Developer agrees to scale back short-term rentals at Minneapolis complex

At a Downtown Minneapolis Neighborhood Association (DMNA) meeting in early June, Sherman Associates said it had signed a five-year contract with San Francisco-based rental company Sonder to dedicate 94 of the 122 units in the Vicinity Apartments it is developing at S. 205 Park Av. to short-term leases.

Neighbors weren't pleased.

Neither was City Council Member Steve Fletcher, who joined many residents in opposing the plans. At the time he said he would introduce an ordinance to restrict short-term, Airbnb-style rentals.

On Monday, the developer told the neighborhood association it had renegotiated its commitment with Sonder to reduce the number of short-term rentals in the building from 94 to 25.

Shane LaFave, director of development for Sherman, attributed the decision to a desire to maintain a good relationship with neighbors and the DMNA.

That reduction would limit the number of short-term rentals to the fifth floor of the building, which is expected to open this fall. That represents 20% of all units. Fletcher said that while the goal was to reduce short-term rentals to 10% of the total units, the board voted 6-1 in favor of a resolution supporting the change.

"There was still a lot of frustration," said Fletcher. "There were definitely people who came there with the perspective that short-term rentals in this building are totally inappropriate, but there were some people who were persuaded by Sonder's arguments."

Sherman's plans, which some neighbors said caught them by surprise, triggered a broader discussion about the growing emergence of such short-term rentals. While individual homeowners operate the vast majority of home-shares in the Twin Cities, the practice has become part of a booming industry as investors pump tens of millions of dollars into startups like San Francisco-based Sonder, the tech company that is going to manage the Sherman project and is already managing other short-term rentals in apartment buildings.

Sonder and others are competing for the growing number of travelers who are shopping for hotel alternatives on their own websites and on third-party vacation rental platforms such as Airbnb, HomeAway and VRBO.

In mid-June, Fletcher introduced an ordinance, still being written, 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 hotels pay in lodging taxes.

On Tuesday, Fletcher said he is still evaluating how other cities are responding and is gathering feedback from various groups that could be affected.

"This is a complex issue," he said. "There are so many different ways people are thinking about using short-term rentals, and we've heard from a lot of them, but haven't heard from all of them — we don't want to inadvertently regulate a good business model out of existence."

He expects to have a draft ordinance ready later this summer that would also require developers who are responding to a request for a proposal and those who are seeking other city assistance to declare at the outset whether they are intending to include short-term rentals in their projects.

"We don't want neighbors to have the sense that we approved one thing and got a different thing, he said.

The Vicinity is being built on what had been city-owned parcels. Sherman's original plans didn't include short-term rentals; the company said it was approached by Sonder about committing units to short-term rentals only a few months ago.

Sherman and other landlords said that in addition to offering travelers another option, it also gives them an opportunity to fill units at an increasingly competitive — and uncertain — time in the rental market.

Fletcher said that the practice only reduces options for renters; if landlords are concerned about filling units, he would rather see them reduce rents.

Jim Buchta • 612-673-7376