Short-term rentals is a scale business in which only the largest and most sophisticated players can thrive. That was the prognosis from Laurence “L.T.” A. Tosi, former Airbnb chief financial officer and founder and managing partner of WestCap, an investment firm active in the space, at Skift Short-Term Rental Summit in New York City.
“The reason we like the business is because it’s hard,” he said on Thursday. “It takes technology. It takes knowledge.”
Tosi, who remains a major investor in Airbnb, noted that in the early days, the company had many competitors, including “lots of copycats,” some of which were larger than it in key markets. But even when Airbnb was just getting started, he said, it had one major advantage over the others.
“What happened was Brian Chesky and the team were so good at technology, data science, and marketing that they built a competitive moat,” Tosi said. “Even HomeAway, which was in business 15 or 20 years ahead of them, is struggling more with Airbnb today than they were when Airbnb was small. Airbnb got very good with things that were tough to duplicate.”
After leaving Airbnb in early 2018 — news reports indicated he had a rift with Chesky, though he downplayed those issues on Thursday — Tosi has been investing in other companies that have what he believes are technological and leadership advantages.
One, called Sonder, lists upscale furnished lodging for shorter stays in about 20 cities, while the other, Blueground, rents corporate-style units for 30 days or longer. It is in nine markets, according to its website.
“The best STRs are technology-driven businesses,” Tosi said. “You have to be good at hospitality but you also have to focus on the technology. That’s the part that is not replicable by single-owner landlords or small groups of landlords. I see these business plans of people saying ‘We’re going to do STR (short-term rental), and we’re going to list it on whatever,’ That’s not a sustainable model with a couple buildings.”
At the same time, he reminded attendees that short-term rentals are also a real-estate play and need to be properly evaluated. Tosi was chief financial officer at Blackstone Group from 2008 to 2015, a major player in commercial and residential real estate.
“This is a real estate business sitting next to a technology business, and you have to be good at both,” he said. “We underwrite buildings at Sonder like we were underwriting investments at Blackstone. … We look at almost 350,000 units a year. We can tell you where they are, who is most likely to book them, where that person came from, what the channel is, what they they will pay, when they will leave. It is incredibly hard to do, and I think it’s sustainable.”