Caribbean Short-Term Rental & Property Regulation Update: July–December 2011

Six Things to Know

• HomeAway completes NASDAQ IPO in June 2011, raising US$216 million at US$2.8B valuation
• Airbnb growing rapidly from small base; approaching 150,000 global listings by year-end
• VRBO remains dominant Caribbean vacation rental platform through peak winter season
• Jamaica records approximately 1.95 million stopover arrivals for 2011, continued recovery
• Jamaica traditional villa market strong; north coast properties report healthy occupancy
• No Caribbean government has any regulatory framework for vacation rental accommodation

HomeAway’s IPO: The Vacation Rental Industry Comes of Age

The most significant corporate event in the vacation rental industry’s history to that point occurred on 9 June 2011, when HomeAway, Inc. began trading on the NASDAQ exchange under the ticker symbol AWAY. The company had priced its shares at US$30, raising approximately US$216 million in an offering that gave it a market capitalisation on opening day of approximately US$2.8 billion. The IPO was oversubscribed, attracting strong institutional investor demand that reflected confidence in the commercial model of online vacation rental distribution and in HomeAway’s position as the clear market leader in a sector that was growing rapidly.

HomeAway had been founded in Austin, Texas, in 2005 by Brian Sharples and Carl Shepherd, who had assembled the world’s largest vacation rental marketplace through a combination of organic growth and strategic acquisitions of regional platforms including VRBO (acquired in 2006 for approximately US$160 million), OwnersDirect in the UK, Abritel in France, and several other European platforms. By the time of its IPO, the company had approximately 560,000 paid listings across its portfolio of platforms in more than 145 countries — a scale that put it well ahead of any other online vacation rental marketplace.

For the Caribbean vacation rental industry, the HomeAway IPO was a validation of the commercial model that the region’s villa rental operators had been building their businesses around. The professional villa rental agencies that distributed Caribbean properties through HomeAway and VRBO were now listing through a publicly traded company with institutional investors, a formal governance structure, and the accountability to shareholders that public company status implied. The IPO also gave HomeAway the financial resources to invest more aggressively in marketing, product development, and international expansion — all of which would benefit Caribbean operators using the platform.

Airbnb: Growing from a Very Small Base

Airbnb’s trajectory in the second half of 2011 was one of extraordinary growth from a very small base. The company had been founded in August 2008 by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk as AirBed & Breakfast, had pivoted and refined its model through 2009 and 2010, and by 2011 was beginning to attract the kind of mainstream media attention and user growth that signalled a genuine commercial breakthrough. The company had raised its Series B funding round in July 2011 — US$112 million at a valuation of approximately US$1.3 billion — giving it the resources to pursue the global expansion that its founding team had always envisioned.

Airbnb’s global listing count had reached approximately 50,000 by the end of 2010 and was growing rapidly through 2011, reaching an estimated 150,000 by the year’s end. The company’s listing inventory was still heavily concentrated in its core urban markets — New York, San Francisco, Los Angeles, Paris, and London — and its Caribbean presence was minimal. The demographic of Airbnb users in 2011 skewed toward young urban travellers booking short city stays, and the Caribbean’s tourism accommodation market — characterised by beach destination holidays, family villa rentals, and all-inclusive resort stays — was not yet well matched to Airbnb’s predominant use case or user profile.

Nevertheless, some of the earliest Jamaican Airbnb listings were appearing in the second half of 2011. A handful of property owners in Kingston, Negril, and Montego Bay had registered their properties on the platform, attracted by the combination of Airbnb’s growing visibility in source markets and the absence of any listing fee requirement that might deter trial. The earliest Jamaican Airbnb hosts were, in the main, early technology adopters and internationally connected property owners who had encountered the platform through travel to the US or through media coverage, rather than the broader property-owning community that would eventually make up the island’s Airbnb host base.

Jamaica’s Tourism Recovery and Villa Market

Jamaica recorded approximately 1.95 million stopover arrivals for the full year 2011, a continuation of the post-recessionary recovery that had seen visitor numbers rebound from the lows of 2009 and 2010. The island’s tourism infrastructure had navigated the recession period with fewer casualties than some had feared — the major all-inclusive operators had survived through a combination of aggressive discounting, flexible booking policies, and the inherent appeal of the all-inclusive value proposition in a period of consumer financial pressure.

Jamaica’s traditional villa rental market — the high-end staffed property segment served by specialist villa rental agencies — was performing well through the second half of 2011 and into the peak December-January season. The US consumer recovery, combined with Jamaica’s persistent brand strength in the high-end leisure travel market, was driving demand for the island’s finest properties. Occupancy in the top tier of Jamaica’s villa market — the Round Hill, Tryall, and individual estate properties — was healthy, and the agencies marketing these properties reported strong advance bookings for the 2011–2012 winter season.

The Regulatory Landscape: Pre-Platform Era Rules

In the second half of 2011, no Caribbean government had a regulatory framework specifically designed for or applicable to the vacation rental accommodation sector in its platform-economy manifestation. The relevant regulatory frameworks across the region dated from the hotel and guesthouse era and applied to commercial accommodation establishments rather than private residential properties used for vacation rental. Jamaica’s Hotels (Licensing) Act, the relevant piece of legislation for the formal accommodation sector, was not interpreted as extending to private vacation rental properties. The Rent Restriction Act, dating from 1944, was irrelevant to the vacation rental model.

The absence of regulation was not, in 2011, generating the kind of sustained political pressure that would eventually produce regulatory action. The platform economy’s accommodation dimension was still sufficiently small and sufficiently new that its regulatory implications had not yet become a visible policy issue in any Caribbean jurisdiction. The real-world regulatory debates that would eventually shape the Caribbean’s approach — the New York MDL enforcement, the San Francisco ordinance, the Barcelona licence freeze — were still in their early stages or had not yet begun. The Caribbean was at the very beginning of what would prove to be a decade-long process of regulatory engagement with an accommodation sector that was about to change significantly.