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Thursday, July 30, 2015
August 2015 View Previous Magazine Features
 

Revolving Door - Condo Communities Grapple With Growth of Home-Sharing Services
By: Nena Groskind

As the use of on-line home-sharing services, such as Airbnb, FlipKey and HomeAway, continues to grow, more condominium owners are jumping on this lucrative bandwagon, offering their homes to vacationers seeking a less expensive alternative to hotels. Vacationers like the bargain prices and owners who rent their units certainly like the income, but many condominium associations are beginning to worry about the impact these short-term rentals are having on their communities.
The trend line is clearly pointing up. More than 9 million people in 34,000 cities have scrutinized Airbnb¡¯s listings to date, according to one report; another found that 18 percent of travelers stayed in a rented home in the first quarter of this year ¨C probably understating the volume considerably, some analysts believe.
Short-term rentals are more common in some areas than others. In Vermont, where condominium communities are dominated by second homes, Paul Carroccio, CMCA, AMS, CEO of TPW Management, reports that 30 percent of the units in some of the communities he manages are rented for periods of one week or less. But these arrangements are also beginning to surface in communities where most owners are full-time residents, and where units either aren¡¯t rented at all or are rented for longer periods.

A Growing Concern
Katie Wells, CMCA, AMS, PCAM, a portfolio manager at Mediate Management Company, Inc., says she has seen ¡°a big increase¡± in the past six months in units rented for short periods (two or three days) in downtown Boston properties her firm manages.
The appeal isn¡¯t hard to understand. ¡°Owners are getting $300 or more per night,¡± for some downtown units, Wells notes. At that rate, it doesn¡¯t take very long or very many tenants to blow past the $2,000 or $3,000 per month owners could charge single tenants for longer periods.
For their neighbors, however, the constant parade of visitors they don¡¯t know is unsettling and often undesirable. Security, wear and tear on amenities, and the vacation atmosphere transient residents create are the major concerns. ¡°It changes the residential character¡± of the community, one owner quoted in a recent article discussing the issue, complained. Another said it feels as if her community ¡°is being invaded by strangers.¡±
Most managers don¡¯t like short-term rentals either. ¡°They are definitely a pain,¡± Bob Keegan, CMCA, AMS, PCAM, vice president of residential management at Dirigo Management Company in Portland, Maine, says. Although only a few of the properties he manages allow short-term rentals, they create additional work for him and his staff. ¡°Vacationers treat the property like a hotel,¡± he notes. ¡°They assume someone else will clean up after the mess they make¡± in common areas as well as in the units they are renting. Vacationers are also less considerate of neighbors and more likely to generate noise complaints than longer-term tenants, Keegan says. ¡°They create additional headaches managers don¡¯t need.¡±
Short-term rentals create ¡°an entirely different type of relationship¡± and a different set of problems for managers, Wells agrees. ¡°It¡¯s not what most of us signed up for.¡±

A Business Opportunity
In resort communities, where short-term rentals are more common and more accepted by owners, managers are more likely to view them as a business opportunity rather than a problem. That is certainly true for Carroccio, whose company has developed something of a specialty in this niche during the past three years. It is a unique business, he says, for which he has created a separate division.
Competing directly with the on-line home-sharing enterprises, Carroccio emphasizes the services his company offers that they do not. ¡°Vacationers can book their reservations on-line with us, too,¡± he says, ¡°but we pre-qualify renters by checking their age, ability to pay, their prior history with us, and performing background checks,¡± when associations require them. Home-sharing services, by contrast ¡°don¡¯t even check to see if a credit card is fraudulent,¡± Carroccio notes.
His company also keeps a close eye on renters, who must check in at one of the rental kiosks to obtain keys to the units they¡¯ve reserved. ¡°We have literally turned people away at the gate,¡± Carroccio says, when the party trying to check in included more people than expected or permitted in the unit, or when company employees detected other problems.
Renters checking in after-hours retrieve their keys from a coded lock-box, but someone from the company ¡°greets¡± them at the unit early the following morning to be sure all is as it should be. There are also periodic checks during the stay by housekeeping staff trained ¡°not only to change the sheets,¡± Carroccio says, but also to spot evidence of illegal activity, damage to the unit or violations of association rules.
Residents of resort communities don¡¯t typically object to short-term rentals , Carroccio says, because most rent their properties as well, and don¡¯t perceive shorter (one or two or three-night) stays as any more problematic than longer ones.
Although he sees future growth potential for his company in the short-term rental arena, Carroccio also recognizes that this is ¡°a low-margin business¡± with high operating costs, requiring both volume and the ability to provide quality services. ¡°You have to be the best in the market,¡± he says. ¡°And if you don¡¯t keep your eye on expenses, you can quickly lose your shirt.¡±


