222 Week 4 F /For WIZARD KIM

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RESIDENTIAL MANAGERS

POLICE AIRBNB “GUESTS” BY BETH MATTSON-TEIG

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condos or apartments to guests to make a little extra money on the side. That may earn points for entrepreneurial flair, but it is creating bigger headaches for residential property managers. The Internet has helped to foster a booming cottage industry of short- term rentals for both business and lei- sure travelers on web-based platforms such as Vacation Rentals by Owner (VRBO), Airbnb, FlipKey and Ho- meAway among others. Airbnb in particular has experienced explosive growth since it was founded in 2008. The San Francisco-based firm of- fers a “community marketplace” that matches people willing to rent out their homes, or even a room within their home, to people from around the globe looking for alternatives to hotels. The company’s website boasts more than 1.2 million listings in 190 countries. Patty Malesh is a former university professor turned Airbnb host. After be- ing laid off from her 18-year career in 2014, she decided to invest $15,000 to turn her townhome into “Castle B,” a boutique rental to supplement her in- come. Airbnb provides the listing ser- vice, as well as handling basic logistics such as taking reservations, managing security deposits and processing pay- ments. Airbnb also provides tools, data and analytics that help owners set rates

RESIDENTS HAVE LONG TAKEN ADVANTAGE OF THE OPPORTUNITY TO TEMPORARILY RENT THEIR HOMES,

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comparable to rates in their area, add- ed Malesh. Her European-style townhome is well-suited to rentals. Malesh lives on the lower levels of the narrow, sev- en-story townhome and rents out rooms in the upper three levels. She runs it like a B&B with a main floor office, and an upper level lounge and guest rooms/suites that are decorat- ed with local art and have their own conveniences such as a microwave and a mini-fridge. She is able to charge as much as $250 to $275 per night during the summer high season. Airbnbs are increasingly popular in Boulder, where Malesh estimates there are some 1,000 different listings in the area. Airbnbs have a growing fan base, particularly among a young, tech-sav- vy generation that is willing to shop online for lodging that is perhaps val- ue-priced or presents a unique alterna- tive to traditional hotel rooms. Another big driver for demand in Colorado is that many Airbnbs are “420 friendly”, meaning that guests are allowed to smoke marijuana, noted Malesh. Al-

though Colorado legalized marijuana for recreational purposes in 2012, most hotels have smoking restrictions. Malesh has generated enough in- come to pay her monthly mortgage, and she has met a lot of interesting people along the way—ranging from tech industry professionals to a docu- mentary film crew. “The biggest thing that people need to know is that this is a gamble,” said Malesh. She advised that people do their homework first about what’s involved, especially as it relates to city laws or zoning requirements al- lowing for short-term rentals. MANAGERS CRACK DOWN ON VIOLATORS Although Airbnbs are just starting to get noticed by municipalities, they are already firmly on the radar for residen- tial property managers. Such short- term rentals are against the rules and regulations of most condo associations and are often prohibited in the lease terms of typical apartment rental agree- ments. “It is not encouraged in any way, shape or form by any condo association or by any unit owner group,” said Brian F. Lozell, CPM, director of condomini-

um management at Seneca Real Es- tate Advisors in Chicago.

Yet Lozell has definitely seen a rise in condo owners renting

out their units in recent years. “It has definite- ly gotten worse with the Airbnbs,” said Lozell. Particularly in the past decade, language is pret- ty clear. Condo declara- tion and bylaws typically state that no unit can be rented for a period of less than one year and no

unit can be rented in less than its entirety, he said.

Most apartment properties also have specific terms within lease

agreements related to short-term rent- als or sublets of rental units. Although sub-let agreements are often allowed, some apartment properties limit short- term rentals to a minimum time peri- od, such as not less than six months. Most apartment properties also would require the individual who is subletting the apartment to fill out an application and go through an approval process, noted Griselda Tellez, director of resi- dential management at Seneca. Those policies and regulations are there for good reason. Most owners want to maintain oversight on who’s coming and going for the safety and security of all of their residents. Guests may not be aware, or even care, about the rules that exist within private units

SOME OF THE OPTIONS THE CITY IS EXPLORING ARE

REQUIRING A RENTAL LICENSE & THEN TAXING

THOSE RENTALS BY 20 PERCENT.

