Nothing underscores how mainstream vacation rentals have become as seeing institutional investors get in on the action.
AvantStay, a short-term rental property operator, has closed a $500 million funding round to create a company to hold its property assets. Saluda Grade, a real estate advisory and asset management firm, has backed this short-term rental fund, helping to institutionalize vacation rentals as an asset class — the so-called securitization of this growing sector of the travel industry.
In other words, the fund will buy a half-billion dollars worth of residential property. Saluda Grande will own the homes and AvantStay will be the property manager.
“We were attracted to their higher-yielding product and differentiated channels of supply,” said Ryan Craft, founder and CEO of Saluda Grade.
The news follows AvantStay, which began as a vacation rental booking service specializing in six-guest-plus group bookings, raising $160 million in venture equity Series B round of funding in December.
AvantStay manages more than 1,000 vacation rental homes in about 100 U.S. cities plus Cabo San Lucas. It offers distribution through a few dozen online travel agencies.
The move to launch the fund represents a trend in institutional investors finding a way to play in the short-term rental sector after a long-standing tradition of investing in traditional hotels, such as through real estate investment trusts, or REITs. The $500 million will be used to purchase more real estate, presumably luxury homes.
“Hospitality REITs are looking for exposure to this category, and we’re in conversation with some of them who are looking to explore operating some assets especially where we really thrive, which is smaller key count properties, of 125 keys or fewer on the independent hotel side,” Davidson said.
“Those are an interesting asset class and no major brand has really done a rollover of these assets, particularly in Europe,” Davidson said. “If you look at Barcelona or Madrid and markets where there’s a central historical core with a lot of independent small key count assets. That could be really appealing for institutional capital to go in and acquire on a package deal a lot of assets that are smaller and hadn’t been accessible before.”
For context on AvantStay and its peers, see Airbnb’s Short-Term Rental Challengers Double Down on Brand-Building.
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Photo credit: Avantstay lists many upscale vacation homes for rental, including this property in Isle of Palms by Charleston, South Carolina. Source: AvantStay.