On Thursday, 18 stories above the streets of Manhattan, the rooftop bar of one of the more than a dozen Marriott hotels in Midtown played host to an unusual crowd. Some were Airbnb hosts, others repped the burgeoning homesharing startup scene, most were wannabe rental empire titans—all were members of New York City’s booming short-term rental industry interested in learning how to turn their Airbnb side hustle into a hospitality superbrand.
The event was organized by Guesty, an Israeli tech startup and Airbnb empire management platform that has taken the short-term rental industry by storm since its launch in 2013, receiving $60 million in funding in order to expand to more than 70 countries and manage hundreds of thousands of listings. As attendees nursed complimentary cocktails with kitschy names like “The Late Checkout” and “Property Management Punch,” Guesty CEO and cofounder Amiad Soto kicked off the event by touting Guesty’s recent investments in the New York market, and spoke at length about why he believed everyone should get in on the hot market before it gets even hotter.
Soto was right, NYC’s short-term rental market was booming—but what he failed to mention was that it was also largely illegal.
On Monday, just four days after Soto’s presentation, the mayor’s Office of Special Enforcement formally announced it had opened an investigation into Guesty, saying that the bulk of the company’s business in New York has likely been unlawful. As a preferred software partner of Airbnb, the city claimed in court documents, Guesty has helped facilitate the expansion of an untold number of illegal Airbnb empires in New York. It also filed an investigative subpoena seeking a wealth of records and testimony from the company about its extensive operations within the five boroughs. If granted, city officials would gain access to a trove of data, including the names, contact information, and detailed account history for all of the company’s NYC customers.
When asked whether Guesty would remain a preferred software partner, Airbnb declined to comment. Guesty did not return a request for comment before publication. After this article was initially published, Guesty COO Vered Schwarz said in a statement, “Guesty is a software solution that provides property management companies worldwide with tools that enable them to streamline and automate their business operations. As a tech solution to those who offer short-term rental stays, we most certainly do not advocate for circumventing local legislation in any city.”
The news marks the latest chapter in the high-profile feud between New York City officials and Airbnb. Platforms like Airbnb are typically associated with mom-and-pop-style homesharing—where a homeowner rents out a spare room to earn cash on the side, or lists their place for rent occasionally when they’re out of town—but in reality, much of the industry’s money comes from large-scale commercial operators who have transformed multiple properties or residential spaces into de facto hotels, which are rented out full-time to short-term guests through sites like Airbnb, Booking.com, and HomeAway. New York City bars rentals of an entire apartment or home for less than 30 days without the owner present in the unit, however, which make many stays illegal. City officials want to stop investors and property management companies from converting homes into de facto hotels en masse, which they say poses safety issues and exacerbates the city’s already dire housing crisis.
Unlawful operators often report finding the potential profits—which sometimes reach well into the multimillion-dollar range—well worth the risk of whatever civil penalties or fines they would stand to receive if caught. To evade detection, they set up a complicated network of fake host accounts and Airbnb profiles. Guesty has supercharged this side of the industry by removing many barriers to economies of scale, allowing hosts to manage hundreds of listings across a variety of booking platforms—from Airbnb to HomeAway to VRBO—and easily control multiple host accounts through a single dashboard.
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At the cocktail event Thursday, Guesty marketing manager Grace Kim described New York as “one of [Guesty’s] biggest, if not the biggest market,” and touted the high amount of customer growth the company had seen in the area since it formally opened its New York office last year.
That aligns with the city’s findings. In New York, investigations have already uncovered more than one case where Guesty’s platform played an essential role in the day-to-day operations of illegal short-term rental empires. One high-profile scheme run by real estate brokerage firm Metropolitan Property Group, which earned more than $20 million unlawfully renting 130 Manhattan apartments to over 70,000 guests until city officials caught wind in late 2018, wouldn’t have been possible without Guesty, according to the city.
“Metropolitan Property Group used Guesty to help manage the majority of their illegal short-term rental accounts on Airbnb and generate millions of dollars of ill-gotten income from placing unwary guests in dangerous and unsafe conditions,” city officials noted in court filings Monday. “And scores of Guesty accounts have been associated with another still-ongoing investigation.”
“You’re not using Guesty in New York City if you’re renting out your own home occasionally; you’re using Guesty if you have multiple listings on a short-term rental platform that you’re trying to manage,” Christian Klossner, executive director of the mayor’s Office of Special Enforcement (OSE), told WIRED. “And as a result, they are getting a direct commission from the perpetuation of these illegal short-term rentals.”
Guesty formally opened an office in New York last year and has since hired nine NYC-based staffers, but it has yet to obtain the proper authorization to do business in New York state, which “may be independently unlawful,” the city noted in filings.
Concerns about NYC regulations were apparent even at the mostly upbeat Guesty cocktail event Thursday. At the evening’s marquee event, a panel and Q&A on “Stepping It Up A Notch: Transitioning From Run-Of-The-Mill Property Manager to Hospitality Expert,” things quickly went south once moderators opened the floor to audience questions.
“So I have a question regarding the regulatory landscape,” began one attendee. “I see a shift happening where a lot of localities are moving towards a phase two in regulations: Before it was all about licensing and getting permits, but now cities are rolling out limitations on where vacation rentals can be, how many there can be, and [other changes] in the name of safety and affordable housing.”
The crowd murmured. Some audience members turned around trying to identify who exactly was speaking.
“Here in New York City, for instance, there are wholesale prohibitions on short-term rentals,” he continued. “Do you think the golden era of short-term rentals is over?”
The room fell silent. At least half the audience had now turned around to peer at the man who had asked the question. Others whispered to their seatmates. Soto, the Guesty CEO, quickly stood up from his seat among the audience, hopped onto the stage, and snatched the microphone from the moderator.
Soto launched into a response: “So, uhh I want to relate to this in two ways,” he began, swaying from side to side. “One is about demand. If demand doesn’t go down, the industry isn’t going anywhere.”
He told the crowd proudly that he had once asked a group of ten year olds if they had ever stayed in Airbnb. All of them had. “So, obviously there will be a demand for it, and therefore there will need to be a supply for it,” Soto continued, now grinning. “The industry isn’t going anywhere.”
“As for regulation, it’s hard to remember, but New York was the first to regulate alcohol consumption,” said Soto in an inexplicable (and technically inaccurate) reference to prohibition. “But that didn’t push that demand away. It just created alternatives! It’s the same thing.”
Attendees nodded. The underlying message was clear: Though short-term rentals may be effectively banned in NYC, like the prescient operators of those swanky speakeasies during prohibition, they’re also tapping into something that people want—and what’s wrong with that?
“I definitely don’t think we are past the point of peak—if anything we’re before it,” he told the crowd, chuckling. “There’s a lot of room for growth here, and our investors think the same.”
City officials see the company a bit differently. “The longer we do this work, the clearer it has become that it is the companies that are making this easy and incentivizing [this] that are the ones who know who is doing this, where the listings are, how the hosts are connected, and where the revenue is going,” said Klossner. “We know that the people who are using Guesty are engaged in taking multiple units at a time, but how many there are, how big those operations are, if there’s any connection between them—those are questions that that this action seeks to answer.”
Updated, 3-3-20, 12:30pm ET: This article has been updated to include a statement from Guesty COO Vered Schwarz.