There have been many headlines about Airbnb “The Largest Hotel Compang in the World Doesn’t Own Any of its Rooms.” This is misleading in a couple ways.
Airbnb isn’t a hotel company they’re really an OTA.
No Hotel Company Owns their own hotel rooms anymore.
Every major hotel company has spun off its real estate into a REIT (Real Estate Investment Trust) separate from the management company. This is often called going with the asset-light model, but this is what every vacation rental manager does without the buzz words.
In short they are a management company with no real estate.
Why Did This Change
This wasn’t always the case most hotel companies did own the real estate to their own hotels because they could deduct the financing costs of the property from their income. Everyone chose to invest in owning their properties instead of paying Uncle Sam.
This is similar to the mortgage interest deduction but on a much large scale.
This tax deduction was eventually phased out in tax reform beginning in 1986 under the Reagen tax cuts but took a long time to affect every type of hospitality.
What Changed
Although, this no longer applies to most hotels this loophole still could apply to short term rental operators that lease long term & rent short term.
This is exactly the business model that Sonder & Stay Alfred are using in the vacation rental space today.
It will be interesting to see how this changes with regulation & an ever changing tax code.
Also remember this isn’t some magical tax loophole, but just the WeWork business model. This still has tons of real estate risk that could bankrupt these companies in a real estate down turn.
More info on Hotel REIT Spin Offs
Hilton Hotels & Timeshares spun off both real estate portfolios in 2015 through 2017 read more here.
La Quinta REIT Spin Off then back then back again. Following these can be kind of ex
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