Skift Take

The Lyric short-term rental brand is resurfacing as the capital environment sobers up, and the industry learns to be patient about scale and growth.

There are stories of “software eating the world” and leaving a dust trail of fallen companies behind. This is not that story.

This is about a tech company and property manager that failed, and a leader who learned a hard lesson about skills and market demands. 

Florida-based Black Swan, a real estate investment firm, has acquired former short-term rental operator Lyric, which specialized in multifamily buildings until its demise during the pandemic. The acquisition has bought Black Swan Lyric’s domestic and international trademark rights, operational and performance data, and the lyric.com domain. 

Andrew Kitchell and Joe Fraiman founded Lyric in 2014 to demonstrate a use case for revenue management software company Wheelhouse, which they also co-founded. In 2019, Airbnb led a $160 million funding round in Lyric, which wound down operations during the pandemic when such companies as Lyric, Domio and Stay Alfred with master leases for multifamily buildings burnt too much cash and couldn’t scale operations. Sonder, which had raised $839 million before it went public, was one of the few of this ilk that survived.

“Hospitality is incredibly hard. You have to scale it patiently, and there was so much capital available,” said Andrew Kitchell, co-founder and CEO of Lyric and Wheelhouse. “I was a CEO of a brand given $160 million to scale. And I had never run an operations company or a hospitality company before.”

Kitchell explained he co-founded Lyric based on three core beliefs: One was that the short-term rental space was massive and misunderstood. Two was that professionalization was inevitable, and the third was that pricing and financial intelligence was incredibly important. If you wanted to actually build and scale a brand. 

And at the time, Kitchell said, that the short-term rental short-term mentality grew out of investor excitement around WeWork — where commercial real estate could become a consumer-facing brand, including an upscale consumer brand revolving around underutilized apartment inventory.

By the first quarter of 2020, Lyric was operating nearly 600 units, mostly in multifamily buildings, across 17 markets. Notable Lyrics included 70 Pine in New York City, Park 12 in San Diego, Muze at Met in Miami, and Catalyst in Houston.

“When we went out to raise our Series B, we set out to raise $30 million and we ended up raising between equity and debt, $160 million,” Kitchell said. “And we were offered far more by investors, but we wanted to work with Airbnb and other folks. It was an insane capital environment. The notion then at the time was, ‘how quickly can you grow?’”

Kitchell noted that the cracks in a rapidly scaling operational business weren’t starting to show yet. “So we routinely asked, how can you grow faster, not how can you maximize margin,” Kitchell said.

The first punch to the industry and to Lyric came within seven months of its capital raise when the WeWork IPO failed, but Covid was the “death blow,.” he said. If the realities of scaling an operational business weren’t apparent then, Covid made sure they were, soon after. 

“I think personally I’ll say that I learned a little too late the dangers of that scale,” Kitchell said. “When we were when Covid hit, it was clear that we were actually still in a strong cash position, but burn is going to go astronomical because occupancy had dropped to about seven percent.”

The natural pivot for Lyric was to lop off the operations company and focus on Wheelhouse’s technology. 

That was until Black Swan came along and decided to acquire the Lyric brand to complement the real estate strategy of its asset manager, Black Swan Asset Management, which launched earlier this year and raises capital to acquire Class A multifamily properties throughout North America.

“In a technology-focused category where brand and experience took a back seat, Lyric surely stood out. The magnitude and extraordinary level of investment in the brand became apparent to us as Black Swan took control of the former Lyric units in D.C.,” said Zachary Tombley, founder and managing partner at Black Swan Holdings. “The Black Swan brand doesn’t have nearly the kind of assets and brand name that Lyric does. We see that Lyric being the mature version, the better version.”

Black Swan’s real estate strategy will still be to buy and acquire those trophy assets in key markets. Just the difference now is that those won’t be branded a Black Swan property, rather they will be a Lyric property. That’s whether it’s a full multifamily building that’s entirely hotel or a multifamily building with a hotel amenity.

The new Lyric brand is set to launch this summer.

“Deals like this are most likely an effort to consolidate supply and demand or perhaps use a superior tech platform with the hope of cutting costs and perhaps demonstrating profitability at least at the gross margin level,” said investor Carl Shepherd, the co-founder of HomeAway. “When investors sit on the sidelines, the cash a company has is the cash they’re going to get. The company needs a path to profitability. Consolidation and cost cutting are the only avenues left open to a company that needs scale. I expect to see a lot of these types of deals. I also expect to see a lot of companies fail, because until someone finds another path, these companies are all driving down the same road.”

From Dennis Schaal, Skift executive editor: This deal is essentially an asset sale, with Black Swan picking up the Lyric brand, intellectual property, and some tech. It remains to be seen how Black Swan will alter the business model that proved the demise of so many of Lyric’s peers. Being a private company, without the quarterly glare from stock market investors, should help in the process.

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Tags: airbnb, future of lodging, hospitality, lyric, m&a, mergers and acquisitions, real estate, sonder

Photo credit: Black Swan's property in Nashville, TN. Source: Black Swan

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