Given an exercise to keep track of their time, architecture students studying with Lihi Gerstner and Adi Biran realized that they spend almost 60 percent of their time outside their homes, but — as with most people — 30 percent to 50 percent of their income goes on housing.
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The big differential between the cost of using our property and its level of usage has long interested Gerstner and Biran. Research revealed that office buildings stand empty 300 hours a month, while commercial spaces and shopping centers are completely empty for 150 hours a month, even if they are open on weekends. Homes of people who work 9 to 5 remain empty 180 hours a month.
The two architects identified an opportunity to create a new market for renting out properties. “We do not use our properties wisely,” says Gerstner. “We tried to think how it is possible to take advantage of the ‘dead time’ in a way that will help us as users and property owners.”
The relatively new phenomenon of the sharing ecownomy has caused people to understand that they can offer their own properties for rent through a simple technology platform. That fits in well with the vision of Biran and Gerstner. They decided to leave their academic (Technion — Israel Institute of Technology, The Holon Institute of Technology, Columbia University in New York) and business careers to start something new.
The two women brought in a partner with a technological background, Lior Ash, and together the three of them established Splacer, a startup that brings the economic principles of the sharing economy — peer-to-peer sharing of goods and services — to the real estate world. Their solution is a platform that connects property owners to those who are searching for spaces to hold events. Now one-year-old, the company has raised $1.4 million from investors and employs 11 people.
The Splacer website has over 260 properties already listed, some 100 of them in Israel and the rest in New York. About 40% of the properties are privately owned and the rest are businesses, including the Museum of Contemporary Art in Bat Yam and an artists’ studio and design studio in the area of Rothschild Boulevard in Tel Aviv.
Among the customers who have already used Splacer are the fashion retailer H&M, which has already held two press conferences in spaces rented via Splacer, designer Maya Negri, Disney and the startup Fiverr. Prices range from $250 to a few thousand dollars — depending on location, the type of property and the planned use. Splacer takes 15% of the cost as its fee.
Gerstner says both parties benefit. “Artists work in a studio and have no money, so they can take advantage of it for events. Another possibility is to hold seminars in houses — companies pay for boring and generic meeting rooms in hotels, while they could sit in a house with a view of the sea. The price is similar to that of a meeting room, but we look at the experience. When you suddenly enter someone’s house or a space where you enjoy the stay, it is different,” she says.
Does the profit for the owners justify the bother of holding a one-time event in the house? What about cleaning before and after?
“My house is listed on the site too. After they left, they cleaned my sink. Everything is priced in, including the cleaner before and after. The house is standing empty anyway, so if they come, you will only profit. It is part of the sharing economy — whether you share in food, cars or clothes. It’s a way of life.”
The Airbnb effect
Credit for the popularity of renting out private properties for short periods of time belongs to Airbnb, which links property owners and people looking for a place to stay. It appeals mostly to tourists, but not only. The site has over 13,000 locations advertised in Israel, which were used by some 115,000 tourists from 124 countries in 2014. These numbers are expected to double in 2015. AFter Airbnb came Uber, the ride-sharing business.
Last December, sharing economy guru Jeremiah Owyang from Silicon Valley surveyed the companies prominent in the real estate sharing business, placing them in three categories: Those that rent out private spaces, those that rent out work spaces and those involved in optimizing rentals. The common denominator for most of these companies is that they view real estate as a service, something that can be rented based on its usage. In workspace, the leader is WeWork, which rents fully equipped office buildings to all types of people.
Dan Chen, the former CEO of the Tapuz website, also identified the potential in the shared real estate business. His new startup, 2nd Shift, is for professionals who need work spaces appropriate for their specific needs. The service has been launched in a pilot version, and a few dozen property owners have signed up.
“Seventy percent of the time, businesses are closed — including Friday, Saturday and nights,” says Chen. “We say, come take advantage of the equipment you have in your clinic, office, yoga studio — it’s a waste for every hour they stand without use.”
