This article is part of our joint investigation into Airbnb and the housing crisis with Pivot. You can read a French version on their site.
There’s a new property scam being used by some of the largest property owners in Canada to supercharge profits at the expense of long-term tenants. Here’s how it works.
Landlords team up with Airbnb entrepreneurs to evict or buy-out long-term tenants and turn their apartments into illegal ghost hotels. They then use these fake tenants — the ghost hotel operators — to help exploit loopholes in provincial rent control legislation, artificially inflate the value of their properties and turbocharge their rental revenue — all while perhaps committing fraud in the process.
This new property scheme, which we are dubbing the Montreal shuffle, has now been observed in action in two large Montreal ghost hotel networks documented and reported on by our STR investigative team. Both networks were put on hiatus or shut down following our reporting.
By evicting long-term tenants (legally or illegally), signing over leases in bulk to an Airbnb operator and having them agree to as much as quadruple the previous tenant’s rent, owners can boost their monthly income and use these now way-above-market rents to artificially inflate their property valuation.
They can then sell at an inflated price, or borrow against this new valuation.
- City for sale: Airbnb scam quadruples rents, replaces long-term tenants with ghost hotels
- Outside the law: the new shadow rental market with no protections for tenants
- EXPLAINER: How Airbnb and short-term rentals have decimated housing in Canada
We’ve been hearing about evictions for profit for years, but what’s new about what we’ve observed here is the integration of short-term rentals to maximize profits and property value.
In the old days, a landlord might try to engineer an eviction in order to bring in new tenants at market rate. Perhaps that would amount to a 20 per cent increase in revenue, but they might have to make a significant investment in renovations to justify that new price.
Here we’re talking about landlords being offered a 400 per cent increase in revenue, and borrowing power touching the seven figures, without needing to make a significant investment in their units.
It’s a nearly irresistible offer.
“It’s pretty damn clever,” says lawyer Michael Simkin. “It also may be some kind of borrowing fraud. The fraud would be in claiming that these are in any way long-term (residential) leases (as one broker did in last week’s investigation). Because these are very clearly (commercial) rentals.”
“It may be fraud,” adds the lawyer Simkin. “It may also be completely legal and a very clever way to get around restrictions that most banks have on lending secured by properties that are on the short-term rental market. Either way, you’d think the banks wouldn’t be too happy about it.”
A spokesperson for the Organisme d’autoréglementation du courtage immobilier du Québec noted that they do “not comment on specific cases that could be the subject of a disciplinary process,” but added that a “real estate broker who hides information or facilitates an illegal act is liable to a penalty by the discipline committee.”
“Whether he is representing a buyer who wishes to engage in short-term leasing or a seller who offered his property for short-term leasing in the past, the broker must verify the information he provides regarding the compliance of such a practice. He must inform the parties to a transaction without exaggeration, concealment, or misrepresentation.”
Revelation is part of larger investigation
Led by Zachary Kamel, and in partnership with our friends at Pivot, our team has reported on two major ghost hotel operations on Airbnb over the past four months — The Benamor network and the Firmin network. Each managing dozens of units and taking in tens of thousands of dollars a month. We’ve observed both networks running this same scheme, and see signs that it is in wide use among other ghost hotel operators on platforms like Airbnb.
The Montreal shuffle is a windfall for the operators of the ghost hotels, but their actions are often illegal and they are, at least theoretically, subject to enforcement and sanctions from the government.
But the owners, some of whom have hollowed out dozens of residential buildings, handing them over to ghost hotels? They’re exploiting a loophole in the law, and it’s unclear if what they’re doing is actually illegal.
Quebec’s rent-control legislation allows a landlord to increase the rent by any amount, if the tenant consents to the increase. Clearly, the framers of that legislation were envisaging a friendly agreement to cover the costs of a kitchen remodel, not an end run around the spirit of the law that makes it harder for Quebecers to find affordable housing.
There’s always debate over the causes of inflation, but there should be no debate about one source of inflation in residential rents: ghost hotels are converting residential buildings, sparking evictions and circumventing what meagre rent control measures do exist.
And these aren’t just small fly-by-night operations either. In the case of Mike Firmin, the Airbnb entrepreneur whose network was exposed in our reporting this week, one of the property owners who rented him a fleet of units for use in his ghost hotel was Aaron Drazin. The scion of a generational real estate investing family, Drazin’s company claims to control “several million square feet” of real estate across Canada and New York City.
Emile Benamor, the property owner who partnered with multiple ghost hotel operators and whose building burned down in March, killing seven, was a successful lawyer and popular figure in Montreal’s high society social circles. He owned, and may still own, at least 22 buildings across the city, containing almost 100 rental units.
In what David Wachsmuth, a professor of urban planning at McGill University, has described as a new ‘wild west,’ this scheme is a modern-day gold rush. And landlords are racing to get theirs, before Johnny Law shows up to shut down their party.
The real problem is that this new scheme is a turbo-charged incentive for landlords to evict long-term tenants, and remove rental apartments from the housing market. Not to mention putting tenants and guests alike at risk in unregulated hotels that don’t always follow fire safety rules.
And while the entrepreneurs and property owners rake in cash, things get worse for everyone who just needs a home.
Legislative relief is clearly called for, but we shouldn’t hold our breath waiting for the Legault government to act. Housing minister France-Elaine Duranceau is a former real estate agent who has proposed eliminating a key part of Quebec’s rent protection framework and, as first reported by Ricochet and Pivot, has been implicated in several questionable contacts with former business partners in only her first few months on the job. Most recently, she was forced to apologize for comments that were deemed insensitive to renters.
Welcome to the Montreal shuffle — the latest front in Canada’s housing crisis.