Vacasa Turnaround Exec Cites the Need for a Vacation Rental Reset Post-Covid

T.J. Clark, property manager Vacasa’s new chief commercial officer, is in the proverbial hot seat, charged with reversing unacceptably high rates of homeowners leaving the platform, and increasing sales after the company laid off up to 300 sales and marketing staff and 1,000 field personnel in January.

That came after Vacasa fired 280 employees in October.

Clark, who previously headed the company’s business development and was co-founder of TurnKey, which Vacasa acquired in 2021 for $619 million, mostly in stock, assumed the position under new CEO Rob Greyber in February after Clark’s predecessor left the post following a four-month stint. Clark wasn’t a speaker during Vacasa’s fourth quarter earnings call last week, but the CEO and analysts mentioned his name nine times.

During the call, Greyber seemed to say that competitors are likewise subject to homeowner angst over diminished revenue following the Covid-era boom. However, others in the industry acknowledge that owner revenue expectations may be unreasonably high and colored by the industry highs achieved in the latter portion of 2020 through the first half of 2022, but none of the privately held property managers are admitting to elevated churn rates like public company Vacasa did — or had to.

We spoke to Clark about the challenges ahead of him and Vacasa, and how he intends to address these issues.  Clark said Vacasa isn’t privy to competitors’ churn rates, but Vacasa’s issues came in the broader industry context of homeowners feeling revenue pressures after a couple of banner years, coupled with high interest rates and concerns about inflation.

Clark argued that Vacasa can establish enhanced direct relationships with homeowners even though it just cut 17 percent of its staff, and that tech and improved coaching will contribute to more focused execution.

On Vacasa’s under $1 share price, Clark said there can be a disconnect between stock price and performance, and the company expects to be profitable in 2023.

An edited version of the interview follows:

Dennis Schaal: OK, so here’s the thing, you guys seemed to be saying that the churn was an industry-wide problem and not just a Vacasa-specific problem. Other people in the industry are telling me they’re not seeing this. So what makes you feel that it’s an industry-wide problem and that it wasn’t just your problem?

T.J. Clark: I think the first thing we would say is we don’t have the churn data on our competitors. So we don’t know that and can’t say that. Specifically whether this property manager or that property manager is losing units at a given clip. We of course keep an eye on our competition and we can see what listings our competition have on their websites. That stuff is public. As far as our own point of view, we don’t think that there is an industry problem, full stop.

Schaal: OK.

Clark: There is not an industry problem. We still think is a great industry to be in for so many reasons, including that guest demand for STR’s (short-term rentals) has been growing for many years and seems to be on that path. More units are coming into the market space and are being used as STRs is a trend we’d like and expect to continue to see. And third, we’re still a relatively small percentage of what we think is the overall market opportunity, which is if you would say there are 1.5 million STR listings in the U.S. on the major channels, and at 44,000 units on Vacasa at the end of 2022, we still have a very exciting opportunity in front of us to grow.

Schaal: And as Rob Greyber said the other day, you don’t have many major competitors at scale.

Clark: Now with respect to our churn, we’ve also grown a lot as a business.

Schaal: Because your numbers were up in ’22 [44,000 properties] versus ’21 [35,000 properties], right?

Clark: Compared to where we were in 2019, we have grown organically and through portfolio acquisitions a lot. So we are happy with where we are in terms of overall growth. And we do internal forecasting on where churn should be in it, and I think what Jamie (Chief Financial Officer Jamie Cohen) was relaying is that it’s higher than we would want it to be or where we have forecasting. It doesn’t mean that the business doesn’t have an opportunity in front of it to do better. We think that there’s actually a lot of things we can do better to better serve the guest and owners. 

Schaal: But didn’t Rob and/or Jamie say that they felt like this churn was happening to your competitors as well, and it was not just your problem?

Clark: Well, we can’t say that. Like I said, we can’t say that we know what their churn rates are, for example. But here are the macro factors that are affecting us and were probably are affecting our competitors, as well. Those are that we’re leaving a period of record high bookings in the past two years over Covid. People were Zooming, they were looking for privacy, they were renting STRs, but at all times of the year; their kids were not going to sports and they didn’t have to go to school. So this was a very unprecedented period of revenue that we went through.

A lot of new buyers also came into the market and there were record high levels of STRs being purchased and brought into the STR economy. Now, what we are all facing together is that we have exited Covid and things are starting to return to a more normalized seasonal curve like we saw 2019. That means generally if you were renting a place in October for what used to be your July peak summer rate, you’re not doing that because those guests and are having to go back to work and their kids are having activities and so on.

Number two, interest rates have risen quite a bit. Inflation, and the cost of ownership, have also risen for these homeowners, putting some more what I would say are psychological and sometimes real financial pressure on the owners to produce revenue on those STRs. And we have a worsening employment economy too. You can see the layoffs and other factors that the economy is generally cooling off and so it is causing some stress for those homeowners. Now generally the stress and the expectations from where they were is adding some pressure. At the same time, we had seen historically that Vrbo and other big STR channels have done well in an economic downturn because those homeowners want to rent and need to rent at a higher propensity. They’re more inclined who want to rent and generate revenue from their properties. So I think it cuts a little bit both ways.

We’ve grown a lot, and I think we’re going through an adjustment in connection with what’s happening in the economy.

Schaal: Is there a standard acceptable churn rate in property management and how does your churn rate compare to that?

Clark: I’m not able to comment on that internal stat, but as Jamie mentioned, it’s higher than we forecasted and we’re taking a lot of steps to get it back under control, to arrange that where it would be more in line with what we would expect.

