Airbnb co-founder and CEO Brian Chesky speaking in 2018 about other efforts to increase the quality … [+]
(AP Photo/Eric Risberg)
Airbnb now says that the Miami real estate developer it entrusted to open the first apartment buildings branded with its name violated a January 2019 agreement and stole at least $1 million.
Lawyers for the home sharing company filed a suit in San Francisco federal court Thursday against NGD Homesharing and CEO Harvey Hernandez. The suit alleges that “NGD and Hernandez stole funds, made unauthorized loans to other Hernandez controlled companies, fraudulently backdated documents, breached contracts, and then lied repeatedly in an attempt to cover their tracks.”
The complaint concludes, “NGD utterly failed to deliver on the core purpose of this partnership: creating more homesharing accommodations for the Airbnb community, particularly in urban, multi-family buildings.” Airbnb is seeking to terminate the relationship and recover its investment.
In a statement attorney Michael G. Austin, who is representing NGD Homesharing, described the lawsuit as “baseless” and “factually inaccurate” and accused Airbnb of “attempting to use its size (and litigation tactics) to improperly usurp an innovative business.” Austin and Hernandez declined to comment further.
According the complaint, the relationship between Airbnb and Hernandez goes back to 2016 when the startup loaned his real estate development company $1 million to explore home sharing-friendly properties. Hernandez’ Newgard Development Group has built several hotels and residences around Miami.
In October 2017, Airbnb and Hernandez announced plans for a 324-unit apartment complex in Kissimmee, Florida. The project, near Walt Disney World, was supposed to open in early 2018 and would be the first in a series of developments branded Niido Powered by Airbnb.
The idea was that instead of going behind the landlord’s back, tenants would be encouraged to rent out their units for up to 180 nights each year. Niido would provide an Airbnb integrated app and take a management fee.
Up to that point most real estate owners and operators had fought tenants who wanted to sublet their apartments through short term rental marketplaces, often citing security concerns. Niido was an early attempt by a developer to participate in the home sharing boom.
“This partnership shows how landlords, developers and Airbnb can work together to create value for everyone and better serve tenants,” said Jaja Jackson, then head of Airbnb’s multifamily partnerships, in a statement. A few months later Brookfield Property Partners agreed to invest up to $200 million in Niido. In a July 2019 report Cushman & Wakefield argued that short-term rentals could be the next hot real estate investment.
But it became clear that Niido tenants did not feel served. The property in Florida and another in Nashiville, Tennessee, already had tenants in place when Hernandez’s team took over. Many residents who had signed traditional yearlong leases felt blindsided. “Surprise, You Live in a Giant Airbnb,” read one headline from Bloomberg.
The relationship continued. The complaint says that in January 2019, Airbnb invested $11 million with Hernandez in exchange for a commitment to open seven real estate projects in 2019 and another seven in 2020.
It opened zero last year and operates just the original two. “We really wanted to have Niidos in every major city in the U.S., but there are a ton of regulatory challenges in cities where we want to have a presence,” Hernandez told Forbes in June 2019.
At that time he was pivoting to a new plan, this time to open condominium towers—where residents would own the units—purpose-built for home sharing. The first two are planned for Miami and Austin and would operate under the new brand Natiivo and also be part of Powered by Airbnb.
The apparent failure of the Niido experiment is a blow for Airbnb. As the company prepares to go public this year, it is signaling a huge appetite for high-quality supply. Last year it led a $160 million funding round in Lyric, one of several startups bulk-leasing empty apartments and renting out units by the night.
For more read:
Airbnb Arbitrage: How Professional Hosts Are Filling The Unicorn’s Call For Quality Rentals
Old Unicorn, New Tricks: Airbnb Has A Sky-High Valuation. Here’s Its Audacious Plan To Earn It