As demand for alternative lodging rises in Hawaii, the latest tactic for real estate speculators is to buy investment properties, renovate them and turn them into vacation rentals — a development that is drawing a backlash from some residents and tourism industry workers.
A flyer advertising three 90-minute seminars called “Make Money With Airbnb” recently went out to thousands of Oahu homes. Run by Lindon, Utah-based Response LLC, whose registered agent is Response Marketing Group LLC, the event promised that participants would learn how to build wealth by cashing in on the Airbnb craze. It used the Airbnb logo and advertised the event as sponsored by Drew Levin and Danny Perkins of HGTV’s “Renovate to Rent” and Jeff Tomasulo, a CNBC investment expert.
LODGING OPTIONS
Breakdown of visitors staying in Hawaii accommodations (2016)*:
Hotels 62%
Condos 17%
Timeshare 9%
Cruise ship 1%
Friends and relatives 9%
Rental homes 8%
Private room or shared room in home 1%
Other B&B, campsite, hostels 1% each
* Some stayed in multiple categories
Source: Hawaii Tourism Authority
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One event, which was held at Marriott’s Courtyard Oahu North Shore hotel in Laie on Friday, drew a crowd of protesters from the fledgling anti-Airbnb group Friends Against Illegal Rentals (FAIR) and Unite Here Local 5, a union representing thousands of Hawaii hotel employees. The company held a similar luncheon Monday at the Hyatt Regency Waikiki Beach Resort & Spa and is slated to hold another Saturday at the Best Western The Plaza Hotel.
“When I first moved to Waialua 10 years ago, we didn’t see vacation rentals that often. Now people’s entire houses are being turned into two and three vacation rental units,” said Mike Biechler, FAIR executive director. “We are peacefully protesting the flipping of our communities. This seminar is perpetuating the myth that turning homes into vacation rentals is a legal and good investment.”
Ironically, the event also has drawn the ire of Airbnb, Hawaii’s third-largest online vacation rental site for travel hosts. Matt Middlebrook, Airbnb public policy manager, said the company issued a cease-and-desist letter last week notifying seminar organizers and sponsors to immediately discontinue using Airbnb’s trademarks in their material.
“It has recently come to our attention that the Airbnb name and logo are being used on a flyer to promote services and an event that we are not affiliated with,” Middlebrook said in a statement. “This is misleading, deceptive and erodes the trust Airbnb has built with our community.”
Garron Combs, who works for Response, told Biechler that he was pulling the vacation rental part of the presentation, which attracted more than 30 North Shore community members. However, the changes could not be verified since Combs asked the Honolulu Star-Advertiser to leave shortly after the presentation began. “It’s a private event. Our legal team does not allow journalists to attend,” he told a Star-Advertiser reporter.
A Better Business Bureau profile for Response Marketing Group LLC includes 78 complaints in the last three years, including several referencing hard sales tactics at educational seminars, where expensive how-to investment materials are sold. The Star-Advertiser was also prevented from talking to seminar attendees.
Daniel Fenton, executive vice president for JLL Hospitality & Tourism Group, said the company recently conducted a survey for the Hawaii Tourism Authority that showed 15 percent of respondents said they would not have traveled to Hawaii if there had not been alternative accommodations. About 33 percent of vacation rental guests chose vacation rentals that were outside of a tourist zone, Fenton said at HTA’s recent Global Tourism Summit held Sept. 19-21 at the Hawai‘i Convention Center.
Despite a lack of hotel room inventory, Hawaii is headed for its sixth straight year of tourism records. Demand for alternative lodging also is a motivator for the airline industry, which this year has announced enough new air service to bring an additional 170,000 visitors to Hawaii.
“Definitely, some of these new air passengers are going to vacation rentals,” said HTA President and CEO George Szigeti. “There are only so many rooms; if new air access is coming, they have to find a place to stay. We don’t have enough hotel inventory to support the growth.”
HTA estimated visitor spending by alternative-accommodation users contributed at least $1.87 billion in Hawaii last year.
It’s also a boon for some homeowners who make extra bucks or subsidize the mortgage. Airbnb territorial manager David Burden told HTA summitgoers that Hawaii Airbnb hosts welcomed 694,800 guests last year. The average daily rate charged by an Airbnb host in 2016 was $169, nearly 8 percent higher than the prior year, Burden said. He estimated that Airbnb has 8,100 active hosts across Hawaii’s four main islands. Hosts typically rent their properties 56 nights a year, earning an average of $15,600, he said.
It’s a legal income stream if the property is in one of Oahu’s resort districts or has a city nonconforming use certificate. But legitimate opportunities on Oahu are limited by a 1989 city moratorium that has reduced certificates to 775 vacation rentals and 41 bed-and-breakfast homes.
Combs said that at the seminars, “we are going to say you must abide by all state and local laws.”
But Biechler contends there is no way to verify that. He complained to state and city agencies about the seminars, which he said should be shut down by the city because he thinks they promote an illegal activity. FAIR also will seek county and state laws “empowering grass-roots efforts to prevent transient vacation rentals,” he said. Other groups, including Save Oahu’s Neighborhoods and Save North Shore Neighborhoods, have been pushing similar agendas for years.
Local 5 spokeswoman Paola Rodelas, who attended the Friday protest, said the union expects alternative lodging will be its top legislative issue next year. “It’s been our top issue for the past two years,” Rodelas said. “Our members are very worried about the rising cost of housing. My neighbor is getting $150 a night by listing the place as a vacation rental. We pay $1,200 a month for a rental across the street. How can we compete with $4,500 a month?”
But legislating the issue has been a minefield for lawmakers, who have had difficulty taking sides. Some Hawaii residents say they have the property right to cash in on the alternative lodging trend, which helps tourism. Others claim the spread of vacation rentals is harming neighborhoods, taxing infrastructure, creating extra traffic, inflating property values and removing long-term rentals from the market.
“Enough is enough,” said Rebekah Walker, a protester from Hauula. “I’ve watched neighbors move and their homes get turned into vacation rentals. I’ve seen friends and family have to leave Hawaii because they can’t afford to live here anymore.”