With worldwide travel spending estimated to decrease by $810 billion in 2020, companies from every part of the travel industry are experiencing a massive drop in revenue. We’ve all seen the headlines about Marriot and Airbnb’s valuation reductions, but most articles haven’t focused on the smaller players; the people who give visitors their first impression.
For that reason, I decided to write about how Chicago’s short-term rental (STR) operators and those who service them have adapted the drop in travel demand.
Overall, I was surprised by the resiliency of the people I spoke to, their insightfulness, and optimism for the future. I also learned how ingrained short-term rentals have become to the city. From apartments doubling as art galleries to property managers who employ dozens of people, it’s clear that Chicago’s STR operators are a critical part of the economy and culture of the city.
Here are the trends I noticed:
- Many STR operators have not yet converted their short-term rentals into long-term rentals (12 month+ leases), although many have considered 1-2 month bookings to cover their expenses
- Most anticipate higher priced bookings when demand recovers due to financially weak operators folding
- Most have time horizons of 1-3 months before they are forced to make difficult decisions about the future of their space
- Those with mortgages or rent were either already able to work out agreements or expect to work out a relief plan if needed
- While many STR operators didn’t agree with Airbnb’s decision to give guests full refunds due to COVID-related cancellations, they understood why the decision was made
- Many hope to expand aggressively when travel demand picks up
Matthew, Property Manager
Matthew is the owner of several condos in Riverwest called Open House Contemporary. When not hosting guests, the condos double as art galleries. For local artists, it provides exposure and a source of income. For Matthew, it’s a fantastic marketing tool. “It’s a great way for someone who hasn’t been exposed to art to gain an appreciation. Hopefully they go on to support the art community afterwards”
He is also a property manager for 22 other STRs. Although he’s seen his bookings dry up and he has two employees, a bookkeeper and a maintenance person, he remains optimistic. “My clients have been pretty understanding.” For properties that he rents, he’s been able to work out agreements with his landlord. He did point out that he doesn’t qualify for Airbnb’s relief program, “which is a bit annoying because I made them about $100k last year.” Like many others, he mentioned that he understands why Airbnb made their decision but thought they could have done a better job on the execution.
Domini, STR operator
“I firmly believe travel opens the mind and opens the heart” says Domini. A mother who grew up in England and Hong Kong, she went into the short term business because “the mix of art, travel, and hospitality was perfect for me. I personally meet every guest who stays with me.”
When we spoke about Airbnb’s response to coronavirus and how STR operators have reacted, she was very clear that “people need to understand that this is a hospitality business. If people can’t travel, I give full refunds.I just hope they consider me the next time they are in town.” She owns all of her properties and is not considering converting her space for a longer term tenant at the moment.
Zafar, STR operator
As a former Big 4 consultant who holds degrees from both Columbia and the University of Chicago, Zafar speaks effortlessly about the after-effects of the last mortgage crisis.“Foreclosed properties sat vacant for 4 years on average. More than likely a lender will want to work with you if you want to work with them.” He owns 30 properties in the Chicago area, with third operating as STRs and the rest on either long-term residential or commercial leases. Since the outbreak of coronavirus, Zafar has raised his daily rates on his STRs. “If I get an $8,000 booking, I don’t want a 1 or 2 day booking to stop me.”
While he hopes to keep his properties, Zafar does not plan to make his next couple mortgage payments. He can afford to pay, but he believes that the non-payment rate of mortgages will be high enough that the federal government will have to step in to stabilize the market. If that’s the case, he doesn’t believe he would lose possession of his properties for a few missed payments. On the other hand, if he were to lose his properties, then at least he saved money on pointless mortgage payments.
Melissa and Danny, STR operator
“If we aren’t embracing the spirit of what this technology enabled, opening up your home and helping others, then we shouldn’t be in business” says Melissa. We talked for over 30 minutes about the importance of running an ethical business and as Melissa says “this is a business.” But she also made it clear that it was her job to do right by her customers and vendors, including the cleaning company that turns her place. She noted that she paid her cleaner in advance despite no bookings in April.
