Sonya Carp and her husband own two short-term rental properties in Florida, and have decided to put one up for sale following the coronavirus pandemic.
Courtesy of Sonya Carp
Consolidation is hitting the short-term home rental market as the coronavirus pandemic has significantly reduced travel this year.
Small homeowners and business-funded businesses that have collected rental properties as short-term vacation rentals offload them to reduce their losses. Meanwhile, large property owners and managers see opportunities to grow as desperate sellers and owners seek new business.
These agreements come as the coronavirus pandemic and subsequent on-site shelter orders devastated the travel industry. The travel economy in the United States has lost more than $ 195 billion since the beginning of March due to Covid-19, according to a Thursday report of the U.S. Travel Association.
Although many states are starting to reopen their economies, damage has already been done to many of these businesses, which depend on a constant flow of travelers from Airbnb and other short-term rental sites to pay their mortgages and monthly rentals.
Although Airbnb does not own or manage properties, the coronavirus pandemic has also taken its toll on the company. Airbnb has raised $ 2 billion in new debt financing for a valuation of $ 18 billion and announced major cost-cutting initiatives, including plans to lay off 25% of its staff, or nearly 1,900 employees . Airbnb’s competitor TripAdvisor also suffered layoffs due to the coronavirus.
However, the company remains optimistic as travel slowly begins to return.
“There are more hosts on Airbnb today than there were on January 1, and the vast majority of Airbnb hosts have only one list,” said a spokesperson for. Airbnb in a press release. “We have announced the normalization of our industry Improved cleaning initiative and see request and bookings for shorter trips continue to increase. “
Many apartment rental companies funded by venture capital have suffered layoffs, lost properties or seen their valuations drop since the coronavirus pandemic. These companies generally rely on main leases to secure many units in apartment buildings. They pay leases for the owners of these properties and capture the difference they earn from customers who reserve the units for short stays.
- Washington State-based Stay Alfred announced on May 21 that it will stop. The company has raised $ 62 million in funding, according to Crunchbase.
- Zeus Living, which counts Airbnb as an investor, raised $ 15 million in equity and debt in May at a valuation of $ 110 million, according to short term Rentalz – a drop which reduced its previous valuation by almost half by $ 205 million.
- Lyric, also partially supported by Airbnb, went through several cycles of layoffs and had to get rid of the units in his portfolio, according to The Real Deal.
- San Francisco-based Sonder has laid off or laid off more than 400 employees, according to The Information. Sonder also decided to leave many units after examining his portfolio following the Covid-19 pandemic, a source familiar with CNBC said.
Individual owners also feel the pinch.
Lynn Prehm has been in the short-term rental industry for six years, leasing properties in Cave Creek, Arizona, and La Porte, Indiana. After the coronavirus struck in March, Prehm said it had lost most of its reservations. This has made things particularly difficult for the Indiana property, which gets most of its business done in the summer.
Faced with uncertainty about the recovery of the vacation market and the impending mortgage, utilities and maintenance payments, Prehm and her husband decided to put the property up for sale. The house was sold in a week, along with the furniture Prehm used to house the guests. Although the sale was quick, Prehm and her husband lost money on the sale.
“We have put a lot of work to make it perfect,” said Prehm. “Walking away and doing nothing is devastating, but at some point you have to be happy to walk away and not lose a ton.”
In Vero Beach, Florida, Sonya Carp has decided to sell one of the two properties it uses for short-term rentals after the state temporarily banned them during the coronavirus crisis. (This ban was finally lifted last week.)
Ideally, they will sell the property to someone who is interested in short-term rentals, said Carp, and then apply the money to their own home.
“Someone who wants to do short term rentals and doesn’t want to have to lift a finger and just be able to go ahead and start booking people,” she said.
The recession has offered an opportunity to others in the market.
Vector Travel, which provides services to owners of short-term rentals, has grown during the economic downturn, said CEO Mickey Kropf.
The company operates on a revenue sharing business model. Instead of owning and renting units directly, it provides services to owners who wish to make short-term rentals: Vector provides the properties, manages marketing and takes care of communications with clients in exchange for 25% of the revenue from reservations. The owners keep the rest.
“It struck me that this was going to be a huge problem for other operators with a different business model who had rented their inventory,” said Kropf. “I knew it would create a lot of problems and test their results.”
Vector Travel survived in April by focusing on medium term rentals. Before the coronavirus, the company capped stays at 29 nights, but now Vector Travel allows customers to book properties up to 90 nights. The company has also received support from several federal government rescue programs, said Kropf.
The business has been able to grow by reaching out to homeowners who are struggling to find tenants, said Kropf. This includes showing Google ads targeting homeowners as well as communicating with homeowners near the university campus.
Before the coronavirus, Vector Travel managed hundreds of units, said Kropf. Vector Travel expanded its portfolio by 10% in May and Kropf expects the company to double or even triple its portfolio in 2020.
“First of all, it was frankly the mode of survival,” said Kropf. “But with parallel processing to this, we tried to identify where we could develop and grow.”
FrontDesk, a short-term rental company located in Milwaukee, Wisconsin, has added more properties to its portfolio since the coronavirus put an end to the travel industry.
Courtesy of FrontDesk
In Milwaukee, Wisconsin, FrontDesk also benefited from the downturn in the short-term rental market.
FrontDesk has been around since 2017 and leases or manages around 500 units in 28 markets, said Jesse DePinto, co-founder of FrontDesk. The majority of these units are primary rentals, but the rest are revenue-sharing units. All new units acquired by FrontDesk are subject to revenue-sharing agreements, said DePinto.
Although the company laid off 35 employees in April, about 16% of its workforce, it was also able to raise a $ 6.8 million round of financing, said DePinto.
DePinto said that FrontDesk has been able to resist the coronavirus due to its focus on maintaining operational profitability throughout its existence, which means that the company guarantees that each individual market remains profitable. The profits from these markets are then reinvested in the business in the form of new furniture that the business purchases for the units.
This focus on operational profitability and its timely funding cycle have enabled FrontDesk to expand its portfolio. This month, the company acquired 18 units in Pittsburgh that were previously part of the Stay Alfred portfolio, DePinto said. It acquired four additional units in St. Petersburg, Florida from a property management company.
“Our peers have followed the Silicon Valley Scaling and Growing Manual at all costs. We have taken a more sustainable approach to growth, ”said DePinto. “We are a startup based in the Midwest. We just see the world a little bit differently than our peers on the coast.”
As the coronavirus shakes up the market and some companies unload properties while others grow, DePinto said it remains optimistic about short-term rentals and expects more change.
“We are still coming out of the storm’s eye. It is still very early in this situation,” said DePinto. “We are starting to see the game being redesigned right now. This is just the beginning.”