By Lori Weisberg and Phillip Molnar
The San Diego Union-Tribune
WWR Article Summary (tl;dr) While the thousands of vacation rentals scattered throughout San Diego communities are still dominated by homes, condos, duplexes and shared rooms, a rising number of amenity-filled apartment buildings are becoming a magnet for entrepreneurial renters and startups looking for handsome profits.
The online rental listings tantalize with descriptions of stunning city views, marble bathrooms and quartz countertops, rooftop lounges and state-of-the-art gyms, all hallmarks of the latest in downtown luxury apartment living.
Interested? If so, no need to sign a lease; these listings are for overnight stays promoted on vacation rental platforms advertising nightly rates in buildings populated by long-term tenants.
Thanks to the mushrooming popularity of home-sharing platforms Airbnb and VRBO and less familiar sites like Stay Alfred, the increasingly lucrative business of short-term rentals is migrating to the luxury apartment building.
And it’s often under the radar of the building owners themselves. That’s because most leases forbid subletting rental units.
While the thousands of vacation rentals scattered throughout San Diego communities are still dominated by homes, condos, duplexes and shared rooms, a rising number of amenity-filled apartment buildings are becoming a magnet for entrepreneurial renters and startups looking for handsome profits.
So much so that the frequency of vacation rentals at one downtown high-rise, the 46-story Pinnacle on the Park, led one Yelp user to joke it should be called “Hotel on the Park.”
Even Airbnb has jumped on the bandwagon, launching last year its Friendly Building program designed to forge above-board, short-term rental partnerships with apartment building owners and their tenants.
Still, building managers and owners remain wary of opening up their high-end complexes to a constant stream of vacationers, and they’re equally wary of talking about it, as are the tenants who engage in the practice.
“We now have a weekly audit where we’re going online looking for violators and photos of our buildings,” said Tracy Brunetti, an executive vice president with Alliance Residential Co., which manages the luxury Broadstone apartment complexes in San Diego.
Even so, the San Diego Union-Tribune found two Broadstone listings for short-term rentals, including one for a tastefully decorated two-bedroom apartment with an advertised nightly rate of more than $300 in a building where monthly rents for similarly sized units average more than $4,000.
“This is such a frustrating situation for landlords when you’re trying to protect your residents from an expectation of privacy yet you have a revolving door of people trying to enter the building,” Brunetti said.
In another building, the 241-unit Form 15, two vacation rental listings were removed within hours of the Union-Tribune contacting the building owner and property manager.
Emily Wiesner, a spokeswoman for Essex Property Trust, San Diego County’s third-biggest landlord and owner of the 3-year-old complex, would only say, “We do not allow tenants to rent out their units via VRBO or any other short-term rental website, and we address all known violations.”
The 484-unit Pinnacle tower, with its 24-hour gym, pool, spa and panoramic views of downtown, shows up on multiple listings on Airbnb and booking.com, more widely known as a hotel reservation site. Its Canadian owner, Pinnacle International, did not return multiple phone calls and emails requesting comment.
Just last month, AIMCO, one of the country’s largest landlords, filed lawsuits in California and Florida against Airbnb, alleging its tenants are renting out units on the company’s website in violation of their leases. Airbnb has said the suit is “without merit” and will fight it.
The growing proliferation of such rentals coincides with a boom in apartment construction, most of which has been high-end.
Over the last five years, 2,900 apartment units were built in downtown alone, and this year, the region is expected to add 3,000 apartments, double the volume of what was developed last year.
During the same time, the popularity of Airbnb has exploded, expanding way beyond its beginnings as a platform for people looking to make some extra income renting out a spare bedroom. In San Diego, Airbnb listings are dominated by rentals of entire dwellings where the owner is not present. Moreover, a recent hotel industry-funded study concluded that hosts listing multiple homes for rent are the fastest-growing segment of Airbnb’s business.
It’s nearly impossible to quantify how many apartment units are actually being used as short-term rentals because the online platforms don’t identify the addresses of listings, and many, like Airbnb, don’t even specify whether a whole-home rental is a condo, apartment or single-family home.
Airbnb spokesman Chris Nulty said the home-sharing giant does not track such information and therefore could not provide any data on apartment listings.
However, after some online detective work that involved comparing listing photos with the photographs on apartment building websites, the Union-Tribune was able to identify about a dozen short-term rental listings in eight downtown luxury complexes.
While these were the only rentals the Union-Tribune was able to absolutely verify as apartment units, it appears there are many more similar listings on multiple booking sites.
