At first glance, Bob Eidson’s path in the real estate business may look a little circuitous. But upon closer inspection, it was exactly the route needed to bring him to where he stands today, ahead of the curve on one the industry’s most up-and-coming opportunities: the investment property/Airbnb model. Here, Eidson shares how his frontline experience in the recession-era mortgage space readied him for real estate success back in his hometown of Lexington, Ky., where he tapped into his passion for creating urban infill development and read the signs on where the market was headed next.
Maria Patterson: Your background in real estate is very varied, but let’s start at the beginning. How did you first get started?
Bob Eidson: I bought my first two properties when I was 19. After school and military service, I started as a young analyst with a West Coast hedge fund that specialized in complex real estate debt assets. Those guys understood the collateral better than anyone I’ve ever known. I then joined a group out of business school where the emphasis was placed on avoiding foreclosure and keeping people in their homes. We partnered with the California Association of REALTORS® and Prospect Mortgage, and started training REALTORS® in short sales. And on the nights/weekends, I was volunteering with Los Angeles Neighborhood Housing Services to help counsel those facing imminent foreclosure. Those two experiences opened the door for me to then jump into the largest opportunity to make a significant impact to millions of homeowners: join Bank of America and grow their short sale business 100 times.
MP: That’s when the industry was trying to wrap their minds around HAMP/HAFA, right?
BE: Correct. Bank of America wanted to massively increase their short sale business, so I joined a Corporate Strategy group tasked with increasing short sales 100 times. Bank of America had acquired Merrill Lynch & Countrywide, and had the nation’s largest portfolio (about 13 million mortgages). I spent two years on the strategy side coming up with the people, processes and technology for how to go from being the worst bank at doing short sales to being the best. Bank of America went from last place to first place in the HAFA (Home Affordable Foreclosure Alternatives) short sale program. Last I checked, they still held that first-place position.
MP: So what led you back to Kentucky?
BE: Bank of America right-sized its portfolio, so I left and got into commercial real estate and development. I moved back to Kentucky, where I had ownership in a bar and the Bourbon Review (a publication covering the world of Bourbon and American whiskey). I immediately started two real estate funds for urban infill redevelopment in tier-two and tier-three markets in the Southeast, Emerge Property & Emerge Development. We focused more on downtown core redevelopment opportunities. All of our developments offered affordable housing as well as market-rate housing. I was looking for opportunities where we thought predominantly millennial and service-based employees wanted to live, in and near the core of a downtown. These are places with high walkability scores. Further, we looked for locations that were close to or adjacent to a greenway transit corridor.
MP: Why was it important for you to develop in these types of walkable communities?
BE: You have to interpret the trends and embrace them. I happen to believe that people want a lot more development around transit routes. While working for Bank of America, I moved to Uptown Dallas, and the Katy Trail opened the month I moved there. I watched this trail become a vein of energy for all walks of life and all socioeconomic backgrounds. So when I moved back to Kentucky, I wanted to develop our real estate based on similar opportunities. We believe that the future is brighter if we get people out of gated communities and living amongst each other in or near walkable areas.
MP: I understand you’ve made some innovative use of shipping containers…
BE: Yes, we have completed six construction projects using old shipping containers. We just finished a multifamily concept for Emerge Development. This marks our third year of doing a project with shipping containers, and the knowledge curve has been steep! Our most recent project features four bedrooms in each of four shipping containers. The building has a stick-built core, which synthesized our evolution in thinking about shipping containers. We realized penetrations were costly, so this project features some floor-to-ceiling windows on the second floor, which will offer a stunning view of Lexington’s skyline. Further, the roof makes the structure look like a futuristic race car in a 3D view. Almost everyone grew up with Legos, so the use of them is so intuitive. One thing we’ve learned the hard way is that a little container goes a long way!
MP: Speaking of staying ahead of trend, tell us about your foray into the Airbnb market.
BE: A year or so ago, a REALTOR® told us we might want to look into Airbnb. We were building affordable, rental and luxury townhomes with which we could serve multiple segments of the Airbnb market. We put one of our properties up on the site, and within the first 24 hours, we completely booked a 12-plex—12 one-bedroom apartments.
Within a week, we had 60 dates booked and we could never have imagined all the use-case scenarios. Right away, someone booked for all of October, November and December while they were renovating their home. We had a traveling nurse who came to town every other week to work four days in a row, and booked those dates for six months in advance. Corporations are using them purely as a place for people to bring clients to for entertaining as a third corporate space. We have an Airbnb that’s being rented to six guys who work for a FinTech start-up. They congregate here at random intervals; one is in Cincinnati, one is in Chattanooga, and one in Louisiana. None of them live here, but they come and go as needed.
MP: What implications does the Airbnb model have for the rental market?
BE: I love this question! I think the 12-month lease will go away 10 years from now, as there will continue to be more specialty situations. The duration of median stay will extend. We’re at a tipping point where we’re all using something like Airbnb, whether it’s Uber/Lyft/Turo—everything makes sense to go to that peer-to-peer platform. Also, the shortage of time for everyone is becoming more acute, and the days of filling out clunky paperwork are ending. Everything needs to be seamless. There will be a further aggregation of the labor economy and the housing economy, and those will start to work in parallel.
