Tuesday, January 1, 2008

Their home is your hotel: More New Yorkers renting out their apartments as room rates skyrocket

The Real Deal
December, 31, 2007
Author: Lisa Abramowicz

Hotels are getting more competition from New York residents who are acting as innkeepers and opening their doors to tourists looking for a cheaper stay and a more authentic New York experience.

That shift is helped by the role of the Internet in brokering transactions between apartment owners and potential short-term renters. In November 2006, city residents advertised 10,484 apartments as vacation rentals on Craigslist, the general clearinghouse site. A year later, that number spiked to 14,434, a representative for the site said.

A recent survey of the site showed an entry for an Upper East Side property under the headline, “Why pay for a hotel when you can have a great studio for less?” Another advertised a “charming” East Midtown apartment available for Christmas.

According to the city’s marketing and tourism arm, NYC & Company, the average cost of a city hotel room hovers around $300 a night, and occupancy rates run upward of 90 percent. “It is no secret that New York City is one of the world’s most popular tourist destinations,” said Mark Eble, vice president of PKF Consulting, which studies the tourism industry throughout the United States. “Hotel rates are the highest in the nation and among the highest in the world.”

HomeAway.com, a short-term rental site that has acquired main U.S. competitors vrbo.com and vacationrentals.com in the past 18 months, commissioned a recent study that found that city hotels are 61 percent more expensive per square foot than renting a resident’s apartment for a week.

As a result, according to Justin Halloran, vice president of U.S. operations for HomeAway, New Yorkers are receiving more inquiries from tourists than property owners anywhere else in the country. Halloran, who says his site represents 95,000 vacation properties throughout the country, said he has seen a substantial increase in available vacation rentals in the city since June.

Eric Guttridge advertises his 700-square-foot Chelsea apartment on CyberRentals.com, an affiliate of HomeAway. The listing describes the one-bedroom as a “luxury” apartment on the 14th floor of a new building with views of the Empire State Building and an outdoor terrace. He is asking $275 a night and said he has managed to rent it out every weekend while he goes away to his vacation home outside the city.

“We’ve had great people,” said Guttridge. He said his customers come from Europe and the West Coast as well as other regions.

While interest for city vacation rentals continues to increase, the number of available apartments has kept pace, Halloran said. Since June, the number of city rentals available through HomeAway’s 11 affiliated Web sites increased from 125 to 176. That included a doubling of available Manhattan apartments, which numbered 62 in June and is at 124 today.

According to Jim Buckmaster, Craigslist’s chief executive officer, the number of vacation rentals posted on Craigslist has increased at a faster rate than the number of regular apartment rentals or housing swaps.

In the last year, the Web site saw a 40 percent increase in the number of short-term apartment rentals. That compares with a roughly 30 percent increase on longer-term rentals and about a 25 percent increase in the number of posted housing swaps. About 85 percent of the Web site’s vacation rentals and housing swaps are in Manhattan; 10 percent are in Brooklyn, 3 percent are in Queens, 1 percent is in Staten Island and less than 1 percent is in the Bronx.

Part of what has traditionally kept the short-term rental inventory limited here is the obstacles to creating units explicitly for this purpose. Building developers who might be tempted to tap into this growing demand run up against the city’s notoriously high development costs and zoning hurdles.

In other regions in the country, hotel chains have moved into the timeshare market with full force. When customers decide they aren’t going to need an apartment for the entire period they’ve reserved, the hotels will sometimes rent them out in the form of vacation rentals.

In New York City, hotels have been slower to get into the timeshare business and thus the derivative business of vacation rentals.

“It is interesting that none of the major hotel chain timeshare players have yet decided to offer a product in New York,” noted tourism consultant Eble.

Another obstacle to vacation rentals’ growth in the city is the myriad rules that govern co-ops here. Yet another is the city ordinance that prohibits those who live in rent-controlled apartments to rent out their homes for more money than they would pay per month.

New York City Council Member Gale Brewer is pushing for legislation to make it more difficult and costly for landlords who illegally convert residential buildings into hotels. She said she supports the idea of vacation rentals “as long as you don’t lose your home” in the process by bringing in more money than is legal under rent-control guidelines. That, she said, could lead to an eviction.

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