Weaker Short-Term Rental Players Face Mounting Pressures

The weaker U.S. companies in the short-term rental industry, those valuing growth over profits, are running into a difficult moment at the start of the summer.

Inflation soared, fuel prices led to are-you-kidding-me moments at the gas pump, and occupancy rates in the U.S. in the third quarter are currently at 39 percent, down from 45 percent during the same period in a standout 2021, according to Melanie Brown, director of analytics at Key Data Dashboard, which tracks vacation rental data.

Although there has been a dramatic falloff in third quarter occupancy compared with last year, it is still four percent higher than in pre-pandemic 2019, she said.

Revenue per available room for vacation rentals in the U.S. in the “third quarter is down by 7 percent,” Brown said. “Revenues are still substantially higher than in 2019. Supply has increased over the last 12 months, contributing to lower occupancy rates.”

Key Data Dashboard estimates occupancy in U.S. vacation rentals in the fourth quarter will be down 5.3 percent year-over-year.

Deteriorating average daily rates and occupancies will make for a difficult August, September and beyond, forcing some companies to redo forecasts for the remainder of the year, said Steve Milo, founder and CEO of Vtrips, a property manager.

There has been a flurry of recent developments:

• Newly public companies Sonder and Vacasa are trading at $1.04 and $2.77, respectively.
• BTIG reported that Airbnb’s traffic was down 2 percent in June compared with the same period in 2019, and Vrbo’s fell 16 percent.
• Wanderjaunt, a Phoenix-headquartered property manager that had received $26 million in funding, abruptly shut down June 30, leaving hosts and guests flummoxed.
• Property manager Avantstay reorganized operations under a new chief operating officer, and trimmed 43 jobs roughly in the June period.

Master Lease Issue

There are some in the industry who believe one element in current pressures is property managers stuck with burdensome long-term leases. The short-term rental companies still have to make lease payments when demand slows, as so many found out during the beginning of the pandemic. Sonder, Avantstay, and the now-defunct Wanderjaunt had some of these master leases, or long-term leases, but have reworked some to provide more flexibility or have altered their business models toward fee revenue or commissions in some cases.

A handful of short-term rental companies, such as StayAlfred, Domio, and Lyric, that were saddled with these master leases went out of business during the pandemic.

WanderJaunt Gave Some Managers Almost No Notice of Shutdown

Mila Bahamolski, founder of Hostkeyper, which performed cleaning services for Wanderjaunt in 300 units, Lyric, Sonder and Landing, much of it in Texas, said: “The way they shut down was so bizarre. No warning, and from one day to the other.”

Bahamolski claimed Wanderjaunt owes her company $12,000, and she had to pay her employees out of her own pocket. Wanderjaunt didn’t respond to a request for comment about closing its business.

A former WanderJaunt employee, who declined to be identified, said Wanderjaunt didn’t provide any explanation for why it was ceasing to operate other than broad statements about the state of the economy.

In hindsight, the former employee said, two months earlier there was a sign that the WanderJaunt business was in trouble when the company said it wasn’t getting additional funding, shut its growth department, and fired about seven people in Houston and perhaps 30 people across the country from that unit, promising the company would then have more resources to focus on current operations.

“They kind of lied to us then,” the former employee said.

The ex-employee added that “operationally we were fluid” with around an 80 percent occupancy rate in Houston, and attracted great customer reviews.

WanderJaunt informed lower-level managers that it would shutter its business on the day that it ceased operations, and merely told higher-level managers a day or two earlier, the former employee said.

AvantStay Reorganizes

Skift reported a week ago that AvantStay said its employee roster experienced 43 “job reductions” in the previous 30 days.

These weren’t layoffs because they came as part of a “gradual reorganization,” the company claimed. There actually was a net reduction of 19 employees during that period because the company, which has around 600 staffers, also did hiring, AvantStay said.

“Our brand’s restructuring is due to a reorganization under new leadership,” founder and CEO Sean Breuner said in a statement. “As we shared, we hired a new chief operating officer in May, which brought clarity to employees’ roles and responsibilities, removed layers of leadership and simplified our org structure.”

Breuner said AvantStay acquired six property management companies in the last three months, and none of these came with long-term leases.

“The very large majority of AvantStay’s portfolio is on a management fee partnership with owners, as is customary across the industry,” Breuner said. “Most of our leases were signed 2+ years ago, many of which have converted to partnership fee contracts as our owners earn more money under this structure.”

The company likely has ample cash. It raised $160 million in a Series B round in December, and a “$500 PropCo funding round, which has secured more than $100M in real estate,” Breuner said. “The brand is growing rapidly as we are now in more than 30 markets nationally and we will continue to launch new markets this year and grow our team accordingly to support.”

Sonder Strives to Get to Cash Flow Positive in 2023

With Wall Street hammering unprofitable companies, Sonder, which went public in January, announced last month a cash-flow-positive plan. That plan features cost-cutting, slower growth, and the desire to have real estate partners cover some of the up-front costs involved in open buildings. The goal is to achieve positive quarterly free cash flow sometime next year.

“Moreover, in June, we reaffirmed our second quarter 2022 guidance of revenue growth better than 140 percent year-over-year compared to $47 million in Q2 2021, driven by robust RevPAR recovery and moderate bookable nights growth,” the company said in a statement.

Like Sonder, Vacasa is deep in the red. Vacasa recorded a net loss of $56 million in the first quarter, for example. The two companies are in somewhat different businesses, and Vacasa uses commission-based models rather than long-term leases in managing both whole homes, and multi-family units. Vacasa declined to comment for this article.

The major booking sites, Booking Holdings, Airbnb and Expedia are schedule to report their second quarter earnings next month. They will undoubtedly provide commentary on how the current softness in short-term rentals has impacted their businesses.