Why is AIRBNB doing gap financing for apartment build? This should be alarming to str

Question

This plot of land used to have a home depot on it and is now owned by the city. Its now slated for apartments. It seems that the developers are needing gap financing. It also seems that Airbnb is doing gap financing. This is very interesting for several reasons.

Why is Airbnb stepping into the finance niche? This is very different than their operations. Maybe they don't want to put more money into their normal operations. If I were an investor in Airbnb I would be very concerned given that their pe ratio is a very high 38 ratio.

It will be "affordable housing". An affordable housing community right around the corner is offering 1/2 month free rent. Is there a demand for it? Doesn't look like it. Dump airbnb stock.. : )

https://cbsaustin.com/news/local/airbnb-announces-64m-invest...

Igor Ganapolsky · Answer

Aaron, your instinct about this being a public image play is probably right, but I think there's a deeper strategy here. Airbnb is essentially vertically integrating their supply chain.Down in South Florida, we've seen a lot of STR operators get squeezed by local ordinances - Miami Beach, Fort Lauderdale, they've been cracking down hard on short-term rentals in residential zones. A lot of those operators are now looking at longer-term holds because the regulatory risk is too high.What Airbnb is doing with this $64M gap financing is basically ensuring they have inventory that's friendly to their business model. If they're financing the development, they can structure the units to work as STRs from day one. It's smarter than fighting cities one at a time on zoning.The part that's interesting to me as someone who buys at tax deed auctions is what happens when these "affordable housing" projects don't pencil out. If the demand isn't there - like you mentioned with the half-month free rent specials - those units are going to sit vacant. And vacant properties don't pay property taxes. Which means they end up back at auction in a few years.It's a cycle. Developers build something that doesn't have real demand, it fails, the county takes it for taxes, and guys like me buy it at auction. I've picked up properties in Broward that were originally part of affordable housing projects that went belly-up.The real question is whether Airbnb understands that real estate development is a completely different business than running a tech platform. They're good at software and marketing. They're not necessarily good at understanding whether a specific plot in Austin actually needs more apartments. Your skepticism is warranted.

Aaron Gordy · Answer

@Michael K Gallagher "affordable housing" is subsidized by government so that the rents are kept lower. The tenants usually qualify at 2x instead of 3x rents. I put "affordable housing" in parenthesis because even those rents can be unaffordable for some.

Going from a service oriented business (a platform for short term rentals) is very very different than financing. Lending is specialized. So what that means to me is that Airbnb is loaded with money but not putting it into their business to make their platform better, the str operators businesses better or the str tenants better experiences.

It could be a public image strategy with the attempt to ease local ordinances with regards to str. I could understand that strategy but they are battling some major hotel chains that prefer the ordinances to restrain the competition.

Michael K Gallagher · Answer

not familiar with the specifics of the market but would be curious specifically, to your point, what is meant by "affordable" is it part of a subsidized program or they are just planning to offer the units at an "affordable" price point in the market?

as for motivation, i mean there's usually something nefarious with these companies but giving them the benefit of the doubt most investors look to make cashflows and higher revenue in short term rentals and then put those profits away into longer term assets, perhaps the parent company is just doing the same?