Californians say the billion-dollar company is hawking illegal timeshares. "If this business model succeeds," one Sonoma resident said, "our town starts to become more and more like an adult Disneyland."
Photo credit: STOP Pacaso Now

Tech ‘Unicorn’ Pacaso Is Turning Homes Into LLCs and Pissing Off the Neighbors

Californians say the billion-dollar company is hawking illegal timeshares. "If this business model succeeds," one Sonoma resident said, "our town starts to become more and more like an adult Disneyland."
September 15, 2021, 1:00pm

Earlier this year, the Malibu beach house directly between Bobby LaBonge and Lloyd Ahern’s properties sold for more than either of them would have expected, even considering that it sits along the famous Pacific Coast Highway. "There's no doubt they paid too much money," Ahern told Motherboard. "We thought, 'Oh brother, what kind of moron did this?'"

"We figured it was some wealthy family," LaBonge said.

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The buyer wasn’t a single family. It was a company called Pacaso, a new San Francisco–based real estate startup that hopes to "democratize second-home ownership" by selling homes like the one between LaBonge and Ahern’s to as many as eight complete strangers. "We're going to make second-home ownership a reality for the top 20 percent of the world," the company's CEO, Austin Allison, has said.  

The question is whether, in the process, Allison is going to make it harder or easier for everyone else to buy their first home—and whether Allison's idea will work out in practice as well as it does in theory. So far, the most certain thing is that he's making a lot of enemies in the largely wealthy communities where Pacaso is operating.  

Allison was inspired, he's said, to start his new company after he and his wife purchased their own second home in Lake Tahoe. "My wife and I will never forget that first evening after closing, when we were sitting in front of the fireplace thinking about how appreciative we were," he said in a video on the company's website. He formed the company with Zillow co-founder Spencer Rascoff and the backing of investors, including former Starbucks CEO Howard Schultz. The company’s name is inspired by the Spanish artist Pablo Picasso.

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“He is credited with co-creating Cubism, which brings together individual elements to create a new and innovative whole,” the company explains on its website. “We decided on Pacaso to honor Picasso's legacy of innovation.”

Since Pacaso launched last October, the company has burst onto the scene like a raging ball of flames. Within months, it claimed to have reached so-called "unicorn" status—meaning it had been valued at $1 billion—quicker than any other company ever. "If you were to talk to me a year ago and asked, 'Do you think this company will be a billion-dollar company someday?,' I would have said yes without hesitation, but I would have thought it would have taken five years instead of six months," Allison said at the time to dot.LA, a technology site co-founded by Rascoff. 

Over that same period, though, Pacaso has also racked up an impressive number of opponents: mayors who say the company will ruin communities, neighbors who say it will worsen the housing crisis, and entire cities that say Pacaso is running illegal operations. 

Got a tip for the reporter of this article? Using a non-work phone or computer, you can contact Maxwell Strachan securely on Signal on 310-614-3752 or email maxwell.strachan@vice.com.

The Pacaso model is nothing if not novel. The company buys a home, lightly fixes up and furnishes it, and then creates an LLC with eight ownership stakes. Pacaso customers then purchase at least one-eighth of a share of the home. After that, Pacaso essentially becomes a corporate property manager, handling repairs, cleaning, financing, and scheduling. People who own one-eighth of a Pacaso home can stay up to 44 days a year but no longer than 14 days at a time, and they can sell their share after 12 months. If they do decide to sell, owners independently set the price at which they sell and choose their own real estate agent, though the other owners get to be first in line to buy the share themselves.  

Pacaso makes money by charging a 12 percent fee at the time of closing and then a monthly $99 fee that covers “LLC oversight, ongoing owner support, and technology,” according to spokesperson Colin Tooze. “Home operating costs such as property management, maintenance, taxes, and repairs are passed along directly to owners transparently with no markup,” the spokesperson said. 

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"It's great for Pacaso," said Paul Grisanti, the mayor of Malibu, who has come out early in opposition to its local presence. "I don't think it's good for the schools, I don't think it's good for a sense of community."

"They're corporatizing our community. If this business model succeeds, then our town starts to become more and more like an adult Disneyland."

The day that Brad Day, 42, discovered that a tech startup had purchased the home across the street from him in Sonoma, he and the other neighbors gathered to have an emergency meeting. Soon after, they sprang into action, creating anti-Pacaso signs, writing op-eds in the local paper, and talking to members of the city council. They formed an organization, too: "Sonomans Together Opposing Pacaso," or STOP.  

Like others in Sonoma and elsewhere, Day fears that the entrance of a company like Pacaso into areas zoned for single families will mean less real estate for potential full-time residents.

"They're corporatizing our community," Day said. "If this business model succeeds, then our town starts to become more and more like an adult Disneyland."

The Sonoma campaign gained attention, and Day started to hear from people in other areas where Pacaso was making inroads, he said. Similar anti-Pacaso contingents sprouted up across California, including in Healdsburg, St. Helena, Newport Beach, and Malibu. Some protests have proven successful already. In Napa, where Allison lives, the company faced fierce backlash after purchasing a three-bedroom home for $1.13 million. A company spokesperson told the Wall Street Journal that a Pacaso executive filed a police report after someone wrote in an online Pacaso listing that they would "burn down any home you buy in Napa."  

