Sonder Raises $135M to Turn Airbnb Apartments into Hotels
forbes.com
forbes.com
The highs and lows of tech average together well enough to satisfy Wall Street and then have huge profits for some that VCs that find and hold good investments, and more VCs that feed off a constant influx of sucker investors.
This is bad news for cities that are already short on housing. You're taking what could have been space for housing and erasing it with larger, lower-density hotel suites. Very luxurious and pleasant for the travelers, sure, but you're ballooning the space taken up by the "hotel" and magnifying the market pressures on everyone else in the process.
What's pretty surprising about this article is the breathless, unquestioned enthusiasm for these kind of ideas. Is this really a sustainable model for urban centers and hotels? Is this how we want to conduct our cities and use our most precious, economically productive spaces?
I'm pro Airbnb--when the room is actually rented out by the renter, everyone including the little guy wins. But this is a very "rich get richer" style of tourism with the fig-leaf of the share economy strapped to its extravagance, right?
To be clear I'm not talking about the model of renting out your spare bedroom on Airbnb because nobody actually wants to do that. I'm talking about full time airbnb studios / 1BR's obviating the need for guest bedrooms.
I think expecting the presence of Sonder in the market to efficiently trade space with houses by obviating the need for guest rooms seems like a fundamental misunderstanding of how the housing market works, particularly why people buy houses larger than what they need or utilize.
Demonstrably false - there are many thousands of such rooms available on AirBnb:
https://www.airbnb.com/s/homes?refinement_paths%5B%5D=%2Fhom...
I often prefer to stay in this configuration, especially in a city where I don't know the local language. This way you have a host and a cozy, lived-in place to stay instead of some sterile suite that makes you feel like you never left your own city.
I'd venture that most Americans living in the dense urban environments the OP was talking absolutely do not have a spare room kicking around for guests. Certainly, living in NYC, I don't and neither does anyone I know.
My parents have 3 spare rooms, because my siblings and I have moved out and they haven't downsized to a smaller house.
But I wouldn't expect a young family to have a spare room. When I was younger and we needed a spare room, I was always relegated to the couch to make room for guests.
I would like to know where you get this idea that a majority of Americans have such. Is this merely anecdotal observation or is there a study you can cite?
No, they don't. Some Americans do, but it's a minority; most that have a room that loosely serves this purpose have another non-bedroom function for the room that is not significantly impaired by occasional use as a guest bedroom, and a large number, probably a majority, have no guest bedroom at all, putting guests up on a couch (possibly convertible, but maybe not) or temporary cot, etc. in a common room (or displacing a resident, likely a child, to such an arrangement to free up a bed) when hosting overnight guests.
If that space is more economically productive doing something else, then it will be easy to outbid Sonder.
Otherwise, why not zone the entire city as a hotel?
Likewise, it serves society to have bidders who are offering a long-term lease at a monthly price for an apartment to not have to compete against a stream of tourists who are spending out of their leisure budget. If a city needs new hotels, it can zone and permit the construction of them. The answer isn't to force renters to enter bidding wars against vacationers to discover the "true" price.
That is a lot of extra tax revenue which would be generated and able to be spent on the population.
If you were a gamer entering the market in 2018, you would've seen prices several hundred dollars in excess of what your counterpart from six months earlier paid. Games hadn't gotten, say, 50% better. Performance hadn't either. You and your peer are going to have roughly identical experiences. The cost of your gaming experience is going up due to reasons uncorrelated with the value delivered to you.
The point is that pure market forces are volatile and unpredictable, in the extreme. It's up to you if you want to make the case that housing, being a commodity essential to the proper functioning of a society (unlike gaming), doesn't require at least some protection from pure demand forces. IMO most people would find it obvious that this would be undesirable.
Why not? All of midtown Manhattan, at least. If superwealthy and tourists will pay an exorbitant rates, might as well soak them for all the taxes they're worth and spend that money subsidizing transport and housing in the rest of the city for locals.
Long-term the intuition is "this must be profitable at some point", so the market participants are acting irrational in the short-term. No one can compete with irrational actors, especially ones with an insane amount of capital to burn like we see today.
I suppose this is true in some parts of the country, but in the areas where real estate is tight, "the little guy" probably doesn't own his home.
Spoiler: There's still a massive housing crisis. Housing is _hard_.
No one is going to move, because cheap land is not yet cheap enough to offset the opportunity (or perceived opportunity) cost of being in a keystone ecosystem.
I'm not arguing for libertarian planning-- Let's leverage these high prices to build some amazing neighborhoods that can be enjoyed for generations: walkable, mixed-use, sustainable, transit oriented.
In the not-too-distant past, condos used to deprecate. Now their value goes up with each additional year of wear and tear!
Yeah, "lost profit", the cardinal evil. Sure, everybody wins, except the poor devils that make less than 100k and can't afford housing anymore. But who cares about them? Profit profit profit!
The truth is public policies should seek to maximise social gain. It's not their fucking job to enter into considerations about some people's profits.
