If You Can't Beat 'Em, Join 'Em: Israel's Biggest Hotel Chain to Offer Airbnb Rentals

Israeli hotels have been losing business to Airbnb, which often offers lower prices and a less institutional feel even if in recent years the site has become taken over more and more by professional renters

Fattal Group's new building in Tel Aviv's Kerem Hateimanim neighborhood.
Moti Milrod

Fattal Group, Israel’s biggest hotel chain, has apparently given up the battle against Airbnb and decided to join it. The move, which was first reported by Yediot Aharonot daily, quickly elicited an angry reaction from many in the hotel industry.

The chain has reportedly leased two buildings in the trendy Tel Aviv neighborhoods of Kerem Hateimanim and Neve Tzedek and fitted them as short-term rental apartments. They are being offered on Airbnb and other booking sites under the “Master” brand of Fattal’s Leonardo Hotels unit.

“For some time we have been observing the changes occurring in the hotel sector globally where the biggest chain entered the short-term apartment rentals segment,” Fattal said in response to the news. “We intend to continue examining closely those changes and update the services of the chain as all the world is changing.”

Like their peers elsewhere, Israeli hotels have been losing business to Airbnb, which often offers lower prices and a less institutional feel even if in recent years the site has become taken over more and more by professional renters.

In Tel Aviv alone, industry sources estimate that Airbnb offers about 9,000 properties. Even as Israel has been hosting record numbers of incoming tourists, the number of hotel overnight stays has been declining in recent months, most recently by 3% year on year in September.

Hard times for hotels

The Israel Hotel Association has been trying to force municipal authorities and the central government to crack down on the phenomenon, contending that Airbnb renters can undercut hotels because they often don’t pay taxes or adhere to tower regulations, said Ayala Tsoref, an expert of the shared economy.

“After they failed in the war against Airbnb, they really had no choice but to adopt the model and play by the same rules of the game that apply to Airbnb,” she told TheMarker. “Now that it’s become clear that Israel, through the Ministry of Tourism, the Tax Authority and other regulatory bodies, is encouraging the Airbnb model, the hotels that choose to integrate into this model are making the right choice.”

At the IHA, the news about Fattal’s new initiative was met with equanimity, even though the chain is undermining the trade group’s fight against Airbnb. Eli Ziv, the CEO of the group’s Tel Aviv office, said the IHA wasn’t opposed to competition from Airbnb but to the unlevel playing field.

“Unlike other cities in the world, Israel’s cities still haven’t regularized the matter. The minute they operate lawfully, we’ll have no problem. It doesn’t make any difference who the operator is, only that the competition is fair,” he said.

But at least one other hotel industry source, who asked not to be identified, was far more critical of Fattal’s strategy.

“It’s a real surprise to see a major chain like that, which has been opposing short-term rentals, going ahead and doing that itself, even before the sector has been regularized. At the end of the day, it will only create cannibalization because they are competing with themselves,” the source said.

He added that most Israeli hotel chains were not in a position to lease two buildings like Fattal has done.

The short-term rentals Fattal is offering are not inexpensive. At its Fattal NYX as 23-square meter room for the week of November 23 would cost a couple 5,330 shekels ($1,450), including hotel services.

By comparison a penthouse apartment at one of the two Master locations near the Carmel Market is going for 11,250 shekels the same week for a couple. The price includes a fully equipped kitchen, wireless internet and a fitness center. A studio at Master’s Molcho Street location is going to 6,600 shekels for a couple.

The Master operation is being managed Yuval Fattal, the son of David Fattal, the chain’s founder and controlling shareholder.

The apartments in the Two Fattal buildings are listed on Tel Aviv municipal tax records as residential units, not as a business that would be subject to a higher rate.

In response, Fattal said: “Needless to say, the Company’s short-term rental activity is carried out according to regulations and tax rules, including value-added tax, in contrast to thousands of independent rooms, which in the absence of regulations over the sector, operate under the radar of the authorities.”

The spokesman for Tel Aviv said the city would be sending inspectors to check the two buildings and “to coordinate municipal tax classification.”