Backstory
Backstory
In 2006, Bryan Canary moved from 627 S. Paca St, a loft style home he renovated in 2003 to 625 S. Paca St, another loft style renovation he had just completed.
Bryan put 627 S. Paca Street into service as one of the first “vacation rentals” in downtown Baltimore. At that time, the way to market was via Craigslist, one's own website and a website called VRBO.com (Vacation Rentals By Owner . com) . Bryan's home was only the third home on VRBO at that time and all three had 3 or more bedrooms.
Business grew slow but steady from 2005 through 2012 with only minor market issues. Competition slowly started to grow, but the business outpaced new competitors. Owning and running a 3 bedroom fully furnished urban rental is not a simple task since no one is always on site to manage like a hotel or a bed and breakfast.
In 2012, Bryan's life partner got an job offer in California and Canary was in failing health. They vacated 625 S. Paca St and he converted that into a short term rental as well. Canary shut down his construction business, found partners to share his shop space with, setup cleaning and maintenance support with a trusted friend, and headed to California to try to recover his health.
Canary managed the marketing, sales and customer complaints for his two homes from California.
Canary’s two homes, side by side, were two of the most booked and most profitable properties per square foot on Baltimore. The design was extremely unique, the location was extremely attractive for guests. Canary used a very detailed personal website and VRBO/Homeaway to go to market. Canary provided a superior sales and in-stay experience compared to those he “co-peted” with (collaborated and competed with) in a friendly manner.
As of early 2014, there were only about 25 homes in the entire downtown Baltimore market with three or more bedrooms and business was good.
Clausen Ely and Larry Adams were two of Canary’s “co-petitors” in Ridgley’s Delight. They had homes similar in size and bed count. This threesome informally worked together to provide services to large groups. They referred each other business when they could not accommodate a lead. They discussed sales numbers and business strategy from time to time. Clausen had gotten into the business around 2008 and Larry had started up with Clausen's help around 2010.
In 2015, the Baltimore Vacation Rental market started to become far more “competitive” for Clausen, Larry and Bryan.
Three properties had come online that were very "competitive". Two of those where owned by Tristar Investing Group and on the edge of Fells Point. The other one got a quick face lift that left the finished product looking nearly identical to Tristar's, but the buyer/investor of this one was Isaac Guerrerro. Isaac used a VA Loan with 100% financing to get into the market. It's obvious from the purchase date and the date of his first reviews that he never occupied the home. This is the first known instance of someone committing mortgage fraud to get into the game. When there were only 25 or so homes in the marketplace, with about 10 of those being direct competitors for Convention Center Business, one new home on the market could easily damage sales for other honest competitors by 10% or more.
In addition to Guerrerro and Tristar, AirBnB, a company that started in 2008 as an online portal to rent rooms in occupied homes had started to advertise full home rentals on their platform.
Logically, it was not a good fit for the owners of full home rentals such as Canary, Ely , Adams, Guerrerro or Tristar.
There was a significant loss of control of the guest screening process, a loss of control of the booking process, and a loss of control of damage resolution matters.
Many of the individuals advertising full-home rentals on AirBnB at that time seemed to be full time occupants of their own homes. They would move out if they got a booking making it more like found money than a full time business. Because these “hosts” were not in business full time and did not need to stay profitable from a business perspective, they were willing to accept rates far lower than those of us in business full time.
In 2015, Clausen and Larry's bookings were dropping. The addition of the Tristar Properties and Guerrero's contributed in a loss of sales for them Clausen and Larry felt forced to add AirBnB to their marketing channels to avoid business losses and business termination. They were not happy about the loss of control of the booking process, but it was either that or go out of business. They did not discuss this with Canary at the time.
In early 2016, Canary started to experience a decrease in good leads and bookings well in advance as had been the case for a decade prior.
On 5/31/2016 Canary called Adams to discuss his concerns. He discovered that both Adams and Ely had added AirBnB the year prior. That’s when he learned more about the illogical shifts towards AirBnB.
In late 2016, Canary was forced to add his properties to AirBnB to avoid massive business losses and/or the total loss of his rental business.
This addition dramatically complicated his sales process, he lost significant control over his sales, screening process and damage refund management process. It also put significant downward pressure on his pricing.
