Downtown Apartment Building Cleared of Tenants to Open Short-Term Rental Hotel

Marcus Christensen glanced at the furniture getting moved into the apartment next door.

The people he assumed were new neighbors had boring taste, he thought: Midcentury Modern furniture, a Marilyn Monroe poster. "It's plastic, basic, and very modern-looking," Christensen told Phoenix New Times.

But there would be no new neighbors.

Days after Christensen saw the movers, he received a notice of lease termination letter from his landlord. New Times spoke with three other tenants of Historic Westminster Apartments who got the same letter on August 13.

"At this time, we are announcing a new age for the Westminster Apartments," the letter stated. "Ownership has elected to take the experience into a progressive new direction and turn the entire building into short term rentals."

Christensen has until the end of September to move out, find a new place, and figure out how he's going to cover the month's rent, moving expenses, and other bills.

Once all the tenants are out, landlord Thomas McPherson plans to transform his historic downtown building into what will essentially be a glorified hotel. Partnering with an AirBnB-like startup called WanderJaunt, McPherson plans to turn every Westminster apartment unit into temporary housing for vacationers and business travelers.

Phoenix, meanwhile, faces a growing affordable housing shortage. Camaron Stevenson, a spokesperson for the Arizona Housing Coalition, said that displacing permanent Phoenix residents in favor of temporary housing for visitors sends a bad message.

"Taking away housing is never a good answer," said Stevenson, whose nonprofit group advocates for affordable housing. "Especially a location accessible to so many services, to turn it into short-term rentals, it shows whoever is owning the property does not have the interest of the city in mind."

Studies show that the proliferation of sites like AirBnb and WanderJaunt have led to higher rents, prompting cities to pass laws preventing property owners from turning apartment buildings into hotels. But Arizona law prohibits municipalities from regulating short-term rentals in a similar manner.

McPherson, who owns a real estate investment company called Fenix Private Capital Group, did not answer questions from Phoenix New Times. "Nice to meet you. Some points of your story are inaccurate but I am away from the office visiting an ailing grandmother in Missouri," McPherson said in an email without elaborating on what points he believes to be inaccurate.

Just before deadline, McPherson denied again that he had asked all of his tenants to move out and turn his units into short-term rentals. He did not elaborate further.

A spokesperson for WanderJaunt did not return emails seeking comment.

Rooms at the Westminster are already listed on the WanderJaunt website for about $60 a night per guest. The site also lists rentals elsewhere in Phoenix, as well as in Scottsdale and Tempe.

WanderJaunt launched in Phoenix in 2017 as a "decentralized hospitality brand" that would connect travelers with short-term rentals. Like Airbnb and VRBO, the site allows property owners to rent out apartments and houses to travelers. But unlike more established short-term rental sites, WanderJaunt basically does all the work for its partners, including furnishing homes, writing listings, and cleaning up after the guests. All the property owner needs to do is choose between two payment models: a fixed monthly income plan or an option to take commission on each booking.

The same year that WanderJaunt arrived in the Valley, venture capitalists boosted the company with $2 million in seed money. The infusion of cash prompted a round of glowing press. Founder Michael Chen told the startup news site TechCrunch that he has aspirations to grow the company to the scale of major hotel chains. Chen also said that he chose to launch in Phoenix because of the city's low housing prices compared with places like New York City or San Francisco.

As tech sites published fawning coverage of WanderJaunt, Phoenix leaders also heralded the company's launch.

Former Mayor Greg Stanton said Chen provided proof "that Phoenix is the best community for taking a risk and testing out a new business idea." Current Mayor Kate Gallego, then a City Council member, said, "WanderJaunt is just the latest example of how Phoenix is a welcoming climate where new business can grow and thrive.”

Neither Gallego nor Stanton expressed concern over the potential impact of WanderJaunt on Phoenix's housing supply. But Gallego spokesperson Annie DeGraw said she understood WanderJaunt's business model when she praised the company two years ago. DeGraw also said the mayor was not aware of McPherson's plans to turn his apartment building into a short-term rental business.

For his part, Chen has explicitly said that his company hopes to capitalize on the fact that landlords can charge more for short-term rentals than they can with longer-term tenants. 

"There’s an arbitrage opportunity between long- and short-term rentals,” Chen told TechCrunch in 2017. “We are closing the loop on the circle that Airbnb started by allowing homeowners to take advantage of higher rents.”

The explosion of short-term rentals in the last decade has led to concerns of their impact on housing costs. Several studies have shown that Airbnb and VRBO have driven up rent where they operate. As a result, several cities have passed ordinances designed to limit the expansion of short-term rentals. In Seattle, for example, a property owner may only list up to two units as short-term rentals. In Los Angeles, property owners can only rent out their primary residences for up to 120 days a year.

Phoenix cannot pass a similar law. That's because Arizona legislators passed a bill in 2016 prohibiting municipalities from passing their own short-term rental regulations. The bill passed with bipartisan support.

The legislation was pushed by companies like Airbnb and Expedia, as well as libertarian groups like the Goldwater Institute and nonprofits funded by the Koch network, including Americans For Prosperity and the Arizona Free Enterprise Club.

If not for the 2016 bill, McPherson's decision to turn Westminster Apartments into a short-term rental hotel would likely violate Phoenix city code. Zoning ordinances prohibit property owners from operating a rental unit for stays of less than 30 days in multifamily and single-family zones, according to Angie Holdsworth, spokesperson for the Phoenix Planning and Development Department. Before 2016, Phoenix officials also would have been able to require McPherson to alter his building so it complied with the city's requirements for hotels. But the state's pre-emption law means the city's hands are tied.

"This state law is another example of the Legislature superseding the authority of cities and local autonomy," said Gallego spokesperson Annie DeGraw.

For one tenant of Westminster, who requested anonymity out of fear of retaliation from her landlord, there's no question that McPherson is planning to turn her home into a hotel room. About a month or two ago, the tenant said she emailed her property manager asking if it would be possible to shorten her lease. The property manager told her that McPherson had new plans for the building, but assured her that she didn't have to worry about moving out for another two to four months.

A month later, the tenant received the same lease termination letter as Christensen.

"My entire life has changed. My fiancé lost his job and the day after, one of our good friends passed away. A week from that day we were being evicted," she said. "It's been really tough and stressful."

[This story was updated at about 8:40 a.m. with additional denials from McPherson.]