new reg­u­la­tions.

“There’s a per­cep­tion out there that Airbnb doesn’t want there to be rules. We think rules would be fan­tas­tic,” Blechar­czyk said. “We think rules would help our com­mu­nity, but not nec­es­sar­ily the rules that have sim­ply ex­isted for decades.”

Airbnb is try­ing to tell its own story. The com­pany has dis­patched a team of com­mu­nity or­ga­niz­ers in L.A. and else­where to help mobilize hosts that best ref lect the “Good Airbnb.”

One af­ter­noon last month, dozens of hosts showed up on the lawn out­side Santa Mon­ica City Hall for a rally against a law ban­ning full-unit short-term rentals. They hoisted signs like “Home Shar­ing = Af­ford­able Hous­ing” and “Let Us Host” and ea­gerly shared their ex­pe­ri­ences.

Mary Wil­liams was there. A sin­gle mom who lives in Cen­tury City, she rents out her con­verted garage on Airbnb. It helps pay the bills, she said, and she meets lots of in­ter­est­ing peo­ple, like the Aus­tralians who were stay­ing there the week of the Santa Mon­ica rally.

Putting a friendly face on Airbnb helps pol­i­cy­mak­ers and crit­ics alike un­der­stand it, said Wil­liams, who has spo­ken sev­eral times to neigh­bor­hood coun­cils that were con­sid­er­ing anti-short­term-rental mea­sures. When they meet the real peo­ple the com­pany helps, she said, many op­po­nents change their minds.

“City coun­cils are start­ing to get it,” she said. “Be­fore, there was a lot of ig­no­rance. But we’re get­ting the mes­sage through.”

They didn’t get it in Santa Mon­ica. That night, the City Coun­cil unan­i­mously passed one of the tough­est short-term rental laws in the coun­try, ren­der­ing about 70% of units listed in the city il­le­gal. It’s a law Airbnb can’t af­ford to see du­pli­cated in other cities.

Now, Man­hat­tan Beach is con­sid­er­ing a sim­i­larly strict mea­sure, and the Los An­ge­les City Coun­cil is weigh­ing a pro­posal that would bar peo­ple from list­ing short­term rentals of units that are not their pri­mary res­i­dence, a rule meant to pre­vent homes from be­ing bought up and run like ho­tels.

The com­pany has a fine line to walk between get­ting right with the law and squelch­ing its own growth, es­pe­cially if it plans to go public.

Any suc­cess­ful public stock of­fer­ing would hinge on con­tin­ued rapid growth. At $20 bil­lion, the com­pany’s pur­ported val­u­a­tion is al­ready a rich sum for the mar­ket to swal­low, said Sam Hamedah, chief ex­ec­u­tive of PrivCo, a pri­vate com­pany re­search firm.

Airbnb’s clos­est pub­licly traded ri­val, va­ca­tion rental site Home­away, clocks in at less than $3 bil­lion.

Hamedah says he’s seen Airbnb’s num­ber of list­ings f lat­ten out lately. In­vestors — and maybe fed­eral se­cu­ri­ties reg­u­la­tors — will have a prob­lem with the fact that most of its list­ings in big cities may be tech­ni­cally il- le­gal.

“An IPO fil­ing would have more red f lags than a mil­i­tary pa­rade,” he said.

Blechar­czyk says the com­pany has no “neart­erm” plan to go public. Its in­vestors, he said, take the same long-term view as its ex­ec­u­tives.

“They’re not so con­cerned about what hap­pens next year,” he said. “They’re look­ing at 10 years out.”

In the 10-year plan, as Blechar­czyk sees it, these ten­sions will all get worked out. Bat­tles with unions and reg­u­la­tory de­feats like Santa Mon­ica will end up look­ing like bumps in the road. Sen­si­ble reg­u­la­tions will be crafted. More peo­ple will be­come more com­fort­able with the concept. And the com­pany that evolved from three air mat­tresses to a con­tro­ver­sial ado­les­cence will emerge as a per­ma­nent pil­lar of a global shar­ing econ­omy.

“We be­lieve very strongly that there’s a great value here for guests, for hosts and for cities,” he said. “It may take time for that to be rec­og­nized. But we think peo­ple will come around.”

Anne Cu­sack Los An­ge­les Times

AIRBNB TOUTS “home shar­ing” in its ads and po­lit­i­cal cam­paigns, but nearly two-thirds of list­ings in L.A. and other big mar­kets are for whole units. Above, Hope Arnold is shown in 2013 on the couch she slept in when rent­ing out her bed­room in Sil­ver Lake.

Allen J. Schaben Los An­ge­les Times

SUP­PORT­ERS RALLY in Santa Mon­ica ahead of a City Coun­cil vote in May that set tough lim­its on short-term rentals.

Rick Loomis Los An­ge­les Times

SID AND AR­LENE Rosen­blatt, both 80, will no longer be able to rent out their home for about $250 a night un­der Santa Mon­ica’s lim­its on short-term rentals.

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