Sonder?
What do people think of the business model here? Has anyone worked on deal with them? Curious about the long time viability here.. do they offer anything unique? Is this WeWork all over again?
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They are literally the same as every other group in this space...basically residential WeWork.
They are definitely not in a blue ocean. There’s multiple entities trying to capitalize on the period before stabilization to do pop-up hotels in luxury apartments. They just seem to be the one that sold their story the best thus far. They obviously had a lot of turnover during the pandemic. But I agree with the above. Seem to be a we work for the residential space.
So the one difference I'd say between WeWork and Sonder is the upfront capital investment for a Sonder vs. a WeWork. The buildouts for WeWork locations are/were insane, so I wasn't terribly surprised when it came out last year that they were basically losing money on every incremental dollar of revenue they were bringing in.
I think Sonder's model could be different, but it'll take them needing to give up on dreams of being a "tech" company with a valuation to match (quick side note, is anything more annoying than a CEO who clearly wants to brand his non-tech company as a tech-company so he can get valued on a multiple of revenue vs. earnings. Hey worth a shot, but listening to them speak is mind numbing. Sonder's CEO has this habit).
Sonder's real value is to multi in lease-up, so it's no surprise they've been able to carve out a niche quickly. To their credit, they've got a nice footprint and have some brand awareness. My concern for them is they have two masters: developers and consumers, who want different things. Developers want to maximize the amount of a money a group like a Sonder will pay to them, and a consumer wants the cheapest price (assuming all else is equal). Sonder right now is playing a classic arbitrage game that will eventually get squeezed. Their pitchbook says that Sonder will win out because they are the biggest brand in the space. That assumes that consumers will pay more just to stay in a Sonder versus a StayAlfred, Lyric, or whatever the new entrant into the space is, and of that I'm skeptical. Developer's don't care what the brand is, they'll just go to whoever is willing to pay them the most. So Sonder might ultimately win out over the other groups, but their profitability per location is still going to get squeezed.
Where I think they could pivot and create a really interesting company is if they realize that they have a specific and unique advantage over any other property management company - they can boost a developer's revenue significantly during lease-up through their asset-lite hospitality model. I've always thought it would be interesting for them to acquire a property management firm (or create their own although that's difficult) and roll-out a full-service management offering to multifamily owners. They would have a huge advantage over any PM firm for a property under development, and so long as they can demonstrate they can enhance revenues even after a property is stabilized by offering a portion of units as lodging they aren't at risk of being ditched as soon as a property is leased-up.
To the latter end of your comment on them pivoting to property management, there is a group called Sentral already in this space that is starting to get traction. Believe they’re owned by ICONIQ
I've never heard this phrase! Can you explain it?
Blue Ocean Defined:
RED VS BLUE OCEAN STRATEGY
Professors Chan Kim & Renée Mauborgne coined the terms red and blue oceans to denote the market universe in ~2004.
Red oceans are all the industries in existence today – the known market space, where industry boundaries are defined and companies try to outperform their rivals to grab a greater share of the existing market. Cutthroat competition turns the ocean bloody red. Hence, the term ‘red’ oceans.
Blue oceans denote all the industries not in existence today – the unknown market space, unexplored and untainted by competition. Like the ‘blue’ ocean, it is vast, deep and powerful –in terms of opportunity and profitable growth.
Blue ocean is me essentially saying that they are not doing anything ground breaking and they are not only company in that market space. The market space that Sonders targets is competitive. Use it a lot after reading the blue ocean strategy by W. Chan Kim and Renée Mauborgne
Can we get some color on this?
By the way, the Sonder model really only works in either high-rise product, or a massive project over ~400 units where lease-up pace is not mirroring the volume and schedule of unit turns. In high rise, units are frequently turned over in bigger blocks, and the smaller floor plate makes it easier to isolate a short term rental zone without impacting other residents. In most typical institutionally-sized wood frame deals (Type III-mod or Type V), there just isn't enough lag relative to lease-up pace to justify offloading a portion of units for short term rentals. Most owners don't want the stigma associated with short term rentals unless there is significant upside. Also, Sonder's profit share on the short term revenues is huge...last time I spoke to them it was like 30%.
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Have dealt with them before.
Going to echo what someone else said; they are doing nothing new but selling the best story.
I mean who here has personally taken a peek at their financials? If you were looking to lease space to them or a banker, you might have. Not sure if people here from the outside looking in realize, they were not able to pay rent not too long ago. Ask yourselves this, is this a positive sign?
I don't know much about them, but their stock price went from $10 to $2 in less than 4 months. Based off Yahoo Finance, their cash balance is close to their market cap - what?
It appears their biggest problem at the moment is their cost of revenues are outpacing their revenues, so they are losing more and more for every dollar of incremental revenue. That means whatever cash they have on their balance sheet is going to dry up here very quickly.
Not sure these guys are going to be around in a year.
https://www.dirt.com/gallery/moguls/tech/francis-davidson-house-los-angeles-pharrell-1203455734/francis5/
Sonder CEO bought Pharrell’s LA house. The time to invest in Sonder was like 7 years ago when only VCs had access. Now it goes public through a SPAC and us regular folks are holding the bag.
Luckily I didn’t invest in it. It’s just funny how the world works sometimes
That is a nice house - but he is the day-1 owner with essentially a zero basis* with a substantial portion of pre-public stocks. Even at $2.26 (5.13.22) a share, he did very well and accomplished a lot to date.
*https://investors.sonder.com/news-releases/news-release-details/sonder-next-generation-hospitality-company-be-publicly-listed
Q for RE Monkeys: What do the future career opportunities (opps-upon-exit) look like for the rest of the finance/investment and real estate acquisitions folks on that team if things happen to ultimately go pear-shaped?
How idiosyncratic (pigeon-holed) are their abilities & experience relative to more vanilla, traditional (straight buy to let/sell, develop to let/sell) real estate investment work?
They're putting out lease terms on just about every hotel opportunity in my market - standard 3* or 4* hotels, aparthotels, townhouses etc. It's clear the business has no clearly defined strategy and is aggressively chasing growth. This is leading to a hodge podge collection of hotels with no clear market positioning, and the spec isn't impressive. People I know who have stayed at existing Sonder product weren't impressed.
The rents they're putting out are well ahead of market, with this being achieved due to a staff light model. To achieve this, they have a centralised support function and guests access their room with an app, i.e. a business model that is easily replicable by both new entrants and incumbents. As the rents are well ahead of market, it's overrented straight away. This needs to be factored into any valuation as if they fail, the rent you'll get will be c. 10-15% lower. The lack of track record and no sale comps outside the US (last time I looked anyway) makes it very hard to a take a view on cap rate, and lenders are pretty reticent to fund them as business isn't proven and has an air of WeWork about it.
Will be very interesting to watch over the next 2 years how it plays out. My guess is it doesn't achieve the growth but doesn't blow up either, it just really underperforms the story they're selling.
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