Short-term rental operators, such as Kasa Living, Placemakr, and AvantStay, have been taking over properties managed by Sonder as the company struggles with its business model. For example, Kasa Living opened Kasa Gaslamp Quarter in San Diego, formerly operated by Sonder, and has taken over more than five Sonder properties. Placemakr also opened Placemakr Noma in Washington D.C. after taking it over from Sonder. AvantStay has taken over two buildings in Nashville formerly operated by Sonder. Blueground has also been approached by landlords to take over some Sonder lease agreements.
The rivalry between Sonder and other short-term rental operators has led landlords to approach companies like Kasa Living and Placemakr to take over properties where Sonder was trying to renegotiate lease terms or exit from master leases. Kasa Living CEO Roman Pedan explained that as Sonder approached landlords asking for rent reductions or lease terminations, the landlords would then approach companies like Kasa and Placemakr to take over the properties. This has resulted in Kasa Living being approached by several landlords who are looking for alternative operators due to an overlap with Sonder in the markets they operate in.
Sonder has announced its strategy to shed some master lease contracts as part of a portfolio optimization program to achieve sustainable positive cash flow. However, Sonder’s business model has been questioned, with some industry experts comparing it to short-term rental arbitrage. Carl Shepherd, a short-term rental industry veteran, expressed concerns about Sonder’s model, particularly the risk associated with signing long-term leases with apartment buildings and converting them into short-term rentals. This approach has proven to be risky and financially distressing for other companies in the industry.
The struggle within the short-term rental industry, particularly for companies like Sonder, was highlighted during the pandemic when several companies with master leases went out of business. Sonder’s announcement of delaying the release of its fourth-quarter earnings report and the need to restate earnings for 2022 and 2023 due to accounting errors further emphasizes the challenges the company is facing. Additionally, Sonder laid off 106 employees in February, representing 17% of its corporate staff.
In contrast to Sonder’s business model, companies like Kasa Living and Placemakr sign management contracts with owners and landlords, taking a percentage of revenue or profit as a fee. This alternative approach allows these companies to operate without the financial risks associated with long-term master leases. The shift in the industry towards management contracts as opposed to master leases reflects a more sustainable and less risky approach to short-term rental operations. Overall, the struggles faced by Sonder and the rise of alternative operators indicate a changing landscape within the short-term rental industry.