Melissa and her husband Danny own a property in Logan Square that they bought to list on Airbnb. Danny works in sales at a technology recruiting firm and Melissa works in consumer behavior. When they bought their property, it was a strategic, long-term plan for them.“We have options, we aren’t solely relying on rental income to support ourselves.” They are taking a wait-and-see approach until demand picks up.
William, Property Manager
William started his STR property management company, Domain Homesharing Management, in early 2019 because of what he humously calls “an allergy to conventional employment.” With some simple SEO and a hot market, he quickly grew from just a couple clients to over 14 before briefly pausing expansion to optimize his operations. When coronavirus hit, he saw his bookings evaporate practically overnight. “I curled up in a ball. Then picked up my head and got back to work.” He says his clients have stuck with him for the most part, although he did note that a couple have since switched to longer term rentals. For now, he’s using his time to prepare for when demand picks up and think about the future of the industry.
Up until this point, STR operators have relied on Airbnb to be the voice of the industry. But the motives of Airbnb and its hosting partners aren’t always aligned. In order to ensure small STR operators are heard, William believes there needs to be more organization at the local, state, and federal levels.
Kai, STR operator
Kai and her business partner started their first short-term rental at the beginning of 2020. It wasn’t a great start; they only had a few guests before the bookings stopped. But this isn’t their first rodeo together, Kai and her partner run a full-service real estate firm called Bandele Properties. “I read Rich Dad Poor Dad and quit my job on Wall Street to work for myself,” says Kai. And despite no revenue from their STR, it hasn’t devastated their business. “Diversification is key. We aren’t relying on that income.” At the moment, they are actively looking for other channels such as corporate housing or traveling medical professionals to fill the demand gap.
Elizabeth and Dan, STR operator
Elizabeth and Dan originally bought their two story property in Logan Square because they both wanted to use the upper space for family and events as well as rental income. They decided to use the space as a short term rental because of the flexibility and as Dan says “I don’t want awkward conversations with a tenant at the mailbox.”
Dan works in the financial services industry, and Elizabeth is the founder of a digital marketing firm. She saw revenues drop significantly and has had to lay off one of her two employees. At the moment, they are waiting until demand picks up and have a time horizon of 6 months before they have to look at their other options. Like everyone else I spoke to, they seemed optimistic despite the circumstances.
Stephanie, STR cleaning provider
Stephanie, a former law and economics student, is the owner of an STR cleaning provider. Her company specializes in STR cleans (or “turns”). Up until the drop in demand, she was servicing over 60 listings in Chicago. Despite having to lay off her entire cleaning staff, Stephanie said she appreciated the slowdown because it gives her an opportunity to make adjustments to her operations. “I’m making changes that I should have made before but never had the chance to because of how busy we were.”
Deb, STR operator
Deb owns a 4 unit apartment building in Edgewater. Last year, she converted one of them into an STR and saw above market returns until recently. She now plans to put the unit back on the long-term rental market. “I only have 4 apartments so if one of them is vacant, it makes it difficult to cover my mortgage.” She doesn’t expect she’ll return to the STR market, even when demand picks up.
Aja, STR operator
Like most others, Aja has seen her bookings vanish at her two Engelwood properties. “I’m taking it day by day. I keep looking at the news.” She mentioned she paid her April rent but expects she can work out a relief plan if needed.
Bonus Round: Yazan, Coliving provider
Coliving is a business model that serves renters looking for a living community anywhere from a couple months up a year. People live in communities, often houses in expensive markets, with services like housekeeping, fully furnished bedrooms, and events included in the cost. It’s an attractive alternative when the cost is often comparable to a studio apartment.
Yazan is the founder of Subletinn, a Chicago-based coliving provider. When travel advisories were issued, many of his tenants were foreigners who decided to return home either because they lost their jobs or were worried they wouldn’t be able to leave the country. “We sent out an email saying if you need to leave, just let us know and we’ll work with you. We’re building a brand for the long term.” Yazan believes that, despite what happens in the travel market, he will see an uptick in interest from domestic renters looking for a budget-friendly yet upscale option.