By adding AirBnB, Canary was able to book open nights in late 2016 that were abnormally vacant, but it was at far lower than normal rates an an absolutely bizarre, last minute, 21 day booking from a group of faux Chinese Nurses saved December that year.
In January and February 2017, the typical spring and summer booking season which transpired in January and February was far slower than normal. Then came March and April 2017, and the bookings for the summer were horrid.
Facing $7000 / month fixed costs on 625 and 627 S. Paca St, without bookings to even cover expenses, much less profits, Canary was forced to make the very tough decision of selling his prize property at 625 S. Paca St. He had expected to have that property for life, but business was making it clear it was not to be.
On May 16, 2017 (5/17/2017) Canary put 625 S. Paca Street up for sale. Canary priced his property at $419,000, which was very low for his offerings. The goal was to attempt to get competitive bids to establish true market value. Canary did not have cash reserves to carry the property empty and he was concerned about advertising it for sale while still taking bookings.
On 5/17/2017, the first day it listed Canary got an offer for 423,000. No other bids came in over the next few days to increase the sale price. The appraised value on the home came in at $475,000. Canary and others realized the value was probably there but marketing at such a high price could have been conflicting for the quick contract that was needed.
Canary got out of 625 S. Paca in August and was hanging on to 627 S. Paca attempting to make ends meet... And that's when he started doing the research that ultimately lead to the discovery of the three cases of mortgage fraud as well as a lot of other disturbing information...
As it turns out, in November and December 2016 and spring of 2017 Tristar Investing had gone on a buying spree in Federal Hill. They bought up 7-8 rentals that would become direct competitors to Bryan. The financing was provided from a home in the NYC area at 9% interest only with 100-110% financing. Unheard of loan scenarios with someting seemingly off.
Simultaneously, in November 2016 a guy by the name of Matt Durrette entered the market very near all the new Tristar Homes in Federal Hill. Matt then went on a recruiting spree and within 6 months or so he was a cohost to about 10 property owners who were now also listing 3-4 bedroom homes for rent, with many of these being full time home owners who would vacate for bookings. Matt's bio and comments indicate he was in the AirBnB game for three years prior to his entry with his own home in late 2016, but we can find no recxords on that at this time.
On 3/17/2017, Michael Larcher, an AirBnB investor out of Washington DC with connections to Big Banking, Big Commerce, and Politics put a home under contract a half mile from Bryan at 748 W. Hamburg St for $389,000. This was by far the highest priced property in that neighborhood and it was purchased without much negotiation.
On 4/25/2017, Larcher settled on 748 W. Hamburg St. Larcher used a Mortgage that had a Second Home rider on it that required him to occupy the home and leave the home vacant when he was not there. This fraud reduced his down payment requirement from 20% to 10% and it earned him a much better interest rate than he might have gotten on a full investor loan.
Between 4/25/2019 and 4/31/2019 Larcher seemingly had the home painted, furnished and he successfully hosted his first AirBnB guest by the name of “Floyd” by the end of the month.
Between 5/1/2019 and 5/31/2019 Larcher hosted five more full home guests.
In total Larcher got 49 full home guest reviews in the first 11 months he owned the home.
In addition to mortgage fraud, Larcher decided to advertise his home as being in the same neighborhood as Bryan, Larry and Clausen nearly a half mile from his actual location. Buy using predatory advertising and advertising fraud, he was able to present himself as a competitor in a neighborhood he was not in.
Then, on AirBnB, he was advertising his new $400,000 home for $99 to $199 per night. These are rates that were far below the $250-400/night that we were successfully getting for a comparable size home and which all needed to get to remain in business to a reasonable degree.
Thus, with the aid of mortgage fraud , advertising fraud, predatory advertising and a pricing strategy designed to push all rational players out of the market, Larcher likely removed 45-60k in revenues directly from Bryan, Clausen, Larry and the few others who were in Ridley's Delight.
Remember, he came on the market just three weeks before Bryan felt he had no choice but to sell 625 S. Paca St. With those kinds of pricing and advertising tactics he would have been swiping all kinds of future Bookings from Bryan and his group.