Airbnb's Multifamily Play

Denver’s Sentral Union Station, part of the Airbnb-friendly apartments program.

For most multifamily owners, "Airbnb" evokes thoughts of illegal sublets, noise complaints, and tourists wheeling suitcases through the lobby. But over the past year, Airbnb has been slowly converting multifamily owners from adversaries into partners. And they’ve started with some of the biggest names in multifamily: Greystar, UDR, Starwood Capital, and Equity Residential, to name a few.

Since late 2022, Airbnb has been winning over multifamily owners with a simple ask: open your building to short-term rentals, and we’ll supply a stream of hosts to fill your vacant apartments. As of today, over 400 multifamily buildings have signed up for the program, which has the potential to fundamentally reshape the relationship between short- and long-term housing–with serious implications for the STR sector in particular.

Today’s letter dives into the "Airbnb-friendly apartments" program (AFA) and features a discussion with Jesse Stein, Airbnb’s Global Head of Real Estate. Specifically, we’ll tackle:

• The structure of the program;

• Early results and expansion;

• Airbnb’s emerging relationship with multifamily owners;

• The future of the program and its likely impact on Airbnb, multifamily, and the STR sector in particular.

Fraught Beginnings

Multifamily owners have always had an uneasy–at best–relationship with tenant-hosted short-term rentals in their units. Changing that narrative, as well as the rules governing short-term sublets, is no small task. Hospitality veteran Jesse Stein, Airbnb’s Global Head of Real Estate, joined the company in 2020 to turn around its relationship with the multifamily industry.

"When I joined Airbnb, there wasn’t a group here that understood [the real estate] side of the table that well from an institutional perspective," explains Stein. "I was brought in to be the conduit between institutional real estate and Airbnb."

Fundamentally, multifamily owners had little to gain and much to lose by allowing short-term rentals in their units, so the vast majority of owners invoked "no sublet" clauses in leases to prevent tenants from renting their units out. "Initially there wasn’t a good value proposition for the institutional real estate community," adds Stein. The upside of higher ADRs in short-term rental units, after all, was collected by the tenants, not the building owner. But owners were stuck with the downsides such as complaints from other tenants to additional wear-and-tear to potential security risks. By 2020, the vast majority of American multifamily rental units were off-limits to Airbnb.

This is a meaningful barrier to the growth of Airbnb’s platform, which has historically been supply-constrained. The US’s 40 million rental apartments–many of them in high-demand, high-ADR locations–represent a step-function opportunity to unlock tremendous amounts of new supply.

On the other side, Airbnb increasingly has something of interest to multifamily owners: demand for long-term accommodations. "People think of Airbnb as 3-4 day stays," said Stein. "But in any given month, 18 to 22% of all [our] nights booked will be for long-term stays." In 2023, in the US, Airbnb received more than 500 million search inquiries for stays of 30 days or longer, reflecting a fluid demand for housing that defies simple division into "short-term" and "long-term" buckets.

The pandemic only served to accelerate the blurring of short- and long-term housing needs–and Airbnb’s reconciliation with the multifamily industry. "COVID accelerated flexible living by decades, not years," explains Stein. "People can do their work and live a more flexible lifestyle. Yes, they're coming back into the office, but they’re not there 5 days a week anymore. There is this flexibility. How do we unlock this opportunity for renters while bringing the institutional community on board [even though] they haven’t historically been a big partner?"

Bradlee Danvers, a UDR-owned property outside Boston in the Airbnb-friendly apartments program. Source.

Each side had something the other wanted: Multifamily owners had loads of supply historically off-limits to short-term use. And Airbnb had demand, both from existing hosts looking for a place to live as well as from the platform’s hundreds of millions of searches for longer-term accommodations. And Airbnb also possessed the best window into short-term rental activity out there, allowing owners to monitor activity happening at their buildings and enforce rules around hosting and short-term use.

After a decade of battle, multifamily owners and Airbnb finally had something to talk about.

The Deal

On the surface, the "AFA" multifamily partnership is straightforward. From its end, Airbnb provides multifamily owners with three things:

• Demand. Airbnb promotes partner properties to prospective tenants through various channels. Over the past year, there were over 1 million unique visitors to the Airbnb-friendly apartment page and Airbnb placed over 900" tenants with its partner owners.

• Visibility. Airbnb’s partners have a dashboard that allows them to monitor and police all hosting activity in their buildings. "They can see and enforce night limits," explains Stein. We don’t want a situation where a resident takes out 5 units and runs a hotel within the apartment building."