Locking the Doors
While Carroccio is looking to add more short-term rentals to his portfolio, many associations are taking steps to keep them out. Most communities have rental restrictions in their bylaws (six-month to one-year rental minimums are common) that preclude shorter-term arrangements; many communities that don¡¯t currently restrict rentals are amending their documents, or considering amendments, to do so.
¡°In the last six months, at least five of our clients have asked us to draft amendments for them,¡± Matt Gaines, a partner in Marcus, Errico, Emmer & Brooks, reports. To avoid unduly restricting vacation rentals in communities where they are important, he suggests minimums of no less than 30 days to preclude shorter term arrangements. He also advises clients to specify in their bylaws that owners must rent the entire unit, not just portions of it. ¡°This will prevent the owner of a three-bedroom unit from renting the two extra rooms regularly to paying overnight guests,¡± he explains.
Communities that have rental restrictions in place are enforcing them ¨C or trying to do so. When informed that their one- or two-night rentals violate the association¡¯s rules, ¡°some owners comply immediately and delete the listing,¡± Wells says, ¡°but others are more combative. They say they¡¯re not really renting their unit, because there¡¯s no lease involved.¡± Her response: ¡°If you¡¯re not renting your unit, you¡¯re operating as a bed-and-breakfast,¡± a commercial venture that also violates association rules.
Owners who persist are fined, and at least thus far, Wells says, none of the associations she manages have had to file suit to enforce their short-term rental rules.
But fines aren¡¯t always effective when dealing with owners of vacation properties, Keefe points out. ¡°If they¡¯re getting $2,500 a week ¨C or more - in rental income,¡± a $100 or $200 fine ¡°isn¡¯t a big deal for them. It¡¯s a cost of doing business.¡±

Enforcement Challenges
Condominium managers and owners aren¡¯t the only ones concerned about short-term rentals. Responding to complaints from their constituents, lawmakers in Massachusetts and several municipalities are considering various legislative proposals for regulating them. (See sidebar on page xx.) But at least for now, Wells thinks ¡°solid condominium documents with enforceable language¡± offer the best protection for communities that won¡¯t to restrict these arrangements.
Enforcing those rules is challenging, however, because it¡¯s not always easy to identify owners who are violating them. Most owners don¡¯t inform the board in advance that they are planning to rent their units, Wells says; they simply join a home-sharing service and start accepting tenants. Boards usually discover the activity ¡°by accident,¡± she says, ¡°when neighbors notice people they don¡¯t know wandering through the building, looking for the laundry room.¡±
Managers can try to spot illegal rentals, but monitoring the listings isn¡¯t easy either. Among the problems, Wells notes: The on-line services charge a fee for access to their listings, there are thousands of listings to check, and the generic descriptions (¡°elegant building with luxury furnishings and ample space in a great downtown location¡±) make it difficult to identify specific properties. If the listing includes a photo, managers are likely to recognize the building, Wells says, ¡°but it¡¯s not easy to play detective.¡±
Short-term rentals are still a relatively new phenomenon in condominium communities, Wells notes, and ¡°managers are just starting to deal with the problems they create.¡± But with home-sharing services likely to become more popular in the future, she fears, absent legislation of some kind to address the problems, ¡°they are likely to get worse over time.¡± ¡õ

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