Fleets of AirBnBs in region run by management companies, out-of-town owners

Dec. 12—TRAVERSE CITY — The house off of Meadowfield Lane is beautiful.

Tucked into the woods off a main junction in Harbor Springs, it boasts a fireplace living room, a large yard perfect for playful children, and an easy commute to some of the region's most beautiful natural treasures.

Last year, it sold for $262,000 by a local elementary school teacher to a Wayne County businessman. It was remodeled with a mid-century touch and at least two additional bunk-beds before being listed on AirBnB by its new owner.

Since then, the home-turned-getaway is among the most popular short-term rentals in the region, bringing in passive profits for both its owner and an out-of-state rental management company, Evolve, which takes a 10 percent cut — the same rate Evolve charges to manage more than 100 northwest Michigan listings.

The real estate market in northwest Michigan is evolving. Individual investors, realtors and management companies are coming to roost in homes along lakes and coastlines, buying up residential properties and renovating them as experiential, fresh-coast living for vacationers from across the country.

In the past three years, that change dramatically accelerated. The heat of the short-term rental economy is increasingly redirecting housing toward itinerant guests, rather than local residents. Yet, despite creating local jobs, that same tourism economy undermines regional development, say housing advocates, township officials and even some local property managers who are watching fewer and fewer homes remain for the working-class families that live here.

Big Business

Data from InsideAirBnB — an activist, watchdog website — show the number of listings in the northwest Lower Peninsula quadrupling in recent years. From Leelanau to Emmet counties, 4,210 AirBnB listings appear on the company's site, up from fewer than 1,000 at the beginning of 2018. Grand Traverse County accounts for a quarter of the region's listings, with hundreds of rentals cramped into Traverse City proper.

The most profitable of these listings are often large, multi-family homes located along lakefront or riverside property. But the site data also show hundreds of homes, apartments, condos, cottages and lofts situated either downtown or in suburban areas — homes where the lights will be kept on by a rotating cast of inhabitants at the peak of the summer season, and then flutter with sporadic visitors from October until June.

Property owners are various. Some AirBnB owners live in town and invest in a property with the aim of scaling up to four or five properties in the span of a decade. A handful of local management companies operate similarly.

Meanwhile, other owners live downstate or out of state. Data show 45 listings owned by hosts based in Florida and 37 in California.

Hundreds of other homeowner locations are masked by rental management companies, such as Evolve and Vacasa, which list and manage homes on behalf of owners who are known only to the guests, management companies, and township licensing departments, if they exist.

Management companies like Evolve have a vested interest in bringing in new home-buyers. Evolve advertises as a "hassle-free way to get into the industry, especially if you're unsure where to start."

Prospectuses by Evolve, which is based in Denver, show that investors turn a median $38,000 per year on properties in Traverse City.

It also solicits buyers to northwest Michigan: In August, the company advertised Traverse City as the No.2 destination to buy waterfront property, just after Surfside Beach in Texas.

Surfside directly flanks Galveston, a popular Texas beach town. In October, a data analyst with a consulting firm described Galveston as being "eaten alive" by short-term rentals. Evolve also manages properties in Galveston and Surfside, although the Record-Eagle doesn't have data to show how many.

Ashley Taylor, senior manager for communications for Evolve said monthly bookings increased by 94 percent since the start of the pandemic, and that they view rentals as a driver for economic growth.

"We believe that [vacation rentals] are often an easy target for issues that are much larger macro-challenges," said the company statement.

Taylor said it had yet to become involved in community discussions in northwest Michigan, and that it partners with Rent Responsibly, a website that says it helps short-term rental owners better partner with businesses and governments within that owner's community.

Another management company, Vacasa, holds more than 60 listings in the area, a small portion of more than 35,000 listings nationwide, according to the company's most recent financial filing.

Vacasa's business model is also built around buying up smaller, local management companies — the kind which long-characterized northwest Michigan tourism before the rise of AirBnB and other online rental platforms. It has been immensely successful — the company went public this year at a valuation of over $4 billion.

Chris Dekker, Vacasa's senior manager for Michigan and Wisconsin, said the company plans to continue supporting rentals in northwest Michigan, as well as pointing to a corporate social responsibility program of its own and a Harvard Study which found that rental restrictions would be harmful to economic growth.

The study was conducted by a group of professors, the majority of whom are also advisors for venture capital or real estate-facing tech companies.

