Industry Update
Opinion Article11 May 2020

Coronavirus May Kill the Airbnb Superhost

By Larry Mogelonsky, Managing Director Hotel Mogel Consulting Limited

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All of travel is taking a beating from the pandemic. None are excluded and the situation will continue to play out over the next two years as some organizations adapt while, unfortunately, others die out. Looking at the sharing economy, though, there are some interesting side effects from this crisis that might be advantageous for traditional hoteliers.

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Initially (late February), right as social distancing, lockdowns, flight restrictions and quarantines were being issued throughout Europe and North America, I had thought that COVID-19 would favor these alternate lodging providers. This was due to each accommodation's relative isolation compared to that of a standard hotel property. Instead of checking in via a well-trafficked lobby for a high-turnover guestroom, travelers often only have direct contact with a singular host (or none in the case of electronic keypads).

But then our consultancy workshopped a contrary scenario stemming from many conversations with owners who have had to pull the plug on all opex and have come to us for valuations in case they need to sell. As more and more of these travel restraints were put in place around the globe, the home-sharing market was forced into a similar situation as the rest of us, with proprietors and hosts looking at zero occupancy on the books for the next few months while the bills still need to be paid.

And it's this last part that's critical to understand insofar as how hotels are uniquely adept at weathering this tempestuous storm over the likes of Airbnb, VRBO, Homestay and other platforms of this ilk. Traditional hotel properties are capitalized differently than the average small-enterprise proprietor trying to make a buck by listing a place on a home-sharing website. Moreover, traditional hotels will likely have preferred access to any institutional stimulus packages.

In most cases, once hoteliers go through the painstaking process of shedding away all mission critical operating expenses (including most labor), we then have a longer tarmac and a better standing with the banks than, say, a ghost hotel operator who has leveraged ownership in several disparate accommodations to purchase several more. Put another way, while each home sharing's margin of revenue to operating costs on each night's stay may be drastically more than that of a hotel, their per-unit fixed costs are oftentimes substantially greater than those for a traditional property.

For a bull market, any per-unit cost inefficiencies on the home-sharing proprietor's part are more than adequately buffered by incoming revenues, thereby strongly incentivizing the acquisition of more units and other forms of overcapitalization. But now as we are thrust into a negative growth environment, all those mortgage annuities, property taxes, apartment maintenance fees and utility bills become unsurmountable for an unincorporated sharing economy operator.

One important note at this juncture is to segregate individual homeowners from ghost hotel proprietors. For the former, these individuals will be just fine. Rather than occupying the guest house or spare bedroom with a stranger, they simply temporarily mothball the space or convert it back into the boudoir or hobby room that it was before the sharing economy became a mainstay.

For the ghost hotel operator, however, this foreclosure sequence of events may apply. To stave off a total bloodbath and depletion of its global inventory in major markets, Airbnb promptly created a host relief fund that numbers in the hundreds of millions of dollars, but this still may not be enough to get all the superhosts through unscathed if the pandemic persists for much longer.

Governments will not be as inclined to block the banks from claiming apartments or secondary houses that are not the primary residence of said super hosts. To mitigate their loses, one strong option may be for these operators to convert their spaces into long-term rentals with leases of a year or more. These arrangements are typically come with tenants' rights requirements, making conversion back into the short-term rental market near impossible.

In many ways, this real estate cascade of events could end up acting like a miniature version of the 2008 subprime mortgage crisis but only affecting a far narrower class of landowners. It would nevertheless have the effect of cooling overall housing and long-term rental prices in a given market as well as reducing total short-term room inventory to help drive up RevPAR for traditional hotels once travel restrictions are lifted.

This is all besides numerous other factors already at play, some of which are also to the hotel's advantage, such as our adherence to more rigorous housekeeping SOPs over home-sharing operators to thereby give our rooms the perception of being more hygienic.

If there's one bright light at the end of the coronavirus tunnel, it's that this outbreak may force the insolvency of those pesky, and largely illegitimate, ghost hotel operators that we have been trying to regulate for nearly a whole decade now. Ultimately, this is one possible outcome and yet another news item to keep tabs on over the next quarter.

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