The motivations driving such rentals are varied, from companies who see the promise of lucrative profits to renters looking to make some quick cash while they’re out of town for work or traveling.
Vacation rental management firm Air Concierge says it manages a “handful” of short-term apartment rentals for clients, including members of the military who want to hold onto their apartments during their deployments while still being able to collect income to cover monthly lease obligations.
Taking into account the $2,000-plus monthly rents for luxury downtown apartments and the going nightly rates for short-term rentals that range from about $100 to more than $300, it’s easy to see how renting out units for up to three weeks a month can generate a profit.
One developer who recently built a nine-unit, higher-end complex had wavered between long- and short-term rentals until a market analysis concluded that renting out the one-, two- and three-bedroom units for overnight stays could generate twice the monthly revenue as a traditional lease.
That’s according to Scott Shatford, co-founder of Airdna, a data analytics firm catering to vacation rental hosts and investors. The San Diego developer who consulted with Airdna declined to talk to the Union-Tribune about his rental plans, Shatford said.
Shatford got his feet wet in the vacation rental business several years ago when he started taking out long-term leases on apartments and renting them out on a short-term basis. At one time, he had as many as seven properties he was sub-leasing in the Los Angeles area until the city of Santa Monica went after him last year for violating tough new regulations governing vacation rentals.
“I definitely see the trend toward more luxury units coming onto Airbnb because more and more people are seeing it as an alternative to four-star accommodations,” said Shatford, who authored “The Airbnb Expert’s Playbook. “And with all this new apartment construction over the last couple of years, it’s much easier to take part of that and fill a property with short-term tenants tomorrow instead of finding long-term tenants right away.”
A tenant at the Pinnacle, who declined to use his full name out of fear he would lose his lease, said he has been renting out his one-bedroom apartment since February 2016. He said it was booked up about three weeks a month.
“I put it (on Airbnb) before I even moved in,” said the tenant.
In all, he has four downtown apartment units and a yoga studio he advertises on Airbnb.
Charlie Gould, 37, has lived at Pinnacle on the Park for 14 months and wishes he could put his place up on Airbnb when he is out of town. He said he asked management once if he could rent out the unit while he was gone for a three-week business trip but was told it would violate his lease.
“For me, I’m wasting money while I’m not here,” he said, walking his dog, Piper, outside the building.
Short-term apartment rentals are at the core of Stay Alfred Vacation Rentals’ business model. A Spokane, Wash., startup that began operation in 2011, Stay Alfred Vacation Rentals has grown its inventory to more than 400 short-term rental units in a dozen cities, including San Diego.
Throughout downtown San Diego, the company has leased and furnished about 35 apartment units and then offers them as short-term rentals on its website. Company founder Jordan Allen insists that the overnight rentals are operated only with the express consent of building management.
“It’s not the right fit for every building, but we try to be up front,” Allen said. “It really boils down to track record and reputation. A lot of buildings don’t want people coming in and doing an Airbnb accommodation in their space, but this is what we do for a living, and we live and die by how good a job we do.”
Since announcing its Friendly Building program last year, Airbnb says it has enticed landlords in San Jose, Philadelphia and Nashville, Tenn., to partner with tenants interested in renting their apartments on the home-sharing website. In all, there are more than 4,000 apartments in the program, which allows landlords to take a cut of the nightly revenue, typically in the range of 5 percent to 15 percent.
Airbnb, which today boasts more than 3 million listings in over 191 countries, declined to divulge which complexes or landlords it’s partnered with on the apartment rentals.
Airbnb spokesman Nulty stressed that the program is targeting cities only where the regulations for home sharing are clearly spelled out. That would exclude San Diego and Los Angeles, whose leaders are still struggling to enact tighter rules governing vacation rentals.
“We know that for tenants especially, this is a really important economic opportunity, and we heard from hosts they needed our help to educate landlords about how they could share their home,” Nulty said. “We’ve heard stories, whether it’s teachers who travel over the summer or the creative community on a (film) shoot gone for a month or two at a time, asking a company to help them rent out their home while they’re gone.”
A nationwide survey last year of apartment owners and managers revealed that roughly a third of those responding would be amenable to a partnership with home-sharing sites. Only 1 percent of the firms said that they allow residents to list on such sites, the National Multifamily Housing Council reported.
“I do think we might be getting to a point where you might be able to find a business model that combines short-term rentals with apartments in some ways,” said Rick Haughey, vice president of industry technology initiatives for the apartment industry trade group. “A lot of our members realize it’s a technology popular with a lot of our residents and maybe we shouldn’t be reflexively against it.”