AirBnB declined a request for an interview, but provided a statement attributable only to a spokesperson. The statement said listings make up less than 5 percent of the housing stock in any of the seven counties, and raised concerns with the integrity of third-party data. However, the company did not dispute the number of listings in the region.

"Airbnb is a tool for economic empowerment that helps northwest Michigan families participate in the region's long-standing tourism economy and earn meaningful income to pay their bills. In fact, according to a survey of our US Host community, 42 percent said the money they earned on Airbnb helped them stay in their homes. As our data confirms and a number of experts have concluded, home sharing is not a meaningful driver of the housing affordability crisis," said the AirBnB spokesperson.

By contrast, short-term rentals are one of several reasons listed for the regional housing shortage by Housing North, a group founded in 2018 to problem-solve the housing supply shortage. Other reasons include real estate market inflation, zoning and the cost of labor and goods.

"They are coming in with gobs of money," said Yarrow Brown, executive director for Housing North. "What's happening nationwide is it's becoming a more corporate opportunity. It's not a couple having a second home doing AirBnB. It is a corporation signing up properties and renting them out — and making a lot of money."

Brown also is concerned that quick, cash buys from short-term rental investors are driving up area home prices for others. Sometimes, cash buys that go for above listing price can reset neighborhood housing prices, raising them in relation to that purchase.

"The million dollar question is how is this impacting the real-estate prices, too?" said Brown.

A Tale of Two Townships

"Come on vacation, leave on probation."

That's the saying referenced by Chuck Korn, Garfield Township's supervisor, when he recalls the first complaints about short-term rentals.

In 2015, residents on Silver Lake — two-thirds of which is within Garfield — began to complain to the township about parties at rented lake houses. Longtime lake residents were frustrated, at times calling the police on outdoor campfire parties stretching into the late hours of the night.

The township hosted public comment sessions on the issue. Korn said the township heard from short-term rental owners and neighbors. Ultimately, officials decided that one way or the other, the local government opened itself to legal liability. It sided with residents.

"We thought we were on firmer ground, legally and morally," Korn said. "It was a moral decision."

With some narrow exceptions, the local zoning ordinance — passed in 2015 — bans rentals of less than 28-days throughout the township, which is the most populous in northern Michigan. Nestled just below Traverse City, the area is home to many downtown commuters, as well as most of the area's low-income and transient housing.

Korn said the ordinance concerned protecting housing for those residents as well, in part beginning with the fire sales of homes in the wake of the 2007-2008 recession.

"What we ran into was a lot of these corporate BnB-type structures were coming in buying up lakefront property or in residential neighborhoods. A lot of them sold very cheaply," Korn said. "Of course, every time somebody turns a potential apartment into a short-term rental, it's one less available for the housing stock."

It hasn't entirely stopped short-term renters. The township issues between 20 and 30 letters per year to homeowners who try to convert their home into a rental, according to data from the township's planning commission.

Some tell Korn their realtor led them to believe renting the property was legal. Most come into compliance with the ordinance, and the township only escalates a couple of violations each year.

Just a few miles away, East Bay Township took an entirely different approach. In East Bay, investors need only to pay an annual fee before being able to run a rental. They can be situated almost anywhere, albeit with some minor regulations on the number of beds per room.

As a result, East Bay's Spider Lake looks far different than Silver Lake in Garfield. Spider Lake has 10 times as many short-term rentals, as well as a market that has left limited options for locals. In July, a local business owner, Sebastian Garbsch, resorted to sending out flyers to every resident on the lake, asking if anyone might be willing to sell their home. Garbsch said he'd been frustrated with the difficulty of finding a property.

"It's just hard to find anything," Garbsch said. "It almost feels like locals are being priced out."

Beth Friend, East Bay's township manager, said officials deliberated for three years on whether to allow rentals. The issue was polarizing, just like in Garfield, but the township decided to allow them, choosing, as Friend said, to focus on "what was happening, not where was happening."

In the past few years, East Bay rentals are popping up in a subdivision called Pine Grove, which borders the TART trail and is a stone's throw away from the waterfront. An intern for the township flagged the neighborhood as officials began receiving increasing calls from buyers about whether the properties were rentable. COVID-19 accelerated that trend, Friend said, to the point where the township wants to revisit its original ordinance.

