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Vacation rental companies are ramping up their merger activity, hoping a broader reach will help them defend their turf from upstart home-rental management companies — and the venture capital and private equity firms backing those challengers.
Altido, a property management group based in London, showcases how many property management companies worldwide are responding to pressures felt across the sector.
Altido — which on Monday formally announced Billy O’Sullivan is its new CEO — resulted in May from the merger of four short-term property management companies. It’s on track to process just under $65 million (£50 million) in gross bookings this year from its 1,700 units in Europe. Yet despite its smallness, Altido stands out for some of its strategies.
The company, which doesn’t have venture capital or private equity backers, plans to take majority ownership stakes in other property management companies in the next year. Three deals are in the pipeline, with an ambition to find four more by the end of next year, O’Sullivan said.
The merger activity is driven by the cost-saving efficiencies that come with scale and the centralization of some functions.
Adapting to new technologies is another factor. Venture-capital backed companies like Airsorted, GuestReady, Hostmaker, and Vacasa and private equity-backed companies like Sykes Cottages have popularized the idea that technology can wring inefficiencies out operational and back-office processes. Altido’s comparable response is to require all companies in the group use the same property management system, Guesty, a startup that has raised $60 million to date.
Using Airbnb and Marriott
Altido piggybacks on demand-generating partners like Airbnb and Marriott to showcase its rooms.
At the same time, Altido is shifting its emphasis from solely offering apartment rentals to offering budget, mid-priced, and luxury accommodations —ranging from what’s as basic as student accommodation to what are essentially pop-up boutique hotels.
This summer, Altido took over a 150-room student dorm cleared out for the summer in Edinburgh, Scotland, and turned it into a pop-up budget hotel. It marketed it under the Altido Affordable name on Airbnb.
On the luxury end, Altido has been adding properties to Marriott’s Homes & Villas program, where it manages ultra-luxurious vacation rentals on behalf of Marriott, which offers them for rent to members of its loyalty program Bonvoy.
Separately, this year, it took over a half-dozen luxury apartments adjacent to Milan’s famed Galleria shopping center. It marketed them to travelers with hotel-equivalent operations, such as a reception area for check-in and daily housekeeping, on online travel agencies, such as Airbnb, Booking.com, and Hotels.com.
One Octopus Beats Several Squid
Might the merger momentum be a response to broader economic trends, as the rental cycle weakens with weaker economic growth in Europe, as some experts have argued? Has an explosion of supply from independent hosts and real-estate developers pressured margins, as some analysts have suggested? O’Sullivan said he hadn’t seen evidence for either factor.
“When property managers talk about merging with us or selling to another company, what I’ve been surprised to hear, but that makes sense in hindsight, is that one big motivator is that it’s just not as much fun as before to run these businesses,” O’Sullivan said.
“The owners have hit a point in their growth where they’ve discovered they either have a sales hole or an operations hole,” O’Sullivan said. “Some companies aren’t running on the right fuel, so to speak. They’re set up wrong. Their management structure is inefficient, meaning too fat in some areas and not aggressive enough in others.”
Managers who hit a wall in trying to plug skill gaps on their own could instead turn to businesses like Altido, Vacasa, Vtrips, or Sykes Cottages for help. They could exchange some ownership stake for the ability to bring on board an operator with a demonstrated track record at fine-tuning processes.
O’Sullivan previously built the vacation rental business of Property Management, a large property management franchise company based in Lehi, Utah. He oversaw a merger with Book By Owner that kicked the division into a higher gear of performance.
Soft Brands Come to Rentals
Hotel groups have brought soft brands into vogue, where they target the service, pricing tactics, and marketing muscle of collections of properties at specific demographic groups.
Altido is betting that something comparable to soft brands is emerging in short-term rentals. Its strategy is to create a few tiers of service. The soft brands signal to consumers what they’re booking and to owners how much they’ll have to invest in maintaining a particular soft brand standard.
“A manager faces a choice of, ‘I could sell out to X and make a bit of cash,’ or I could give Altido something like, say, only 51 percent ownership and get its expertise to blow this thing up at scale,” Sullivan said. “With Altido, in, say, five years, the price to earnings multiple [on my remaining ownership stake] might be several times more than it would be by selling in full now.”