• Upside. Building owners receive 10 to 25% of the revenue of every night booked at their properties.

In exchange, multifamily owners agree to make their buildings "Airbnb Friendly," allowing all tenants–even those not placed by Airbnb–to offer their apartments on short-term rental platforms in accordance with local law. In many markets, this means tenants must obtain a short-term rental license and are restricted to only renting out their apartments a certain number of nights per year. Airbnb’s software assists in tracking compliance, giving institutional owners confidence that they’re not running afoul of local laws.

Airbnb is effectively using its power as a demand generation engine to pry open the multifamily market. While "using demand to incentivize more supply" isn’t a new thing for marketplace businesses, Airbnb’s approach is unique in that they’re using remnant demand for long-term stays–effectively a byproduct of their short-term rental platform–to coax the supply side for short-term stays. While it would certainly be nice if the long-term renters Airbnb is placing at its partners’ buildings choose to host, the real win is unlocking another multifamily building for short-term stays.

Stein quoted average ADRs in the program around "$100 to $125", although he caveated that they range from "$70 to $1,000" depending on the location. "If you’re a host in downtown San Diego during Comicon, you’re on the high end. If you’re a garden style apartment in suburban Houston during the summer, it’s on the low end," he explained. With the average host booking 32 nights per year, I calculate that a multifamily owner should expect an additional $320 to $1,000 per hosting unit per year depending on the specific revenue share and ADR.

The Rollout

Despite the multifamily industry’s historical tension with Airbnb, the deal that Stein and his team designed is resonating with owners. After launching the partnership with 175 buildings in early 2023, "Airbnb Friendly" now covers more than 400 assets across 120 cities in the United States. That set includes a who’s-who of the NMHC Top 50, including Greystar, Starwood Capital, Equity Residential, Camden Property Trust, and UDR. For each property, Airbnb hosts a landing page marketing the building to prospective hosts looking for Airbnb-friendly apartments.

While Airbnb’s initial focus on institutional owners meant that the first "Airbnb Friendly" properties were concentrated in major gateway cities, the program has since expanded and now serves a wider variety of markets. "You don’t have to live in a high-rise, high-rent location for this to work," said Stein.

He shared the story of a larger partner who wanted to add a property in suburban Dallas to the portfolio. "I wasn’t sure what the host activation would be, so I told them to temper expectations. But now it has roughly 30-40 hosts at any given time. People visit family, hospitals, et cetera." In other words, it’s not necessary for a property to be near major convention centers, office clusters, or stadiums for the model to function. Stein also referenced several garden-style communities in the partnership, such as this one in Addison, Texas where rents start at $978 per month.

Trails at Dominion Park, an AFA partner community outside Houston where rents start at $703 per month. Source.

Of course, AFA doesn’t solve all the problems that came with ad-hoc short-term subletting. Some tenants will still bristle at living in a building where some units are being rented out on a short-term basis. And even Airbnb’s monitoring technology can’t prevent all abuses of the platform. While wild parties and problematic guests can’t be fully ruled out, AFA partner Greystar claims that the program has led to more "responsible home-sharing and alignment with the rules of each community" among short-term renters.

But the program’s rollout has surely benefitted from softening multifamily rents over the past year, leaving owners eager to tap into new sources of demand. "There is a slight advantage in markets that are struggling," says Stein. "We have a lot of inventory in San Francisco and in Houston, for example," two markets that have seen sluggish rent growth over the past year. "Owners want to tap into any demand source."

But even in times of strong tenant demand, Airbnb believes they can add value to multifamily owners. "Even on the upswing, a major part of multifamily is churn," says Stein. "Finding a less expensive place to live is a major driver of churn. If you’re hosting, you’ll move less."

Airbnb hosts also have another reason to stay put: as a host, part of their income is tied to their specific location–in this case, a rental unit. While hosts’ Airbnb ratings–including things like Superhost status–moves with them, most rental apartments aren’t viable Airbnbs due to sublet restrictions. If it turns out that Airbnb’s tenants do churn at a lower rate, they’ll have another (big) selling point to convince the multifamily industry to come aboard.

