Second homes and investment properties fascinate investors, who turn to Inman’s weekly Property Portfolio email newsletter as well as agents who work with this special class of client. This month, we’ll go deeper on everything from the latest at Airbnb and Vrbo to the changes investors are making to their portfolios in a shifting real estate market.
Park City, Utah’s City Council on Thursday voted unanimously to significantly limit where Pacaso can buy luxury homes, the result of the ongoing spread of short-term rental in the popular mountain resort destination that could open a new battlefront for opponents of the second-home co-ownership platform elsewhere across the country.
City Council members in the resort destination, where Pacaso already owns several homes, voted to recognize the two-year-old company’s model as distinct from a timeshare, a notion that was also up for debate. But it restricted the areas in town where it can buy luxury homes, blocking it from operating in several areas that hold the types of homes Pacaso wants to buy.
The setback was the latest for Pacaso, which rapidly grew in value to more than $1 billion earlier this year, and it could act as a playbook for opponents in other vacation markets it seeks to expand into as it continues to grow.
“There is a slight disappointment on where this ordinance stands today,” Sarah Filosa, a public affairs representative for the company, said at the meeting on Thursday evening. “It’s a little disappointing to see how restrictive this ordinance is as it stands.”
Pacaso is considered a fractional ownership company. It buys whole luxury homes in popular vacation markets, converts them to limited liability companies and sells shares to up to eight buyers who split time in the homes.
The vote was a mixed bag for the company, which has been looking to expand in the Park City market.
The company can still buy and sell homes in the town of just over 8,000. But it was blocked from doing so in some of the most sought after areas as planners and the City Council created regulations around what several residents said were akin to short-term rentals.
The ordinance doesn’t recognize Pacaso as a timeshare, which is one of the biggest marketing headwinds the company faces. But it did relegate Pacaso to buy homes in zones that allow timeshares, private residence clubs and short-term rentals.
Ahead of the vote, Pacaso said it paused acquiring new homes while working on the ordinance with the city. Filosa also said the company sold a property as a show of good faith. But it was after she mentioned litigation that two residents pushed back.
“Pacaso does not wish to litigate with Park City,” Filosa said, “but…we hope that you take this feedback into consideration when voting here tonight. We really want to work to find a solution.”
Several residents took issue with that statement.
“Anytime somebody makes a statement and then they use the word ‘but,’ it means they’ve discounted everything that they’ve said prior to using the word ‘but,’” resident Bill Humbert said. “Based on something I just heard right now, I would just counsel the council to beware of the word but.”
“Don’t let a threatened lawsuit deter you from making the right choice here,” said Ed Parigian, another Park City resident.
Pacaso asked the city to let it buy homes in the town’s tony historic residential district, near the heart of Old Town Park City, with a cap on the number of homes that could be used for fractional ownership in those areas. The city declined.
The city blocked Pacaso from operating in a majority of town and will spend the next six months considering whether to expand that area.
This was just one of several battles faced in recent months by the young company.
Pacaso is fighting in court with St. Helena, California, over the Napa Valley town’s timeshare ban that effectively prevents it from operating in that market. In April, the St. Helena Planning Commission voted 5-0 to overhaul its timeshare regulations in order to explicitly ban fractional ownership.
In Palm Springs, the California desert city’s attorney said in a legal opinion earlier this year that the homes are timeshares. Timeshares aren’t allowed in many zoning districts of Palm Springs.
In Monterey County, California, county officials issued a cease-and-desist letter to the company, ordering it to cease activity in areas where timeshares are not allowed and to obtain necessary business licenses for any other purchases they set up in the county, according to the Monterey Herald.
Claiming the win
Despite Filosa’s statements at the meeting, Pacaso is heralding the Park City vote as a win for the company that it hopes can be used in other markets.
“As a result of this ordinance, Park City can now use co-ownership as a tool to sustainably incorporate second-home owners into its community while giving buyers more options to reduce the cost and hassle of owning a second home there,” the company said in a statement following the vote.
The company and its supporters point out that each Pacaso home is a real, unique asset. Unlike buying into one of perhaps dozens of similar units in a resort or hotel like a traditional timeshare, up to eight Pacaso buyers become owners in a single home.
That ownership grants them access for up to six weeks a year in a home that’s professionally managed by staffers at Pacaso.
The company said the vote doesn’t apply to existing Pacaso homes. But the company has four Park City homes that are listed on its site. Three of them fall within zones that restrict fractional ownership. Two of those three homes are listed as active and for sale on the local MLS. The third has a pending offer.
The company has worked to stand apart from short-term rentals and even whole-home ownership of vacation homes.
“Empty homes fuel housing affordability problems, because it constrains supply,” Pacaso CEO Austin Allison said in a recent conversation with Inman. “They starve local economies because small businesses aren’t being supported year-round, and they’re bad for the environment because an empty home requires another one to be built to absorb demand.”
While its Utah-based competitor, Ember, has moved to allow owners to rent out their shares on a nightly basis, Pacaso has steadfastly refused to change its model, saying it wants to foster the ownership mindset of the home’s eight owners.
Ultimately the council pointed to the spread of short-term rentals as a reason to block Pacaso from operating in more parts of town.
“As ski towns and as small destination towns across the nation have learned, the nightly rental business, the transition from single-family home ownership to nightly rentals, has been hyper impactful,” said Councilman Max Doilney.
“Fractional ownership fits into a new business model that we quite frankly don’t understand yet,” he added. “We have to be careful and tentative about how we move forward.”
Park City is the largest city in Summit County, where one in every four homes is used as a nightly rental.