The 1984 teen sex comedy classic “The Wild Life” featuring the late Chris Penn, Back to the Future’s (at least for 10 weeks) Eric Stoltz, Professor Ilan Mitchell, (Yes, he is really a professor) and Sherilyn Fenn, in her big screen debut, had a massive party which served as the climax of the film, because it is not a teen sex comedy without a party, resulting in the destruction of two rental units.
I bring up the “Wild Life” because it is perhaps one of many worst-case scenarios that could be associated with the lodging tool, Airbnb. Since the arrival of Airbnb the site has caused a firestorm of controversy with their business of allowing people to turn their homes into short term rentals. There are people out there who are actually buying apartments to rent out through Airbnb and if they are unable to buy, they are renting out apartments to use as their own inventory for Airbnb. Now Airbnb is going toe to toe with the NYS Attorney General.
However, Attorney General Eric Schneiderman is the least of their worries. Airbnb should should be dropping a load in their pants over the short term renting of condos and co-ops. Especially co-ops.
Renters have always tried a way to finagle extra cash out of their home even at the risk of being evicted. The two groups that have been especially resistant towards illegal sublets are condos and co-ops. Condos are considered to be quite popular amongst investors because they are simple to manage and condo boards are more lenient towards renters as long as candidates pass the financial requirements; however short terms renters are something that condo boards frown upon.
Co-op boards are far more vicious when it comes to renting, long term or otherwise. In my experience, co-op boards have requirements that make it difficult for an owner to play landlord, which includes placing limits on the number of years that sublets are allowed.
So how is this bad for Airbnb? Well, do you think only tenants of rental buildings are using AirBnb? Hells no. Every co-op and condo owner/renter who wants to make some quick cash on the side is hitting that site. And who lives in condos and co-ops? The middle class? Yes. But a massive chunk are the 1%. And their numbers are growing. The Great Jonathan Miller sums it up best:
“We’re building the equivalent of bank safe deposit boxes in the sky that buyers can put all their valuables in and rarely visit,” said Jonathan J. Miller of the real estate appraisal firm Miller Samuel.
Remember that incident with those bikers who beat up that SUV owner? That particular aspect of biker culture has been around for quite sometime. However, they kept amongst themselves. But once they started spreading out and harmed a member of the 1%, that is when the crackdown began.
It is not a matter of IF but WHEN an enterprising owner/renter of a condo/co-op will use Airbnb and take in the wrong customer that will have consequences for all parties involved. I am not talking about noise complaints; I am talking about an incident akin to the biker beat down which will result in bodily harm, destruction of property and irrevocably lower the value of a building.
The real eyes and ears of a building are not the ones who live there but the ones who work there. Of course it should not be surprising that given the right incentive, some of them would be willing to become deaf, dumb and blind when it comes to a resident doing an illegal sublet. And like the biker incident, which exposed the involvement of NYPD, an incident involving an Airbnb customer could expose the others players involved in the illegal sublet game.
If a "Wild Life" incident were to occur in a building of the 1%, it would be catastrophic for all parties involved and expose the true inner workings of a building’s underground economy. The co-op board would go on the warpath due to the liabilities incurred because of an Airbnb customer. It would be a nightmare for any insurance provider in covering the damages and that is assuming those types of damages are covered under the policy.
So why should Airbnb and their backers care? After all, they are probably cocooned with LLCs and lawyers protecting them from this type of unpleasantness.
Well, where do you think the 1% put their money? Beside the Cayman Islands, they put the bulk of their cash in Wall Street. Where do you think DST Global Solutions, Greylock Partners, Sequoia Capital, General Catalyst Partners and other backers of Airbnb get their money to play venture capitalist? Just from the tech community of Silicon Valley? Hells no.
If a building of a one percenter ends up suffering catastrophic harm because an Airbnb customer decided it would be a good idea to do an reenactment of the Gunfight at the OK Corral with roman candles, it is very likely that retribution will be swift, painful and ever lasting. What would obviously take place is that the 1% will gather up a posse of puppy eating lawyers with marching orders to eradicate Airbnb at all costs. The 1% could also pull a Don Corelone and send horse heads to all backers of AirBnb in the form of putting Wall Street on notice. If Wall Streets wants any of that sweet OPM that the 1% provides to all the hedge funds and investment banks then Wall Street must cease any relations with the backers and founders of Airbnb. And the financial services sectors from all over the world will also be in lock step because the 1% are like Kevin Bacon.
When that occurs Airbnb will be in deep s**t. Any IPO or plans of being acquired will go up in smoke. The backers will be lucky to get back even half their investment. It does not matter that AirBnb donates money to politicians. The 1% also donates money to politicians. And they donate a helluva lot more.
The bottom line is that when you violate the sanctity of the homes of the wealthy in Manhattan, you are sending an engraved invitation to them that states “Please come kick my ass.” Which they will gladly accept and bring their friends to share in the fun.
Unless Airbnb institutes stringent measures in their platform to prevent illegal sublets, it is just a matter of time. For all you condo/co-op owners out there, just pray your building does not set the precedent.