PS: it doesn't make economic sense to waste money doing proper waste management when you can just dump your poison in the river, nevertheless we legislate that businesses must do the former.
Just remove the inconveniences and it’s a VC findable business model.
By contrast, Sonder can buy individual apartments very easy. The whole selling point is that they are apartments, so there's no need to renovate etc.
What it comes down to: everyone needs a place to live. Everyone takes up space. All housing space is valuable. But somehow many people think they can live somewhere without being a cause of the housing shortage.
The only way to not be part of the problem is to move away.
Sonder is expanding with hotel licensing and from a zoning perspective is like a hotel. And yes, the units are being renovated to Sonder's standards. If you stay in a Sonder and ask about the history of the building it may be very surprising.
Maybe it's selective bias but I think of all north American metropolises Montreal would be particularly difficult to implement hotels in residential areas. Renters here have very strong rights, albeit backed by an understaffed authority. Tourism provides a substantial bulk to the local economy but it's not nearly enough that the local population will accept having fly-by-night partiers in otherwise quiet neighbourhoods. The article says downtown but I strongly suspect they mean neighbourhoods adjacent to downtown which have long been home to local workers and students, key to providing vibrancy and life which attracts the tourists to begin with (and the festivals).
Given that each city effectively has unlimited housing potential, the idea that tourists are driving out locals makes zero sense.
Construction does not fix the fact that tourists pay 5-10x what local residents do for the same real estate. If you want to keep that from affecting rents, there's a very effective and inexpensive way to do it: don't let people turn rentals into hotels. Just like New York.
I mean if you're willing to take the subway to work, you can get a pretty large 2BR for less than $2K / mo. Yes you need a job to be able to afford that, but not a particularly amazing job. Just not unemployed for the entire year every year.
https://streeteasy.com/for-rent/nyc/price:-2000%7Cbeds:2?vie...
Density increases innovation. Density decreases travel carbon emissions.
A city of skyscrapers would also make a pretty dystopian city, the way I see it.
We need smart solutions to a complex problem.
Are there still Airbnb flats that are owner-occupied? Every one I've stayed in seems to be operated as a full-time holiday rental.
> the fig-leaf of the share economy
There's never been any sharing in the so-called sharing economy. It's just about outsourcing labor costs and ducking regulations to make money.
Would we criticize Marriot or Hilton for making a hotel in a commercial zone?
It photographed really well which is why I stayed there, but the bedding was terrible. The worst of any Airbnb experience and it’s part of why I generally choose hotels for short stays now.
This rental had cheap pillows, linens that felt like sand paper, and the comforter was bare sandwiched between a large sheet. Towels were tiny and cheap motel quality. I was really disappointed. Hopefully their other locations are better than this one. I personally wouldn’t go back.
I filled in their after-stay survey and never heard a response.
A. The secret to AirBNB is that everybody had extra space, and Gig Economy allow you to get value out of your extra space.
B. When you are in the Gig Economy, you have two things that you need to do:
1. Have the extra space 2. Manage the extra space
Sonder initially focused on #2, and this worked out well. Bring professionalism to the management interface turns out to be very good deal because a lot of people with #1 is not good at #2.
My problem with the next step on their is that they are leaving the core of the gig economy.
Buying the facility and coming up with unique rooms with different paintings is simply getting into the hotel business. The fundamental driving force of the AirBNB business model is the use of an asset that is otherwise unused, and sparing somebody from needing to invest CapEx in building rooms. This is a massive lever to get into the hotel business, which is what AirBNB really is.
Obviously, I'm totally ignoring the moral choice of if having somebody else consuming and reselling beds is good or bad for cities. I'm simply on the point that hotels are a going business that is pretty competitive, with a series of operators at all levels. It's not clear to me how Sonder business model is superior to the standard hotel model once they are forced to spend CapEx for rooms, because having unique hotel facilities or rooms does not appear to me to drive a competitive advantage.
Secondly, if having unique rooms turns out to be brilliant competitive advantage, and I'm totally wrong on this point, I don't see how this drives a real moat (as Buffet would state) that is defensible. I would think that the entrenched hotel operators should be able to pivot and counter the threat.
Isn't Sonder just trying to slip in under the radar, the confusing ostensible aegis of people renting out their rooms temporarily, to do what Marriott can't do?
I'm no expert, but the Blackstone group and some REITS already focus single houses and renting them out. The REIT market is well understood, thus having a easy line of investors. If this is simply a way of getting past local rulings, I would guess that somebody in the aforementioned rental market buying single homes might explore short term hotel type operations instead, although it is unclear to me the leap from longer term rentals to overnight stays.
Two things makes me suspect their model is basically just an end run around hotel regulation, and not gig economy.
1. All of the airbnb's I've stayed in over the last year were dedicated airbnb spaces.
2. I know a couple people who rent 2 apartments, live in one, and primarily support themselves off airbnbing the other.
Agree the one thing I really don’t like about Airbnb and why I still prefer hotels is the inconsistency of the experience from check-in to check-out. If I’m in a new unfamiliar city all I want to do is minimize the unknowns as much as possible and everything about Airbnb from key hand off to cleanliness to whether the listing is even real is a big question mark until you’re actually there.