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Pacaso announced in June that it would sell the Napa home to "a whole home buyer,” as well as a number of other changes, including setting a price floor of $2 million for homes it bought in Napa and Sonoma counties. While Allison told news outlets that the company would learn from the experience, he remained steadfast in the company's core goals.  The company said that thousands of residential homes in Sonoma are “non-owner-occupied and owned in a vehicle (such as an LLC or trust) that facilitates co-ownership,” and it claimed at the time that it bought homes in Napa and Sonoma counties for $4.1 million on average.

"Luxury homes in luxury neighborhoods make terrific Pacasos," Allison said then

“They're aiming at people who want to pretend that they're wealthy. They're gonna rent the lifestyle,” said Grisanti, the Malibu mayor. The sniffy tone here captures what the loudest residents of the luxury neighborhoods where Pacaso is dealing make of the whole thing. But many of the people I spoke with said (unprompted) they did not consider themselves NIMBYs—the derisive acronym for people who say “Not in my backyard.” Instead, they often emphasized their concerns that Pacaso could exacerbate the broader housing crisis in California and make it even harder for working families to buy a home. "There are real concerns that these properties are removing housing stock," Trevor Rusin, the assistant city attorney in Malibu, told Motherboard.  "I'm worried about family farms coexisting with Pacaso," said Yael Bernier, a farmer in the Dry Creek Valley in Sonoma County and the president of the Dry Creek Valley Association. "They are going after single-family homes." 

“They're aiming at people who want to pretend that they're wealthy. They're gonna rent the lifestyle.”

Unsurprisingly, the people at Pacaso believe that all these local residents are looking at the problem the wrong way. The company now argues that it is helping to solve the housing crisis by steering eight potential second-home owners "away from homes critically needed by the local workforce" and toward a single "luxury" home. (For what it’s worth, Zillow lists the typical home value in Malibu as $3,777,824 as of this writing.)

Similar to arguments once used by rideshare companies like Uber and Lyft, Pacaso claims it is "creating more housing opportunities through better utilization." "Nearly 10 million second homes sit unoccupied for 11 months a year in the U.S.," the company states on its website. Pacaso homes, by comparison, reach a "90%+ utilization rate," a spokesperson claimed. 

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But the concerns of anti-Pacaso residents extend beyond the price paid for the home, and raise a different, more unflattering parallel to Uber and Lyft, which rely on creative approaches to regulation. Many feel the company is bypassing or even exploiting local zoning rules. Lisa Cavalli, a self-described "third-generation Sonoma girl," said people in her town "welcome vacationers" but want them to use hotels or Airbnbs, which pay the city's transient occupancy tax that helps fund local nonprofits. Bernier, the farmer, believes Pacaso has been able to "skirt" local rules limiting non-agricultural business by calling their homes single-family dwellings.

"If this exploitation continues, where will it end?” Bernier wrote in a letter to the local board of supervisors, which Motherboard reviewed. “Sonoma County could lose its character and valuable farm land [sic] the way Santa Clara Valley did—now developed into Silicon Valley."

In Malibu, many people similarly believe Pacaso has taken advantage of a "loophole in the regulatory scheme," said Bruce Silverstein, the city's mayor pro tem. Silverstein has asked the Malibu city attorney if he could look into whether there were any means by which they could "curtail this lawfully," he said, but he fears it might be difficult.

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People throughout St. Helena have put up signs in opposition of Pacaso. (Photo credit: Connie Wilson)

Like a lot of people in St. Helena, Connie Wilson believes Pacaso's business model amounts to trying to get around local bans on timeshares in residential areas. 

"We are not NIMBYs; we are against the idea that they can come in with this idea of their LLC and circumvent our local zoning ordinances," Wilson said. 

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The city agrees. In February, the city's attorney wrote a letter to Pacaso saying  St. Helena had determined that Pacaso's homes were timeshares and therefore illegal. "Simply calling them co-ownership arrangements does not change that fact," he wrote.   

Pacaso feverishly disagrees with all of this. People who buy into Pacaso homes “are not transients: they are people staying in homes that they own,” Tooze told Motherboard. “These families make a significant investment in their home, pay property taxes, and plan to return to their home time and time again throughout the year.” 

"I'm worried about family farms coexisting with Pacaso. They are going after single-family homes."

In response to the St. Helena letter, Pacaso took aggressive action and sued the city. (The lawsuit is still pending, although a judge ruled partially in the city's favor in July.)  Because so many cities have timeshare ordinances similar to St. Helena's, both sides seem to understand the stakes of the suit. "If they lose that, that blows up their entire business model," Day said. 

