STRs KILL HOSPITALITY
Simply put, STRs are very profitable because they can charge rates that compete with legitimate hotels, while the costs of running a residential property are much, much lower than commercial hotels.
STRs have virtually NO regulations or restrictions thanks to SB 1350. STRs have no occupancy limits, no on-site staff, no health or safety standards, and no ADA requirements. STRs have preferential zoning and pay lower property taxes and utility rates.
STRs get a “free ride” off of taxpayers and neighbors. Neighbors are forced to serve as the “front desk” to monitor and report problems and the local police department is the security staff (at taxpayer expense). Operators also call the police on their own guests (at taxpayer expense) because they are out of town and can’t deal with the problem themselves. Why should taxpayers subsidize STRs as they invade our neighborhoods?!?!?
Legitimate hotels have a substantially higher cost structure for many reasons, such as:
- Higher cost for commercially zoned land
- Higher building costs to meet stricter commercial codes that include fire, safety and other requirements
- ADA compliance to provide access for the 18% of Americans with disabilities
- Higher staffing levels (jobs) of 0.5 to 2.0 full time employees per guest room
- 24/7 staff and security
- Compliance with state and local health codes and standards
- Cost of meeting “Brand” standards of the chain or franchisor
The list goes on. In the end, the radically different costs structures for legitimate, regulated hotels and unregulated, unrestricted STRs amounts to unfair competition for Arizona’s hospitality industry and the 200,000 jobs it provides.
How unfair? A look at standard industry metrics tells the tale. A common measure of performance for hospitality properties is “Revenue Per Available Room”, or “REVPAR”. (Please google REVPAR if you’d like a complete explanation of the term.)
For STRs breakeven REVPAR is about $25 to $50 per bedroom. That is, assuming 25% operating expenses and typical costs for financing and taxes an STR will break even with revenue of $25 to $50 per available room. This rule of thumb covers everything from a $100k condo all the way to a multi-million mansion with 10 bedrooms or more.
Legitimate hotels have breakeven REVPAR of $49 (limited service) to $141 (resorts) based on a 2018 CBRE Hotels’ America Research report. It is almost impossible for hotels to compete with the unfair costs advantages of STRs. This is a huge, unsustainable difference in cost structures. With a breakeven REVPAR that is 2 to 3 times higher, in the long run legitimate hotels are in serious danger of being run out of business by STRs.
If you work in hospitality in Arizona you might want to contact your legislator
about fixing SB 1350 while you still have a job.