The New Roster: What’s Happening With The Major Names In Hospitality & Real Estate

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It was right around this time last year when Airbnb made their debut on the public markets and started trading on the Nasdaq at a higher-than-expected $146 per share. And the last 12 months have seen no shortage of attention—whether intellectual or financial—paid toward the short-term rental space. For Airbnb, 2021 brought their ‘best quarter ever,’ shattering revenue growth records 36% over their prior heights. High claims by Brian Chesky back in May expecting the ‘biggest travel rebound in a century’ certainly don’t seem to have been overinflated. In their most recent earnings call, Chesky cited an additional 40% increase in bookings following on the heels of Biden’s decision to resume international travel.


Q3 2021 hedge fund letters, conferences and more

But Airbnb isn’t the only household name that’s turning heads and making headlines in the non-traditional accommodations space. Quickly becoming one of the best post-COVID asset classes, hosts have proliferated, occupancy rates have surged, and institutional activity has begun. With more investor capital, unseen and sustained risk-reward, and new-to-market companies flocking to the short-term rental space, it’s worth taking a look back—and a look forward—on the market’s major plays.

Why Zillow Offers Flopped (And What They Could’ve Done)

No company, small or global, has made it to the other side of the COVID-era without pivoting in one form or another. But Zillow Group Inc (NASDAQ:Z)’s most recent pivot was a topic of attention, potentially because of what the change in direction could mean for other active investors and groups in the space. On November 2nd, Zillow announced the official closure of its iBuyer wing, which operated under the name Zillow Offers. The company spokesperson announced that by exiting Offers, the company would be eliminating 25% of its workforce, and recovering some much-needed stability on their bottom line.

Zillow’s CEO, Rich Barton, was forthcoming with the flaws in the company’s ability to accurately forecast home prices. With a fast-acquired portfolio of high-cost homes, the lack of prediction caused too much volatility to the company’s balance sheet. In Q3 of 2021, Zillow’s homes segment, comprised mostly of Offers, suffered the company a $422 million loss.

The home-flipping aspect of Offers ran into trouble, like the rest of the construction market, with the labor and supply constraints that remain a bottleneck in the aftermath of the pandemic. But the larger Offers failure speaks to a common investor pain point—the perceived impossibility of price forecasting among the many crosswinds of the rental real estate space.

Here again, short-term rentals (STRs) have an advantage over long-lease or for-sale properties; with frequent liquidity events and a closer connection to a competitive market, earnings and occupancy for short-term rentals are far more easily quantified. Investors can now leverage a real-time Airbnb calculator to do the proper due diligence and understand the earning potential of their investment based on comparable properties. Zillow’s recent dead-end turn confirms what most investors already knew: bad investments come from bad guesses. In the short-term rental niche, there’s no longer any reason to venture a guess.

Sonder and Vacasa Prepare to IPO

As Zillow was announcing Offers’ closing, a handful of well-known short-term rental companies were announcing their public debuts. Sonder, a San Francisco based apartment-hotel hospitality company, delayed their plans to IPO until January of 2022. Following their decision to merge with a special purpose acquisition company (SPAC) backed by Alec Gores and Dean Metropoulus, the company has secured a valuation of $2.2 billion.

Sonder’s northern neighbors, Portland-based Vacasa, is also planning a public deal that will value the company at roughly $4.5 billion following the same SPAC strategy. Having seen continuous success since their launch in 2009, the vacation rental management company is optimistic on their short-term outlook. Vacasa has projected $750 million in revenue for 2021 and a projected $1+ billion to come in 2023.

Regulatory filings on both companies will prove that the storm of COVID-19 didn’t exactly pass them by unscathed, which in turn makes their impending IPO all the more notable. The confidence on the part of these companies and many others stands firm in the direction that the short-term rental approach will remain a winning strategy in the after-COVID market. With a return to international travel and an enduring preference for personalized and local accommodations, short-term rentals are capturing a great amount of traveler demand. And as more professionals continue to take work with them on the road, the following years have the potential to be the most lucrative period in STR history.

On the Ground: Signs of More Institutional Activity in the New Post-COVID Niche

Zillow’s tipping point and the demonstrable success of the soon-to-IPO Sonder and Vacasa are three important nodes of an ongoing conversation around the unique and reliable offerings of the STR niche. Because investors are better able to forecast and rely on returns from well-calibrated and constantly-updated consumer demand, short term rentals are bringing new strength to the already strong and traditionally low-risk investment vehicle that is real estate.

And because all investors faithfully follow the yield, there’s been a resulting uptick in early institutional activity within the STR space. Halfway through the year, Ohio-based investment firm ReAlpha announced a $1.5 billion investment to buy 5,000 properties to operate as short-term rentals. The ability to make a business out of shorter stays is beginning to be considered ‘inevitable’ by experts in the space; family offices and investment groups are increasingly recognizing the promises, unwavering to date, of this new post-COVID niche. The transparency movement—making available cost-free access to real time data regarding competitive property performance—is only adding to the STR infrastructure. Tracking the key players in the space, it’s clear that the short-term rental niche is transforming into a reliable asset class, matching the offerings of traditional vehicles like yields and bonds, but with lower risk, better returns, and much better stories earned in the process.