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and within common areas of a build- ing, such as no-smoking policies and noise restrictions. There also is liability exposure for the condo association or apartment landlord in regards to inju- ries or property damage related to un- authorized guests. “There is a lot of exposure for the as- sociation, as well as the unit owner in- dividual, if these people don’t behave,” said Lozell. “If these people are in town for a drunk fest, it causes a lot of prob- lems.”

TAKING STEPS TO CURB ABUSE For property managers, the short-term rentals are creating extra work when it comes to policing unit owners, train- ing door staff what to do in those sit-

uations, emphasizing rules in communica- tions to tenants, dealing with problems that arise and assessing fines for rule breakers. It is fairly easy to catch people who are abusing the system, because the door staff is usually pretty savvy when it comes to knowing who belongs and who doesn’t, said Lozell. “Unless you really coach the person who is there to rent, they are the ones who blow it be- cause they say they are here to check in to room #3908 or whatever,” he said. “So, nine times out of 10 it is the visitor that blows it for the condo owner.” Condo properties generally assess a fine to owners who get caught hosting

rentals. In many cases, the fine is mini- mal at $50 or $100 for each occurrence. Considering that some owners can rent out a unit for upwards of $1,000 per week, the risk of a fine might be well worth it for some individuals. Eventu- ally, an association could go through the courts for repeat offenders for non-compliance to association bylaws, but it can be an arduous and lengthy

AIRBNBS HAVE A GROWING FAN

BASE, PARTICULARLY AMONG A YOUNG,

TECH-SAVVY GENERATION THAT

IS WILLING TO SHOP ONLINE FOR LODGING

THAT IS PERHAPS VALUE-PRICED.

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THERE IS LIABILITY EXPOSURE

FOR THE CONDO ASSOCIATION

OR APARTMENT LANDLORD IN REGARDS

TO INJURIES OR PROPERTY DAMAGE

RELATED TO UNAUTHORIZED

GUESTS.

BETH MATTSON-TEIG IS A CONTRIBUTING WRITER FOR JPM®. IF YOU HAVE QUESTIONS REGARDING THIS ARTICLE OR YOU ARE AN IREM MEMBER INTERESTED IN WRITING FOR JPM®, PLEASE E-MAIL MARIANA TOSCAS AT [email protected].

process. “Depending on how far the board wants to go, they could evict some- one for non-compliance of rules and regulation and get control of a unit,” said Lozell. If buildings see that there is a big- ger problem, the homeowners associa- tion can choose to change the rules and regulations, such as implementing a higher fine structure for repeat offend- ers. The Illinois Condominium Proper- ty Act also allows for “reasonable” fines for egregious violations. In addition, if an owner rents out their unit and the renters end up damaging common area property, the board could assess addi- tional fines to that owner. The general practice at the apart- ments Seneca manages is for the prop- erty manager to send a written notice to the leaseholder on a first offense and a cease and desist letter on a second offense, said Tellez. If the renter con-

tinues to break the rules, then the land- lord would have the option to take steps to terminate the lease. Cities also are starting to take no- tice of the proliferation of short-term rentals. San Francisco is one city that passed a vacation-rental law in Febru- ary that requires rental hosts to register with the city. The Boulder City Coun- cil also is discussing how to handle the surge in Airbnbs in that city. Some of the options the city is exploring are re- quiring a rental license and then taxing those rentals by 20 percent, or perhaps

limiting rentals to a max- imum of 90 days per year. However, even for

those cities that have passed laws, they are prov-

ing to be difficult to enforce. For the most part, it is up to man-

agers or landlords to police activity at their properties. Seneca encourages its property managers to be proactive and search local websites for any ac- tive listings at their properties, said Tellez. Although putting its managers in the role of “private detective” isn’t ideal, it is one way to stop the behavior before it becomes a bigger problem.

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