Schaal: So what kind of steps are you taking to turn that around? The churn rate?

Clark: Sure. So basically we are right-sizing our team as we’ve talked about. What we’re doing is we’re changing our processes to go from a Covid-based service profile and what that entailed was the cleaning standards and the way we worked with our vendors. The distancing we had to do with our guests and our homeowners so that we could operate safely through the pandemic brought on a very enhanced level of staffing that we had to add in order to keep up with those criteria. And it’s harder than ever to get cleaning crews and repair people and the partners that we need to operate these that we’re reacting to that by right-sizing our team.

Schaal: But here’s the thing, so you’re expecting to improve owner satisfaction by reducing the team drastically?

Clark: On a percentage basis I think it was like 17 percent. So this is not a massive reset, but what it does, Dennis, is allows us to change our processes so we can have more direct relationships with our owners because of distancing and so on. Now we’re getting more down to brass tacks in terms of being able to provide more direct hospitality for the guests and for the owners.

Then another big one on our side is the technology that we’re deploying that will help us drive more accurate ticketing and routing of our teams in terms of the tasks that they’re undertaking, how frequently they are inspecting, and how do the inspections go. These are all part of the technology enhancements that we’re bringing forward.

Schaal: So when you say thought that it was only 17 percent, was it 1,300 layoffs? Including some 1,000 from the local field staff? 

Clark: Right.

Schaal: Which impacts owner relations, no?

Clark: Yes and part of our service delivery The operations is by far the largest group that we have in the company. So a thousand in an absolute number sounds like a lot, but it is on a percentage basis. I think it was something acceptable to what we thought we needed to right-size the business coming out of Covid and we’re really improving our execution with the technology enhancements I mentioned and also processes that we’re using in coaching. We think we’re vastly improving the execution.

Schaal: How do you get a handle on improving execution?

Clark: Yes. How do we get a handle on it?

Schaal: Yeah.

Clark: So well, we’re coming out of a changing set of priorities from Covid  that we no longer have to deal with. The amount of overhead we had from that is… I can’t really overstate how much that changed our operating model and now we are coming back, thankfully to a more 2019-esque way of operating. And that means that we can focus more on the way we coach our teams to execute on hospitality for the guests and the owner and bringing forward technology that’s going to help them do their jobs better.

Schaal: Got it. What’s an example of the types of overhead that increased because of Covid that you’re now able to normalize?

Clark: Oh, I think of three right off the bat, one was the distancing.

Schaal: That led to more overhead, the distancing?

Clark: Yeah, so think about it. We cannot enter a house to do our work if there was a guest or an owner there. we couldn’t interact with our vendors face-to-face the way we used to do that. This stuff all had to change. That was one big factor. The other factor is it was harder than ever. The economy was actually very robust during that whole phase and it was much more challenging for us to source and work with our critical partner vendor teams. So cleaners, handymen. If we had repairs to do in terms of plumbing or otherwise, that stuff got much harder. It took much more manpower on our part to recruit those people and work with them. And it was harder than ever to recruit our own teams, our own employees. So those are returning to a more normal operating environment and we have a lot of people and that’s a big change for us and a positive change.

Schaal: So T.J., you’re not the CFO, but what are you guys going to do about the stock price? [Vacasa’s stock closed below $1 at $0.93 per share on Friday.] Is there going to be a reverse split or how do you survive with the stock price so low?

Clark: So I’m not a stock picker, so I don’t want to give any stock advice to anyone. But we like our business. The stock price doesn’t necessarily reflect our thought about our opportunity as a business. Those seem like two different things to us or to me. And so I don’t focus on our stock price every day and our team doesn’t focus on it. We focus on how do we make the business better and keep improving what we’re doing, making the business more profitable and delivering better services to our guests and owners.  Whether you’re public or you’re private, those seem like the right ways to run your business to us and that’s why we’re so focused on that and our hope is that if we keep doing those things, our business will get better.

Schaal: So you can’t say anything though, back to the stock price, about what would be the impact on the business if you got delisted, for example?

Clark: I can’t speak to that and I don’t want to get into that. Jamie’s been real clear on where we are with our cash position [$320 million in cash, cash equivalents and restricted cash at the end of 2022] and that we’re expecting to be profitable this year. So those are positives for us.

We believe an organic growth strategy is the right strategy for us. It’s repeatable. It’s something we know. We feel we have a good understanding of what owners are looking for with respect to their choices and managers, and that we can provide a good fit today for them, and we can make it better and better continuously. So we still think we’re an attractive option for homeowners and and we’re going to keep working to make it better and better, and have them stay with us.

Schaal: So I saw a relatively high number of Better Business Bureau complaints [1,425 in last three years] about Vacasa and I’m wondering how this relates to the owner churn. You have a high Better Business Bureau rating [A+] because a lot of those complaints are closed, but still, how do you view it? [Vacasa’s customer review score on the Better Business Bureau website is 4.07 out of 5 based on more than 2,700 reviews.]

Clark: We have more units and so we’re going to get more good and we’re going to get more bad. Ultimately, I think when you’re in a service business like ours, if you’re a hotel or you’re Vacasa or you’re an airline, you’re going to have issues and how well you recover from those issues is what being a service provider is all about. So we may hear a complaint from a guest or an owner, and we take that very seriously and want to intervene. I think that’s why you see a high percentage are getting closed out. And by and large when we work with our owners and our guests, we think we really love them and they’re good people and we think they do mean well. And if it presents an opportunity for us to help them and learn from that in order to decrease the chances of us making that mistake again, that’s an important way that we think about service delivery and try to make it right.