Apartments Introducing Short-Term Rentals: The Game Between Profit Appeal and Living Experience

When Kirsten Jackson and her roommate moved into the sixth floor of a brand-new luxury high-rise in downtown Dallas, they were full of anticipation. The apartment's amenities were enticing: an infinity pool overlooking downtown Dallas, a clubhouse with a billiards table and shuffleboard, and a gym that met fitness club standards—all located on the sixth floor as well.

During the first six months after moving in, Jackson's experience was quite pleasant. She enjoyed interacting with her mostly twenty- and thirty-something neighbors and participating in community events like themed parties. "Our experience here made us very happy," Jackson said. "We loved it here; everything was great."

However, this February, the apartment manager announced a so-called "latest amenity"—introducing Airbnb short-term rentals. This change significantly diminished the living experience for Jackson and other long-term residents. "There are two of us girls living on this floor, and it's also the floor where all the amenities are," Jackson said. "We are very concerned about privacy."

Jackson's experience reflects the various challenges apartment operators may face when introducing short-term rentals. If handled improperly, previous investments in resident experience and amenities could be wasted. Nevertheless, management companies, including some industry giants, still see revenue opportunities, especially amid declining occupancy rates, although most companies declined to comment. Short-term rentals allow owners to monetize vacant units, thereby maximizing profits.

"People are willing to pay higher rates for stays of a few nights, a few weeks, or a few months," said Brian Carrico, co-founder and CEO of The Guild, a short-term rental management company based in Austin, Texas.

Community Atmosphere Disrupted

Since Airbnb guests moved in, the problems in Jackson's building have been most evident in the pool area. "I'm lying out in the sun," Jackson said, "and men will come over, either trying to chat me up for my phone number or asking where the nearest mall is. I no longer feel comfortable."

Jackson also said she spent a lot of time acting as a guide for short-term guests. She is not alone. "Airbnb guests are always getting lost," said one resident who wished to remain anonymous. "They have no idea what to do. In the elevator, strangers will ask you to press the button for their floor."

The building's amenities have also been affected. Residents pay an amenity fee to use the clubhouse, gym, and pool, and initially they were told they could use them 24 hours a day. "Now everything closes at midnight because someone broke the golf simulator or smashed tiles in the pool room," Jackson said. "We still pay the fee, but we get less access time."

Traces of Airbnb guests are not only visible at the pool and in common areas. Hallways sometimes become messy, and carpets have stains. Residents also reported that the gate to the parking garage was covered with lockboxes for guests. Airbnb, based in San Francisco, did not respond to Multifamily Dive's request for comment.

"Visitor parking is severely insufficient," said the anonymous resident. "After the short-term rental program started, all visitor parking spots were reserved for short-term guests. There were also times when the gate was broken for six to eight weeks, and security was virtually nonexistent during those periods."

Cautious Observers

Jackson's experience serves as a warning for property managers considering short-term rentals. Whether through management companies or individual residents, allowing short-term rentals has been a long-standing topic in the industry. Companies such as Houston-based Hines, Atlanta-based AMLI Residential, Houston-based REIT Camden, Atlanta-based Novare Group, and Bozzuto of Greenbelt, Maryland, have all used short-term rental models.

AMLI continues to offer short-term rentals, partnering with San Francisco-based Kasa, which manages entire floors in new buildings in cities like Chicago and Denver. These projects help boost occupancy in buildings AMLI is leasing up. But limiting short-term rentals to entire floors is not solely for this reason.

"We found that if you scatter a large number of units among residents, it's harder for them to accept, whereas if you plan for entire floors of short-term rentals from the start of the leasing operation, it's much better," said Maria Banks, President and CEO of AMLI Management Co. "It's not an added change to an existing asset."

Other companies are more cautious about introducing short-term rentals. Chris Finlay, founder and CEO of Middleburg Communities, an apartment owner, manager, and developer based in Vienna, Virginia, avoids short-term rentals. His primary concern is safety.

"The number one thing in renting is safety and security," Finlay said. "You need an environment where you feel safe and can recognize your neighbors. If different people are walking through the hallways every day, most residents won't like it."

Others worry that a high volume of short-term rentals means managers constantly need to fill apartment vacancies. "If you're not careful about lease expirations and always trying to keep up with the pace of short-term rentals, you could end up in a never-ending state of leasing," said Dana Caudell, president of property management at The Bainbridge Cos., an apartment operator and builder based in Wellington, Florida.

Nevertheless, Caudell has not completely ruled out short-term rentals. "We've looked into it, but we also always consider the feelings of existing residents," Caudell said. "I know there are concerns. We've had discussions with several short-term rental companies, but we haven't taken action yet."

Atlanta-based owner and manager Cortland also avoids large-scale use of short-term rentals, although some of the properties it has acquired already include them. "In certain cases, we keep them for monitoring and evaluation," said Mike Gomes, Chief Experience Officer at Cortland.

Gomes said Cortland is "not completely opposed" to pursuing short-term rentals on a larger scale but would take a targeted approach based on surveys. "If we find that certain types of jobs and residents show more interest in short-term rentals," then the company might offer them in communities targeting that resident profile.

Gomes also sees revenue opportunities in short-term rentals, but there are operational and legal complexities because some cities, such as New York City and San Francisco, prohibit or restrict them. "Even though there might be net incremental revenue, is the revenue significant enough to warrant changing how we operate?" he said.

Meeting Short-Term Demand

Entrepreneurs like The Guild's Carrico say they can resolve conflicts with existing residents like Jackson and help owners like Gomes avoid restructuring operations. These companies manage short-term rentals on behalf of apartment owners, easing the burden on property operators, and then list the units on platforms.

These short-term rental operators typically use one of two models: either they lease apartments from the property manager and sublet them at a higher rate than the rent, or they take a percentage of the rental income. For vacation rentals, these fees can range from 12% to 50%.

Although the pandemic eliminated some short-term rental operators, many remain, such as The Guild, San Francisco-based Sonder, and Washington, D.C.-based WhyHotel (recently renamed Placemakr). As they have grown, The Guild and Placemakr have expanded beyond short-term rentals to operate entire buildings, offering apartments to both long-term and short-term residents.

In March, Placemakr secured $90 million in equity financing for growth and property acquisitions. In January, The Guild acquired CREA Management, the property management division of Cypress Real Estate Advisors, which has 5,000 units across four major markets.

Carrico believes the problems faced by Jackson and her neighbors stem from missing processes, such as guiding guests through check-in via email and text messages, or setting up self-service kiosks and signage to direct guests to their rooms and amenities.

Carrico said managers can also proactively manage issues like short-term guests overusing common spaces such as the pool through planning, staffing, and communication. Banks said Kasa quickly resolved issues in AMLI buildings.

"We have staff on-site on weekends and clearly communicate the rules in advance," Carrico said. "If guests violate the rules, they receive a warning. If they can't comply, we have to ask them to leave."

Carrico believes long-term residents can also benefit from the services that his company and other short-term providers offer on-site, such as 24-hour concierge service. "If your Wi-Fi is down, you need help bringing a friend upstairs, or you need additional parking, these can all be resolved within 24 hours," he said.

Although these services may benefit long-term residents, Jackson and her friends would prefer a clean living environment without interruptions, without having to answer strangers asking for directions or making advances. Ultimately, she and her roommate chose not to renew their lease because of the short-term guests.

"No one I know in this building is happy about this," Jackson said. "It feels like living in a hotel, and not a good one."

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