To Airbnb, there are other, less tangible benefits of this kind of program. In a sense, "Airbnb Friendly" brings the company closer to its origins. Airbnb Friendly hosts tend not to have multiple units; they are individuals renting out their own homes and will thus have the individual character often lacking in professionally-managed STR units (guests may see this as a good or a bad thing). The program also benefits from sidestepping rules that many cities have passed limiting short-term rentals in multifamily units: since Airbnb Friendly hosts are individuals renting out their own homes for a limited number of nights, it’s almost impossible to ban. For Airbnb, this offers the tantalizing prospect of reopening supply in tightly-regulated markets like San Francisco.

A Collision Course with STR?

Getting disintermediated by Airbnb itself has always been near the top of the macro risk analysis for short-term rental (STR) operators like Sonder, Kasa, and Blueground. And it’s not just a theoretical concern; Airbnb led a $160 million Series B in Lyric Hospitality, a STR operator, in 2019. Lyric blew up a year later during the height of the pandemic, shutting down Airbnb’s bet in the STR operator market. But the legacy lingers on.

"[Multifamily owners] all ask that question–are you another STR operator?" says Stein. "That’s the first 30 minutes of the conversation with multifamily owners. They say, ‘These guys [STR operators] call us all the time, what’re you doing?’"

According to Stein, the work of STR operators has had a mixed impact on the success of Airbnb Friendly. "Blueground, Sonder, Kasa–they’ve been the initial growth drivers [for STR] in the multifamily industry. They’ve been making inroads in the industry, but what we’re doing is different."

But it’s not hard to see multifamily owners perceiving Airbnb Friendly as an alternative to a lease or management agreement with an STR operator. Both approaches, after all, address the demand for short-term stays in the building and can provide incremental revenue. But Airbnb Friendly’s structure will likely appeal to owners–and lenders–queasy about corporate leases and guarantees from startup operators. After all, Airbnb is placing real people in units who must pass the same credit check–and sign the same lease–as ordinary tenants. To a lender, there’s no difference, and that’s a great thing for multifamily owners.

But at least one STR operator sees them as complementary solutions for owners. Roman Pedan, CEO of Kasa, believes that STR operators can help owners across all short-term stays in a given property. "In properties that have a dedicated Kasa furnished rental program, Kasa can use its existing infrastructure to serve as a co-host for residents," he explains. In that arrangement, the STR operator would handle things like arrivals and access, housekeeping, and even trust and safety issues should they arise.

Stein agrees that the concepts aren’t entirely competitive. "It’s a philosophically different play," he explains. "We have partners that do both. They may have a Sonder, a Kasa, a Mint House. But those are only in certain markets where policy allows it."

A Fluid Future

Demand for rental units is not neatly segmented into "short" versus "long" term. If anything, it’s bimodal, with one wide peak representing people who look to stay anywhere from a few nights to a few months, and another peak representing people who are looking for an indefinite home.

Airbnb and its descendants have successfully captured this nuance of the housing market. Given the fuzzy line between intermediate- and long-term stays–and Airbnb’s growing role in that market–it’s unsurprising that they’re now driving demand for traditional twelve month leases in multifamily buildings. And given the platform’s need for more well-located supply, it’s smart of them to translate that demand into short-term rental supply rather than incremental lead gen dollars.

Airbnb Friendly’s ultimate scale and success will likely be determined by the platform’s ability to crack the middle of the market: owners with 2,000 to 20,000 multifamily units under management. While it’s impressive to count the likes of Greystar and EQR as partners, those sophisticated, institutional operators don’t represent the bulk of the US’s 40 million multifamily units. Convincing the middle-market regional owner–who doesn’t have a Head of Innovation or CTO on staff–to allow short-term stays will be necessary to unlock the kind of scale that moves the needle for Airbnb.

But Stein’s vision is impressively long-term. When I asked him what success looked like in five years, he asked if he could talk about ten instead. "We’d like to be a part of the multifamily industry’s core business model. If we can send more (renter) demand, we can open up more buildings. If we open more buildings, renters have the same opportunity as homeowners to earn extra income."

If the company’s vision comes to pass, it would meaningfully rework the boundary between hospitality and multifamily; every sizable multifamily building would have a handful of renter-operated STR units. Given that there are almost ten times as many multifamily units in the US as they are hotel rooms, Airbnb Friendly could have a significant impact on short-term stay supply as it gains traction.

Macro impact aside, Stein is keeping the host’s goals in the top of his mind. "Housing isn’t getting cheaper," he says. "If you’re a renter, you should have the same opportunity as a homeowner to list your home."

—Brad Hargreaves