Airbnb has gotten a lot of pushback for commoditizing spaces that would have likely been used as long-term rental properties. They very meticulously craft their brand and community relationships so as to avoid negative repercussions from operating in a city.
This is an attempt to directly capitalize on the prime, long-term rental stock drained by Airbnb's presence without damaging the Airbnb brand.
The real question is why we started artificially constraining supply so severely in the '70s: https://jakeseliger.com/2015/12/27/why-did-cities-freeze-in-....
Clean linens alone has me interested. That is by far the biggest headache for me when comparing an AirBnB to a hotel. Can I trust that the host actually cleaned the bed sheets?
Cleanliness is often a matter of perception
We've had too many dodgy, misrepresented airbnb experiences and my wife has sworn them off. Looking forward to using Sonder when we're in the cities they serve!
Also, crazy how under the radar they have been, really curious to see how they built up traction over these years without any mainstream buzz
One of the experiences of traveling for me is the hotel experience where I can just let go of all my worries and let the hotel handle everything from clean laundry to changing the sheets.
I used to find short-stay serviced apartments for this; the kind of place where the service is once a week or so I could put up with. Now, there's AirBnB as well.
The place argument repeats elsewhere. I have been visiting friends in Europe who didn't have guest rooms and I was able to able find airbnbs nearby while there were no hotels. I was able to get an airbnb close to a train station in Milan where no hotels exist (admittedly this is a cost issue -- obviously I could've went elsewhere in Milan to get a hotel for significantly more).
Quality/place. I went to Bratislava for a concert and the only hotels in walking distance had terrible, terrible reviews, I know what a socialist hotel can be, I had the bad luck to be born in Hungary and could only fix the problem when I was 31 (now I am Canadian, yay). I was able to get a nice airbnb within spitting distance of the venue.
There's the kitchen problem. I love going out for dinner and often there is food I could bring to my temporary home -- only if it had a microwave. People with various food sensitivities find it easier to cook.
It happened more than once that a hotel maid found it acceptable to put my teddy bear on top of the freshly made bed. I heard some find this cute. But for me, a stranger touched the teddy bear I am sleeping with for thirty years. No.
Don't dismiss price so easily. Three times, five times savings happens all the time when I go to the head office in Bellevue. Or I could stay in a motel but I am too old for that crap.
There might be more but these come to mind easily.
Ps. Wifi! How could I forget that.
Most hotels, in stark contrast, provide a very sterile environment that is completely isolated from the city’s culture and lifestyle.
Last week I stayed at an airbnb in Copenhagen shared with the owner which gave me tips about restaurants and nice places to visit. You don't get that at hotels, only flyers advertising whoever payed the hotel.
My main reason is that with Airbnb, you can rent a fully functional apartment or a house, not a badly functioning/uninspiring room with no amenities, no places to chill, all the furniture is weird and everything looks fake. Then you need remind telling people to not to clean your room everyday at 8am, and hear people slamming doors from 6am to 10am. When I travel I like to have a little downtime at the house, shop local groceries and cook some meals at the house.
The second reason is that you find amazing and variety places in the world. Some of my favorite ones has been a modern loft on a hillside in overlooking the lake Atitlan and surrounding volcanoes in Guatemala, A-frame cottage in the forest of Mendocino Coast, and a penthouse loft with 360deg view, filled with vinyl records in Berlin.
I never stayed in a hotel that I found have enjoyed that much, or been that impressed by it. They are all the same and so bland, even the most high end or expensive ones.
(Disclaimer, I currently work at Airbnb.)
> what is the primary motivation
After a while, all hotels kind of blend into each other. With AirBnB it feels more like assimilating than visiting - you're living where the locals live. Plus each place you stay at comes with its own personality.
Plus while hotels are often confined to a particular part of town, I can get an AirBnb is some obscure part of the city to use as a launchpad for exploring.
The other 10% is two bathrooms and cost.
With small children, staying in a hotel room for any length of time is really difficult. Setting up a potable crib, washing bottles, feeding simple meals, etc are a pain in a small, often dingy, hotel room. Having a separate sleeping space for children, so you don't have to go to bed at 7:30 also makes travel much more enjoyable. A decent hotel with a true suite and kitchenette is generally very expensive.
I've also used Airbnb to book apartments for family visiting me in the city. Again, for an extended stay I'd rather they have the space and amenities that would cost a fortune to match at a hotel in the city.
Apartment type buildings w/ laundry + kitchens stuck in a hotel like building w/ front desk to check you in.
That's gotta be a way better use of city resources.
The main difference between them and pure serviced apartments is that they have a breakfast room, and rates usually include breakfast.
They're much more closer to WeWork' Business model. This is typically a vertical where WeWork could make acquisitions.
The space is quite competitive, and a company like https://www.staylyric.com/ is doing pretty much the same thing.
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