"We will be talking about that within the next six months," said Friend. "I don't know that we will make any changes, but we are looking at if there's anything we can do to mitigate that geographic distancing — there are ways of mitigating negative effects of these rentals."

The Pine Grove subdivision also flanks Traverse City itself, which is swarmed with condos, apartments and lofts that are by now explicitly designed for itinerant renters.

"We've noticed that a lot of our houses that were once long-term rentals have been sold to people who are intending to do AirBnBs," said Tony Lentych, executive director for the Traverse City Housing Commission. "We've lost a lot of housing stock participation."

Lentych's organization distributes housing vouchers and rents directly to low-income families, paying up to two-thirds of the rental price. Lentych said the commission used to be able to offer more options, including whole houses.

When they do have single family homes, they are often mobile homes, said Lentych. Otherwise the commission is almost exclusively resorting to apartments, and increasingly they're located south of the city, in Garfield Township, where short-term rentals are banned.

While rental companies say their operations don't exacerbate housing shortages, Lentych disagrees, arguing that short-term rental demand has steered everything — from home-building to contract labor to interior design — toward investors with cash to spend.

"It is that one issue. There's a reason why we have home costs going up. It's because people are buying income properties. It's the driving force, I think you'll find," Lentych said. "We are desirable, with people wanting to move here, but, for the most part, what's pinching our housing stock is this."

Local Players

Some management companies based in town believe in a middle path.

Between all-or-nothing zoning ordinances and out-of-state management companies, they believe that short-term rentals can work for northwest Michigan — after all, they say, tourism has employed locals in this area for decades.

Katy Bertodatto is one of those believers. Together with her partner, Bertodatto runs Golden Swan Management from a newly renovated office on Front Street. She manages 33 properties, with another 15 on the way. The company's development arm is also building rental properties that it would own outright.

Bertodatto thinks local companies can keep a better handle on neighborhood displacement than out-of-town, national corporations. She said she looks at zoning maps all day, and isn't above making house calls to handle renter complaints. It's her name on the listings — a point that differentiates her management company.

Like others in the short-term rental economy, it's put a target on her back. She said she feels the criticism, but that she's responded by becoming a part of the discussion.

"It's tedious for us to go to township meetings and ordinance meetings, but we do it because that's the professional thing to do," said Bertodatto. "We are community-first and community-focused."

At those meetings, she speaks against legislation which would hamstring the abilities of Michigan townships to regulate short-term rentals. She also proposed that companies like Golden Swan begin to contribute to a community housing trust. The idea behind that, she said, is that a tax on their industry could fund affordable housing development. Her company is ready to contribute up to $400,000.

"If a small company like mine can contribute $400,000 to our housing crisis, just think about what some of the other companies could do," said Bertodatto. "Make the tourists pay for our housing."

Even smaller local managers have ideas as well. Chris Stowe manages five rental properties across two counties. He owns one rental — a renovated hillside log-cabin in Long Lake Township — and manages the other four on behalf of their owners, one of whom lives downstate.

He thinks local property managers can guide investors away from properties that are unfit for short-term stays and better off as part of the long-term rental economy.

"Some of these are homes where you'd want to stay. But they're not places where you'd want to live," said Stowe, leaning on a spiral staircase that runs like a mast through his cabin. "Three months in this place and you'd go nuts going up and down these stairs."

Stowe is also opposed to the bill in Lansing, which is currently before the state Senate and could even pass before the end of the legislative session this year. He said it would destroy the community where he was born and raised.

"I don't want that to go through," said Stowe. "That would let any yahoo do anything they want. And if you have a family next to a vacation rental, having parties coming and going, that isn't a good neighborhood feel.

"It would basically be a free-for-all."

Local managers say the housing shortage is also just bad business. When guests arrived at his cabin this summer, Stowe found himself recommending breweries and restaurants for them to visit, but adding that he couldn't be sure if they'd be open because of staffing shortages. For months, local analysts and officials associated staffing shortages at businesses to the regional housing shortage.

It's an irony that haunts the entire short-term rental conversation: As the rentals proliferate, they undermine northwest Michigan's ability to serve the tourists they attract, said Brown, Housing North's executive director.

It might also be a way to make more investors and vacationers aware of the issue.

"If you want this up-north lifestyle, well you also have to contribute," said Brown. "Because otherwise the people that are going to be serving you at your restaurant won't be here."