MP: Do you see any other parallels between Airbnb and the rideshare ecosystem?
BE: It’s funny, I just gave a keynote speech on this. The legacy hospitality business was different from the legacy cab business; the service standards were quite high, in a relative sense. When Uber/Lyft came along, the customer experience was 1,000 times better than what it was before. Think about it: Hasn’t your worst Uber/Lyft been better than your best cab ride? Now, compare the contrast with Airbnb and the legacy hospitality business. I think Uber/Lyft were such a force multiplier, in terms of value perception, that people switched almost overnight. With Airbnb, there are still people who prefer to use credit card points, or their favorite corporate hotel brand, when they’re booking travel. The adoption curve has been steep, nonetheless. I see the legacy hospitality business losing marketshare to Airbnb, slowly, over the next 10 years.
MP: How does your connection to the bourbon business tie in to your real estate business?
BE: The frontier of our tourism economy is experiences. Half of the Airbnb guests are coming here for bourbon. I understand what the bourbon consumer, tourist and traveler wants. We’re listening and doing focus groups and the applications are all hyperlocal. That is part of the cool factor with Airbnb. Our most successful Airbnb unit is simply called “Bourbon, Bourbon, Bourbon!”
Look at the big-box hotels. All the trends are toward delivering a local theme…and they’re doing a mediocre job at it. People want to stay like a local. No one says, “I want to stay in some agnostic hotel and eat at a restaurant in a strip mall.” People want to stay at a hip place and go to a hipster coffee joint or a funky burger place. Localism is driving consumer preference and there’s a massive opportunity for disruptors to find authentic ways to do that. Airbnb is such an efficient marketplace for expressing creativity, and the best operators are able infuse the localism with good service.
MP: So what advice would you give for real estate professionals wanting to tap into the Airbnb movement?
BE: Understand what your area is known for. It’s the age-old adage “Play to your strengths.” For us, it’s also University of Kentucky athletics, the equestrian industry and Keeneland, and, lastly, medical tourism. Lexington has excellent hospitals and people come from all over Kentucky for healthcare reasons. Nurses come for employment and patients come for treatment. I bought a townhome close to a hospital as a place that patients could rent as an Airbnb.
You also have to find people that understand hospitality and service—you have to start there. You have to be ready to answer questions within 5-10 minutes, even if the question is “Do you have any Q-Tips?”; and messaging through the Airbnb app is critical. Responsiveness 24/7 is a must—and you need someone who is going to walk each unit before a new guest checks in.
You also need to build to scale. I started with one unit and that went great, so I added another unit, and grew from there and needed additional scales, like three subcontractors to do the cleanings, or “turns” as their known amongst Airbnb operators. We used to manage 5-6 units; now we’re managing 68 of our own Airbnb units across five geographic locations, and we manage another 115 Airbnb units for other people, as well.
MP: Can you give us some numbers, for the analytical readers out there?
BE: Yeah, sure can. We had 80 percent occupancy in the third quarter. That was an all-time high for us, and we won’t do that every quarter. But it’s averaged 67 percent for the trailing 12 calendar months. In the beginning, when I was modeling the likely revenue scenarios, I never imagined occupancy numbers over 50 percent.
MP: OK, but what about the expenses? Don’t you have at least double the operating expenses?
BE: The increased OpEx (operating expenses) we have seen is 93 percent. In some cases, you can actually reduce some OpEx categories. We compared utility bills of the same building that was previously a short-term rental to what the current utility usage has been during its time in service as a short-term rental—we reduced utility expenses by 8 percent year-over-year. So with nearly a 200-percent increase in revenue, and about a 100-percent increase in OpEx, you have effectively doubled your profit. Now every sub-market performs a little differently, but we see similar numbers across our portfolio, which spans five different markets.
MP: So what should someone do if they’re thinking seriously about converting a unit, or buying a unit, for the short-term rental market?
BE: For the average person reading this thinking, “I don’t have time to change sheets or answer questions at all hours of the night,” I would say the following: Get in the game! Soon! There are best-in-class management companies emerging in this space at the local and national level. We are exploring a relationship with Evolve, which is one of the nation’s fastest-growing short-term rental management companies. Further, there are some super-intuitive “bolt-on” technology solutions to help automate much of this. We use TurnoverBnB.com to help coordinate turns with independent contractors. We also use Smartbnb to automate our messaging. Guests receive check-in/check-out instructions, and greetings on their second day of a stay with an offer to provide some local guidance on places to eat/shop. If guests ask a question about traveling with a pet, then Smartbnb has some AI features that will copy/paste information about your pet policy to the guest in the form of a direct message through Airbnb.
Take my advice: Get in the game. Rent out a spare bedroom, or your lake house or beach condo. Don’t get a value photographer, by the way—getting a professional photographer with experience in vacation rentals or other staging applications is recommended. They can optimize the light and really help you to promote what makes your property unique. It’s all about authenticity.
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