In Malibu, Ahern and LaBonge have already found life next to a Pacaso home frustrating. The trash cans often don't get taken out, and the house has been left unattended with security gates open for days at a time, LaBonge said. Workers park on their property and leave equipment there too. ("One morning, I open up the garage, and there's a ladder right smack in the middle of my driveway," LaBonge said.)  The three homes sit close together along the Pacific Ocean, and Ahern is worried about evidence of a hole in the Pacaso home's seawall.

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"We're all intertwined with each other, and if you have one clunky neighbor, you're screwed," Ahern said. "If their seawall goes, my seawall goes, Bobby's goes, Billy's goes, Hilton's goes, Diane Warren's goes. Everybody goes because it's one contiguous seawall."

"You lose your seawall, you lose your septic tank, your septic system goes out on the beach, they red-tag your house, and then you can't live in it," he added. 

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Bobby LaBonge says the trash next door is often not taken out since it was purchased by Pacaso. (Photo credit: Bobby LaBonge)

Tooze, the Pacaso spokesperson, said inspectors assessed the property between Ahern and LaBonge, including the seawall; the company verified the “proper permits had been obtained for past renovation work”; and that Pacaso will continue to inspect the seawall and other major structural aspect of the house every year. (The company also said it “would not make sense” for them to overpay for homes like the one in Malibu.)

To deal with neighbors’ issues, the company recently decided to institute a "local liaison" who could serve as a "dedicated point of contact'' for residents near Pacaso homes. Pacaso said it hires "full-time, local employees” who “typically have 7-10 years experience in a service-operations role” to manage their homes and serve as a point person for neighbors. The company says these employees are available to the homeowners and broader community every day of the week.

For a long time, LaBonge had no idea who to contact because Pacaso never reached out to him, he said. The workers are young and drive Range Rovers and often tell Pacaso's neighbors that the company has "enough money to take care of any problem," Ahern said, which annoys him and LaBonge. "Money can't fix stupidity when the waves come in and you've got a hole in your seawall that should have been fixed,” Ahern said. 

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During the reporting of this article, Pacaso suggested Motherboard talk to customers the company provided to us, both of whom unsurprisingly expressed their satisfaction with the service. One of them, Chris Lim, ended up selling his property to Pacaso after a bit of synchronicity. One day at a coffee shop in Palm Springs, where Lim owned an entire second home, he saw Allison, whom he knows from working in real estate. Lim asked Allison what he was doing in Palm Springs, and Allison told him he was starting Pacaso.

"We are not NIMBYs; we are against the idea that they can come in with this idea of their LLC and circumvent our local zoning ordinances."

Lim had been renovating the property since he bought it in 2016 and was preparing to start opening it up to friends, and Allison asked him if he’d ever be interested in selling the house to Pacaso and keeping some shares for himself. He was. Since then, some of Lim’s own friends have bought shares in his Pacaso house, and Lim says traveling to his property has become much more relaxing since Pacaso employees took over the day-to-day maintenance. 

“Normally when I go to a property, I end up working half the time,” said Lim, who also owns a second home in Lake Tahoe. “It's nice to actually be able to go and enjoy the home.”

Since Nkem Ogbechie, 42, and his wife closed on a share of Pacaso home in Malibu, they’ve had a positive experience as well, he said. The family’s full-time residence is in Santa Rosa Valley, about 45 minutes from the home in Malibu, and they decided to go in on the property after spending so much time traveling to various California beach towns during the pandemic. He said at least one other family has purchased a share of the home, but they’ve had “no meaningful interaction” with them outside of an introductory call. Cleaners tidy up in-between, and the property manager has been “very responsive.” 

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Ogbechie, who is an executive at a large public biotech company, has also enjoyed spending time with his neighbors, drinking wine, sitting on the beach, and talking about cars, he said. 

Even still, the neighbors have made clear they’d prefer if a single family lived next door. 

Grisanti, the Malibu mayor, has also been a real estate broker for over 40 years, and he foresees issues for the company that he expects might make it "doomed to failure." 

"Partnerships don't tend to work very well, in my experience. There's always somebody who feels that somebody else has taken advantage and used everything up," Grisanti said. He said everyone has gone to a ski rental and found themselves frustrated by how the last tenant left it. (Not everyone has, but the point stands nonetheless.)

As with everything else, Pacaso has a response to that. In-between stays, the house is “thoroughly inspected and cleaned, and any maintenance issues are logged and resolved,” Tooze said. To help resolve disputes, Pacaso said it takes care of minor repairs like fixing a dishwasher and otherwise provides oversight. Trying to figure out how the many potential inter-owner dynamics are handled more specifically, I asked the Pacaso spokesperson if an owner was allowed to rearrange  the furniture if they so pleased. 

“Pacaso takes great measures to ensure that each home is professionally appointed with respect to functionality, durability, and design aesthetics,” Tooze replied. “If owners would like to change specific details about the home, such as redecorating, a change in design, or a home upgrade, they collectively vote on whether to make that change.”

And how many homes has the world's fastest-growing unicorn filled up entirely so far?

 "We don't disclose this number, but I can tell you that hundreds of families across the U.S. are enjoying second-home co-ownership thanks to Pacaso," the spokesperson replied.