2nd Shift aspires to create a long term connection between the owners and the renters. “A dentist’s chair, for example, costs a few hundreds of thousands of shekels,” explains Chen. “A dentist who just now finished studying and does not want to mortgage himself for payments on such a chair can rent time in a clinic that is available every day from 2 p.m. to 8 p.m. He can be the ‘second shift’ for the dentist who goes home in the afternoon,” he says.
Subletting space in clinics is quite accepted these days, but the site wants to open up the business to many other professions and properties — people who could never afford such places themselves, such as lawyers, hairdressers or printers. Just as a taxi works all night, he says. At this stage, at least through the end of the year, the company is using the Israeli market for its testing, and is still not charging in order to overcome the fears and problems involved, before expanding elsewhere.
Another initiative with a similar business model, but without the emphasis on creating long-term business relations between the renter and owner, is Busy Asset. The founders are designers Shai Shmuel and Bat-ami Zlotnik Levi, along with Tzipi Bukshpan. Small businesses are afraid of heavy initial long-term commitments, says Bukshpan. Everyone thinks they work around the clock, but after deducting holidays, weekends and nights, you discover that you are paying rent and property taxes for something you use only 32% of the time, she says.
The company conducted research to find out what was important to the property owners and found that they want to rent out the space to professionals who complement their work. For example, an architect would be happy to have an interior designer using an unused space, says Bukshpan. Of course, it is also more income, which would certainly help a small business. Their website is scheduled to go online in December, and they plan on charging a 15% fee on every transaction.
Who pays for the broken vase?
Shared property rentals raise a number of questions, not only for the companies involved, renters and owners, but also for the various authorities and municipalities. Anat Shavit, the head of the tax department at the Fischer Behar Chen Well Orion & Co. law firm, explains that in the cases where businesses involved are already the tenant renter, sometimes they are not allowed to sublet. While such a limitation may not be illegal, the contract with the actual property owner may not allow it. It may be common practice today, for example in law firms, but in the case of private homes the lease also often rules out subletting without permission, she says.
In addition, you must report and pay tax on all such income, says Shavit.
A more complex matter concerns employer-employee relations. What happens to people who rent a chair in a hairdressing salon? Are they now employees, she asks. The court will of course examine various factors such as cooperation between the parties and their relationship, and whether each party has separate customers, says Shavit.
Owners also worry about damage to their property, and this may be one of the main reasons such rentals are mostly for places that already have appropriate insurance coverage, and less so in private homes, which often lack such insurance, though in many cases third-party insurance covers most physical damage.
Others are worried about letting strangers into their homes. “If an advertising agency holds an event in my house, I know they are for real and it is much easier to trust them. I know a lot less about a tourist who comes into my home through Airbnb,” says Gerstner. Splacer only lists properties with the appropriate property and third-party insurance — and the company does not take on any of the responsibility for safety. “Insurance issues are complicated and we are working on them. The contract is made between the owner and person holding the event, and we just make the connection between them,” she says.
2nd Shift tries to reduce risk by conducting due diligence beforehand. Those who list on the site, on either side, are required to provide documentation, such as business and professional licenses. In addition, the two sides have the possibility of meeting before signing the contract, but Chen is not worried that such meetings will make his website unnecessary. “The role of the platform is important and many times the parties want us there,” he says. It is convenient for both sides to have someone in the middle who provides the contract and handles the money.
The entrepreneurs hope to also find cooperative transactions that go beyond just simple profits. Bukshpan tells of a special education school that rents out its gym to a local sports group in the afternoon, and this can also bring people together in the community, help them meet the other and bring in income for an institution that is chronically short of funds.
As for the success of the various real estate sharing businesses, it is still much too early to tell. It does not need impressive technology, but it does require efficient methods to make sure all parties involved are not exposed to unknown risks. If the trend turns into a real industry, then a secondary circle of service providers will also profit. The economic potential is clear, but whether enough people will open their homes and offices to strangers — and leave their fears and suspicions outside — is still the unanswered question.