airbnb

I’m in an ancient, cramped lower Manhattan cafe, waiting for a Man Who Does Not Exist. I order a large coffee, take a seat at a table of my own, and wait. At one of the others, a couple sits, existing. They’re not who I’m looking for.

About five minutes later a tallish man with faded brown hair comes in. He’s in his late twenties, wears a muted-toned plaid button-up shirt and a long peacoat; his face is haggard but handsome.

“Are you Cale?” asks the Man Who Does Not Exist.

I am.

The Man Who Does Not Exist orders coffee and instructs me to follow him out the door. We walk a few blocks to an apartment building on a quiet block, the entrance at street level. The Man Who Does Not Exist opens the door to reveal a newly renovated two-bedroom apartment right out of an Ikea catalog. The 900 square foot space has two matching gray couches along with a few potted plants and a friend’s artwork. Fixed to the wall is a large flat-screen TV blaring Fox News.

Like the Man who rents it, this apartment also Does Not Exist, at least according to house sharing service, Airbnb. The company insists that its users are just regular folks like you and me, renting their primary residence out while they’re on vacation, or in some cases squeezing a few bucks out of a temporarily empty summer home. People who rent or own property solely to use as Airbnb “hotels” do not exist. And yet, I’m talking to the Man Who Does Not Exist, in the living room of one of his rentals.

The Man has his business down to an art, obsessively scouring listings and brokers for the perfect spaces to fit his needs:

  1. No live-in super
  2. Few adjacent neighbors
  3. No doorman
  4. As much privacy as possible

Thus far, he’s found two properties that fit the bill. He charges around $500 a night for the first one; this second one is set to launch in the coming weeks with a similar price tag. He’s received funding from outside investors and partnered with two others to lease the apartments.

The Man Who Does Not Exist insisted on anonymity in exchange for sharing his story. He considers himself a New York entrepreneur who wants to make a buck and doesn’t have much patience for what he views as arbitrary rules and regulations, such as those that govern renting apartments to Airbnb subscribers. He’s aware of the dubious legality of his operation, not that it fazes him. Even as the city has begun to halt business practices like his, he sallies forth, trying to wring as much financial gain for as long as he can. Given their location and pleasant surroundings, there is scarcely a day an apartment stays empty for the night.

Landlords and other tenants, however, cannot know of his operation because it violates New York City occupancy laws. Additionally, the state of New York has been lobbying for Airbnb to pay a hefty 15 percent hotel tax that all other hotels must pony up.

Airbnb has been battling what it views as government restraint on its service, and has fought in defense of its users. If the city were to impose such a harsh tax and limit those who can use the platform, the company claims this would be robbing the most common user: someone who has an extra room, or whose roommate is gone for a few days, and rents it out every once and again to make some extra money. These people aren’t looking to launch a standalone business, they just want to share their space with others for compensation.

This is why The Man Who Does Not Exist is so secretive about his operation. “The neighbors aren’t too keen,” he tells me. “But no matter what happens, this will more than pay for itself in three months,” referring to the unlaunched space in which we’re standing.

After dropping out of college, the Man took a job in high-frequency trading when he was 20, where, he claims, he made a killing. At the same time, the work was soulless, the hours were endless, and he became weary of the financier lifestyle. He quit and began formulating possible business trajectories in New York. Entrepreneurship fits him. Yet he has not found his niche.

“This is only a temporary thing,” he says.

His first foray into entrepreneurship, he says, was reselling iPad 2s in Paris the day after their US release. He hired homeless people to wait in line with him for seventeen hours so he could get past the rule of only 2 iPads per customer. Then he divvied up $20,000 in cash to finalize the transactions.

He recounts how frantic he was inside New York’s SoHo Apple store, overseeing his collection of bums, constantly eyeing the only exit while finalizing his own transaction. Our gray market entrepreneur even paid off a German family behind him to purchase extras. Four hours later, he hopped a plane to Paris to unload his bounty, pocketing nearly $25,000 in profit.

The Man Who Does Not Exist tells me he is a libertarian and, in the parlance of Silicon Valley, views himself a disrupter. At its core, business is a zero-sum game. People are dollar signs, and external restrictions are simply hurdles to jump over. Thus his disgust for New York’s attempt to stop Airbnb and people like him.

The city claims that if people receive compensation for their extra rooms they should, in essence, give the government a cut. Last year it cracked down on New York promoter Toshi who started a hotel company using Airbnb. After a year-long legal battle, he is now forced to pay the city $1 million as part of a legal settlement for converting a residential space into a full-on hotel. Meanwhile, the state Attorney General is subpoenaing Airbnb for its customer records.

The Man Who Does Not Exist claims regulations that govern rental apartments are akin to drug laws. They are useless, unenforceable, and an affront to the general public. How is the city going to find every residence that is lodging someone? Are these people really comparable to large hotel chains? The city simply wants Airbnb to stop altogether because it has yet to offer any compromise. That seems unlikely, given its rampant success.

According to NYC Research and Analytics, the average price for a hotel room in New York City is $281 a night. That’s for all five of the boroughs. In Manhattan, it’s hard to find a room for under $350. Add that hefty 15 percent tax and lodging in Manhattan is an activity for the 1 percent.

This a major reason why Airbnb has been so popular. It can operate as both a budget hotel as well as provide cheaper suites for larger groups. He believes this is a characteristic particular to New York.  “You can’t make $10,000 a month in any other market,” he says. “The city created this problem.”

The Man reasons that if Airbnb homeowners or renters paid hotel tax, they would not benefit in the long run (a common talking point among the libertarian creed). Current laws, for example, include a tax that goes directly to the Javits Convention Center — a place scant numbers of New Yorkers have ever visited.

“Why are they entitled to a cut?” he  asks.

For its part, Airbnb has refused to provide customer information to the state, and has instead responded with a clearly enumerated list of all of the good things the company is doing for all of New York City’s boroughs.

This is Airbnb’s way of sidestepping the question: claiming that the good uses of Airbnb outweigh the bad. For that argument to fly, the company must reassure itself and others that, if not an absolute myth, The Man is at least an anomaly.

So how many gray marketeers in New York rent out their apartments full time? The Man shows me other listings he believes are operated by entrepreneurs like him.

“I think this is a gay couple,” pointing to an account on his computer screen. This user has three listings, all in central Manhattan, each with a price tag over $600 a night. He insists it is unlikely they own those three properties. Something’s fishy when you have three luxury listings on Airbnb in the same city that probably rent for more than $8,000 a month.

The number might be small in terms of the number of properties operating under this business model, but the economics are more substantial. His first listing went up in July and, he claims, has already more than broken even. He received an investment of about $30,000, and is now easily turning a profit, showing me his Airbnb statement with a balance of $78,000. That’s without this latest apartment added to his account. “I seem to be doing better than the Marriott,” he says. (In fact, Marriott’s stock has more than doubled this past year and the company makes $78,000 every 25 minutes or so.)

Now he has two listings, each their own registered business, along with investors who have signed operating agreements. Most investors, he says, wouldn’t be interested in such a venture.

“It’s got to be someone who’s pretty hungry,” he says. Someone, in other words, not too different from himself.

[Illustration by Brad Jonas for Pando]