Summer is a frantic vacation rental activity period when stress levels reach new heights, but it doesn't stop the short-term rental industry from developing. Whilst you are working, others are planning, buying, spending and investing.
Black Swan Buys and Tries to Revive Short-Term Rental Brand Lyric
This one caught our attention! With all the naysayers about multi-family and master lease business being a bad idea, scaling so fast and burning frightening amounts of money, this Phoenix seems to be arising from the ashes. Check out the original deals. This deal looks good!
The Florida-based real estate investment firm Black Swan acquired the former short-term rental operator Lyric, specialising in multifamily buildings.
Lyric was founded in 2014 and aimed to showcase the use case for revenue management software developed by its co-founders, Andrew Kitchell and Joe Fraiman. In 2019, Lyric secured a $160 million funding round led by Airbnb. However, during the pandemic, Lyric and similar companies such as Domio and Stay Alfred, which held master leases for multifamily buildings, faced financial challenges and shut up shop.
On the other hand, Sonder had already raised pre-Covid, and had sufficient runway to survive and later went public via a SPAC, but has not performed well considering in 2019, it claimed a value in excess of $1bn and at the time of writing has a market cap of $133m.
The acquisition by Black Swan includes Lyric's trademarks, operational data, and domain. Andrew Kitchell admitted that scaling an operational hospitality business was more challenging than anticipated, and the company learned the importance of patience and capital efficiency.
Lyric initially believed in the massive potential of the short-term rental market and the need for professionalization and pricing intelligence. The company's approach was influenced by the excitement around WeWork, which sought to transform commercial real estate into a consumer-facing brand. However, even this added to the future turmoil of WeWork's 2019 fiasco laying off 2,400 staff in November and painting a poor picture for late 2019 investment to push the next growth sprint across the industry. Then came Covid.
By early 2020, Lyric operated nearly 600 units across 17 markets, but the pandemic severely impacted the business. Stay Alfred had approximately 3,500 units, and Sonder claimed over 8,500 units under contract.
Black Swan Asset Management, which acquires Class A multifamily properties in North America, will launch the new Lyric brand this (2023) summer. Similar asset sales and consolidation deals are expected in the industry. Profitability is the challenge; with interest rates so high and arbitrage a risk play, then it's one to watch. Profit is now the name of the game, not how high you jump or how quickly!
Don't ignore EU Directives or any nation's focus on sustainability.
This article highlighted the EU's plans and voted 366-225 in favour of new rules requiring companies to identify and address the impact of their activities and value chains on human rights and the environment, as well as a new requirement to adopt and implement climate transition plans.
This doesn't apply to me? The new rules initially apply to companies with over 500 employees and more than €150 million in revenues, extending later to companies with over 250 employees and €40 million in revenue. Non-EU companies with revenues earned in the EU above the thresholds would also be required to follow the rules. Companies must also perform due diligence on climate impacts, aligned with Paris Agreement goals (max 1.5c increase). In addition to requiring climate transition plans, the rules would require companies with more than 1,000 employees to tie performance on the plan’s targets to directors’ variable compensation.
It will apply to you! We say this because each company will create their own chain of custody documents to ensure suppliers are compliant, which is invariably part of an end-to-end assessment check. This eventually means OTAs, local authorities, corporate housing, and more will want your documentation and policies to ensure they are compliant. This happens in many industries. Better start planning on your own environmental and human value chain management. Those who do can expect more consideration! If in doubt, watch this video as the cause generates momentum and this just touches the surface.
If you want to start and align your thinking to the industry giants, then check out this link on the Travlyst program for attributes related to accommodation.
Is the industry slowing, changing or accelerating?
This is a tricky question as the whole industry is so fragmented and localised that no one answer suffices. We see AirDNA data showing both growth and inventory reduction; it's just where this happens. We see authorities pushing back in major cities. Here is an update for you on the current situation.
What we do see is a more corporate perspective on short-term rentals and real estate, and with this comes top-down controls:
Homes & Villas by Marriott Bonvoy
H&V has grown from 60,000 listings to 115,000 in just a year. Marriott has 180 million Bonvoy members who directly drive about 90 per cent of Homes and Villas’ bookings. 40 per cent of those bookings see some form of points redemption. Although they do not manage the properties, the cream rises to the top, and no doubt others with less than a professional approach or reviews can expect to be set adrift in an ocean of listings.
Airbnb meets Multifamily
Airbnb has a newish real estate program which allows owners of multi-family properties to rent out units in exchange for a share of the revenue. Launched last November (USA), the program now includes over 250 properties in 40 markets, with around 100,000 apartments. That's 400 unit buildings and is still a tiny portion of Airbnb's global listings. The program aims to provide economic benefits to renters similar to homeowners. Landlords receive up to 25% of the rental revenue. The program has gained interest from multi-family developers looking to differentiate their assets and generate additional income. Consider this in light of the Lyric information above. The city's short-term rental market appears to be under increasingly large marketing and financial controls for rentals and authority scrutiny.
Approximately 50% of large multinational businesses plan to reduce their real estate footprint over the next three years.
Knight Frank and Cresa's report on multinational businesses shows plans to reduce their real estate footprint over the next three years. Based on interviews with senior leaders responsible for real estate decisions at over 350 global firms, it highlights the efforts of companies employing over 50,000 people to adapt to post-Covid working trends.
Within this context, around 47% of global firms anticipate replacing their corporate headquarters in the next three years, indicating an increase compared to 40% recorded in 2021. Additionally, 55% of firms expect to expand or significantly increase their office portfolio within the same period, primarily driven by firms employing up to 10,000 employees.
The majority of firms are adopting a hybrid or "office first" approach, aligning with pre-pandemic views, while only 12% are pursuing a "remote first" or "fully flexible" model. Firms aim to optimize their office spaces while still offering flexibility to employees. This trend is expected to lead to increased functional and physical obsolescence of buildings, driving occupiers towards higher-quality, sustainable, and amenity-rich spaces. However, the availability of such spaces is facing growing constraints in global markets.
Just in case you missed this one, it highlights the travel direction.
Frontdesk, a company that manages furnished apartments across the United States, has acquired Zencity, a smaller rival based in Chicago. The acquisition, announced on Tuesday, marks Frontdesk's first official acquisition and adds approximately 200 1-2 bedroom suites in Chicago, Kansas City, and St. Louis to their portfolio. Frontdesk already manages around 1,000 units.
What does this mean for short-term rentals? A hybrid model may mean more overnight stays in a city location, but the 12% remote first means more home workers or digital nomads. It also means a change of direction on amenities, design and functionality, loyalty programs and an increase in last-minute and mid-term stays.
AI & Virtual Reality
You have probably recently heard enough about GPT, AI, and machine learning. Virtual reality has also seen movement, and there are many discussions on its use in hospitality. There are challenges such as headset sizes, processing power and data control. AI and VR are bedfellows. This video caught our attention as it highlights what the future may look like for some!