Once scorned, short-term rentals now courted by Twin Cities landlords

For years, apartment owners struggled to keep renters from offering a spare room to tourists and business travelers.

Now, many are putting out the welcome mat.

A growing number of Twin Cities landlords and housing developers are embracing the sharing economy, converting portions of their buildings into short-term rentals. At the same time, a growing pool of tech companies are angling to manage those units and promote the trend, which some say stands to upend the hospitality industry.

While the trend offers an increasingly popular option for travelers who want more than a traditional hotel room and snowbirds and others who don't want to make a long-term housing commitment, it's also meeting resistance.

When Twin Cities-based Sherman Associates recently said it was planning to lease most of the 122 units in a new ­Minneapolis apartment building to a San Francisco company that would offer those units as short-term rentals, neighbors balked, and city officials said they'd consider new restrictions on such practices.

Shane LaFave, director of development at Sherman Associates, said property owners across the country are embracing the ­short-term trend.

"We're all out there looking for a way to fill those spaces and get our occupancy numbers as high as they can," said LaFave. "This is one way to do that."

While home-shares in the Twin Cities are still largely operated by enterprising homeowners and community-minded members of the sharing economy, this booming industry is capturing the attention of investors who are pumping tens of millions of dollars in startups like Sonder, the tech company that's going to manage the Sherman project, the Vicinity.

That company and others are competing for travelers by listing their offerings on their own websites and on third-party vacation rental platforms such as Airbnb, HomeAway and VRBO.

More than 65% of Airbnb bookings nationally are now in multifamily buildings, according to a survey by Pillow, a short-term rental research company. Even some national hotel chains are listing their rooms on Airbnb and other platforms.

Sonder approached Sherman about the concept several months ago, LaFave said, as part of aggressive expansion plan in the Twin Cities. Community reaction to Sonder's plan to lease 94 of the 122 units in the building for five years has prompted Sherman to discuss possible revisions with Sonder, LaFave said.

On Friday, City Council Member Steve Fletcher introduced an ordinance that would restrict the number of short-term, Airbnb-style rentals in the city and require operators to pay fees that are on par with what a hotel pays in lodging taxes.

The ordinance, which is still being written, would update existing regulations implemented when short-term rentals were primarily rooms in private homes.

"That was the use Airbnb was promoting and it made sense to minimally regulate them," Fletcher said. "Now there are all these different uses that really blur the line between a rental and a hotel."

Sonder is already managing 15 apartments in Sherman's East End apartments along Washington Avenue and is negotiating with several unnamed developers, said Mason Harrison, Sonder's director of communications.

The company debuted in the Twin Cities in December when it leased 18 units at Modi, a 75-unit building with micro apartments along Lyndale Avenue in south Minneapolis.

Harrison said Sonder's typical guest in Minneapolis stays on average eight days, twice the average across the company's portfolio, likely because there is a high percentage of people who travel to the Twin Cities for work. The company is also seeing strong demand from medical patients.

Lyric, another San Francisco-based short-term rental company, now leases 10 units in the 4Marq apartment building in downtown Minneapolis. It targets travelers who want an intensely local experience, said co-founder Joe Fraiman, stocking the units with locally roasted coffee, local art and a turntable with records by local musicians.

"When people go into a city, they don't just want to stay there, they want to experience the city," he said. "We feel like the traditional hospitality industry has not really adapted to offer that, so that's what we're doing."

Lance Bondhus, who runs Minnestay, one of several Twin Cities-based vacation rental management companies that work directly with owners of rental properties, says he's concerned about the impact of national companies on the communities.

"They have no ownership in the buildings at all," he said. "And they're also taking inventory off the rental market."

Lyric and Sonder both say they're complying with local regulations and are taking steps to minimize problems. At Vicinity, on-site staff will be on hand and units will be equipped with noise sensors that will alert the property manager if a party is getting out of hand. Lyric says the company runs background checks on every visitor.

Bondhus, a former yacht captain, is now tackling a new challenge. He'll provide property management services at the Sable, a condo building in the North Loop neighborhood that will cater to buyers who travel a lot or spend part of the year at another home and want the flexibility to offer their units for short-term rentals. Condo homeowner associations typically ban such rentals.

Though the building won't be occupied until later this summer, all but 15 of the 57 units have buyers. Current prices range from $255,000 for a 491-square-foot one-bedroom unit to $875,000 for a two-bedroom unit with 1,400 square feet.

Nathan Roise, a Twin Cities real estate agent and experienced short-stay host, and his wife are buying a one-bedroom corner unit at the Sable because it offers them flexibility in a part of the city where there's already a dearth of hotel options.

"I'm bullish on short-term rentals as societal trends increasingly favor a mobile, flexible workforce, many of whom participate in the gig economy," he said.

In addition to rentals he'll get through Minnestay, he expects corporate rentals from companies that want to offer visitors more than a hotel room.

"The flexibility of Sable is unmatched in the market," he said. "You can live in it, or rent it for a day or 10 years — without breaking any common condo rules. You can use the unit as little or as much as you want."

Jim Buchta • 612-673-7376