Airbnb Further Disrupts Real Estate

This post is being shared with permission from Fident Capital: http://www.fidentcapital.com/airbnb-further-disrupts-real-estate/

By  Kevin Choquette, Founder

ULI San Diego/Tijuana just played host to JaJa Jackson at the Quartyard in downtown SD. JaJa is Head of Landlord Partnerships at Airbnb. His mandate is pretty clear: expand Airbnb’s market penetration. The lunch was fascinating and by far one of the more stimulating ULI events I’ve attended in recent years. Maybe that’s just because I’m an idea junkie. Either way, what has been established and what is yet to come offers significant opportunity for all astute real estate operators.

Some fun facts:

• 40% of the U.S. has had a home share experience. That’s amazing to me given the newness of the space.
• About 800,000 people stayed in Airbnb homes one night last week.
• Airbnb hosts offer homes in 34,000 cities and 90 countries; their size doubles annually.
• Airbnb does more business in Europe than the USA.

There are two things JaJa shared which caught my attention. One, they’re setting up strategic alliances with massive multifamily REITs in the United States. Institutional property owners have concerns about the infiltration of Airbnb into their spaces. They don’t have visibility into who’s occupying units, they don’t get any revenue share, and they don’t have any control. Jaja kept details pretty sparse, but you can see pretty clearly that they’re making a major push into the space. As a great example of the old “if you can’t beat them, join them” mentality, I think both Airbnb and landlords recognize that home sharing is here to stay so they might as well work with it, rather than against it. The goal is to allow tenants to have some access to this revenue stream, while giving landlords the ability to define the terms under which they will allow it. In in a 4% cap rate world, every incremental dollar NOI is worth $25 of asset value; it’s not hard to see why the REITs might be intrigued by this dynamic.

The other, more intriguing item that caught my attention was the fact that Airbnb sees (and articulates) that incorporating home sharing elements into the design process adds significant value to a product offering. This is awesome! If you are trying to sell a condo, for example, and your buyer is comfortable with the sharing economy and all that it entails, why not make it easier for them to do so? And in doing so, it makes sense that the buyer would ascribe a premium to the home. Some of the design notions discussed included:

• Moveable walls
• Permanent soap dispensers
• Secret shelves/storage that protects host’s goods from the guest
• Private to semi-public space shifting ability
• Mirrored pocket doors/lock-offs
• Luggage storage lockers
• Easy clean surfaces (No grout)
• Smart locks with temporary or one time access
• Guest welcome centers
• Luggage storage

Airbnb has an entire division, the “Wonderlab”, committed to the creation of an Airbnb “certified” home, those which incorporate enough of these unique and intelligent design elements to substantially improve the experience for guests and hosts, and then be “certified.” Think LEED, but for home sharing.

It’s really easy to see a specialty design/architectural firm partnering up with entrepreneurial real estate operators who can (re)develop compelling real estate projects that specifically cater to this marketplace. While this is disruptive tech, it’s also a great example of creative destruction. As old assets find the economy passing them by, they may shift class to a new highest and best use. And bringing these design elements into a new product could provide significant differentiation from the competitive set.

Rock on Airbnb!! Rock on JaJa!

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