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Is Rental Website Rentberry the Uber of Gentrification—or Something Else Entirely?

A maligned housing website claims it’s no villain—it’s just trying to create a “closed-loop rental system.” Get it?

Rentberry CEO Alex Lubinsky says his service ultimately helps tenants save on rent—despite its promise to do the exact opposite.

 

Earlier this year, Alex Lubinsky, the CEO of the company Rentberry, disseminated an email to local journalists billing himself as the cofounder of a “controversial” new startup. “I needed to get your attention,” he explains now.

Well, mission accomplished. The “controversy” surrounding Rentberry began last year when word got out that the home-rental listings site allowed would-be tenants to bid against one another. Rentberry, early stories reported, would prosper by taking a cut off the extra rent money extracted from tenants. Needless to say, responses to this business model—in which a tech-enabled middleman potentially drives already astronomical rents higher—have not been warm. “They want to profit off the housing crisis,” accused Dean Preston, executive director of Tenants Together. Landlords’ groups, interestingly, have been skeptical too. “It just doesn’t feel ethical,” says Charley Goss, the head of government affairs at the San Francisco Apartment Association. Rentberry, he says, “feels like gambling. Housing is scarce enough—to commodify it this way, I would call it objectionable.”

Lubinsky offers a wan grin when confronted with these slings and arrows. The company’s critics, he offers respectfully, do not comprehend how his rapidly evolving site really works. The 33-year-old career “finance guy” isn’t some carpetbagger recently deposited in the Bay Area to profit from locals’ misery. In fact, he arrived here at age 14 after emigrating from Ukraine (he still speaks with the clipped accent and occasional dropped articles of a native Ukrainian speaker).

If accusations of carpetbagging are easily dismissed, charges of profiteering are less so. An early investor says Rentberry originally wanted not only to extract from landlords a cut of the surplus paid to them by overbidding tenants, but also to pocket from tenants a portion of the savings they realized by underbidding. But Lubinsky—who in 2015 cofounded Rentberry with fellow Ukrainian émigré Lily Ostapchuk and leads a team of engineers working out of Kiev—now downplays these aspects of the business. The CEO claims his site never really strived “to maximize your rental price”—even if that’s exactly what it said it would do, in writing. In any case, that’s not what Lubinsky really wants to do with Rentberry now. Rather, he wants to build the first “closed-loop rental system.” And he’s pretty sure he knows how.

Despite the rancor that greeted Rentberry’s launch (sample headline: “With the Rentberry App, Silicon Valley Invented Another Way to Drive Out the Working Class”), it has expanded rapidly. The company has a foothold in 3,300 cities, with around 100,000 units on its platform. The site is partnering with multiple-listing services and attempting to make inroads in its home city of San Francisco—part of a plan to cover 500,000 units nationwide by year’s end. Lubinsky claims it raised $1.2 million from investors last year and is rounding third on a $2 million haul this year.

The CEO characterizes Rentberry as a boon to landlords and tenants alike. Landlords get the convenience of one-stop tenant shopping; would-be renters can digitally submit their applications, W-2s, credit reports, employment reports, and more. And they can also “customize” applications—the term Lubinsky prefers to “bidding.” Rather than spike costs, Lubinsky claims, internal data reveals that Rentberry helps users pay about 5 percent less than landlords’ posted prices, factoring in both rent and deposit. “Many people didn’t think this potentially might be true,” he says. “But you think. We know. We have statistics.” Lubinsky politely declined to share these statistics.

He claims that 20 percent of Rentberry’s customers already use the “full service” version of the site, paying rent not to their landlords but directly to Rentberry. In the not-too-distant future, he hopes users can find insurance on his site. A handyman. A house cleaner. A dog walker. Everything.

This, according to Lubinsky and his investors, is where the money is. The site they’ve sunk millions into, they say, is a much-needed step toward rationalizing and streamlining a market that’s both irrational and inefficient. Rentberry is making an omelet here, and you know the bit about eggs. “I would say that anytime an industry is being disrupted, there’s always an argument from people who think the process is taking advantage of someone,” says Carolyn Taylor, the president of Weatherly Asset Management and a first-round Rentberry seed investor. She likens the situation to Uber versus medallion cabdrivers: “One thing exists as a monopoly, and someone else comes in to make it more efficient.”

Comparing anything to Uber becomes a more loaded proposition by the moment. Lubinsky argues that his company is not the Uber of gentrification. “We just offer transparency, right?” he says. The statistics he cites, if you believe them, indicate that Rentberry isn’t driving prices to infinity and beyond, but rather is allowing qualified tenants to work out more favorable arrangements. “It’s similar to when you go to a car dealership,” he continues. “If you have a better credit score, you expect the bank to give you a better APR. If my credit score is better than someone else’s, why should I pay the same rent as someone else? I want to have a discount.”

And yet it’s only a discount from the point of view of someone with sparkling credit. For the guy with mediocre or bad credit, it’s called a penalty. Those blessed with money, good credit, and the moxie to wrangle with landlords can supposedly leverage this into more attractive deals. It’s a win-win for those who were already win-winning.

Of course, solving the inequities of a boomtown’s dystopian rental scene isn’t Lubinsky’s responsibility. And for all the angst and disdain his site has drawn from tenant activists, it’s not as if he’s inventing practices that weren’t already happening. He’s just automating them. With a wave of his hand, Lubinsky dismisses the concerns orbiting around his site. They’re a distraction from how he may yet revolutionize the market and end up ankle-deep in money. “Let us look deeper. I’m not sure I’m allowed to go into the details. But…” he says before pausing a good five seconds, “we feel that the biggest profits are in security deposits.”

Just as your car rests, idle and useless, for 99 percent of its life, your security deposit sits, untouched for years, in a savings account earning pennies per year. Lubinsky has bigger plans for it. “What is the rental industry? It is $80 billion frozen in security deposits. This number is more than Bank of America’s market cap.” Lubinsky wants to blow the gathered dust off these heaps of cash scattered in countless disparate accounts and amalgamate them into a mighty fund. “We feel this is where the huge, huge, huge profit is. We can go to Goldman Sachs, we can go to Chase, and say, ‘Listen, guys. How about this? Let’s do a partnership where you will manage $80 billion. You will offer to landlords and tenants, let’s say 0.5 percent from this money. Maybe 1 percent, who knows.’”

After the landlords and Goldman Sachs/Chase/whoever take their cut, if Rentberry could glean even a smidge of interest earnings from a massive pool of deposits, it would be a wildly lucrative endeavor. Lubinsky illustrates this point with an equation penned on a whiteboard: “If we get 0.1 percent on a yearly basis from $80 billion”—he tosses his hands in the air like a revivalist preacher—“we done. We done.” The cap goes back on the pen. “That’s where the money is. The money is not charging for credit reports, five bucks. All of this can be done for free. For users. To attract users.”

So that’s the deal. Rentberry is not the bidding site you read about, seeking to enable the most advantaged among us to pay more for less while extracting its pound of flesh. Rather, it’s a customizable offering site that aims to allow the most advantaged among us to leverage those advantages into better deals while navigating them into a closed market and monetizing their idle deposits.

That’s Lubinsky’s story. Now that he’s got your attention.

 

Originally published in the July issue of San Francisco

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