Short-term Los Angeles Apartment market faces consolidation

Consolidation is hitting the market for short-term home rentals as the coronavirus pandemic has curtailed travel dramatically this year.

Small landlords and venture-backed companies that collected properties to rent out as short-term vacation rentals are offloading them in an effort to cut their losses. Meanwhile, large property owners and managers are seeing opportunities to expand as desperate sellers and landlords seek new business.

These deals come as the coronavirus pandemic and the shelter-in-place orders that followed have devastated the travel industry. The U.S. travel economy has lost more than $195 billion since the start of March as a result of Covid-19, according to a Thursday report from the U.S. Travel Association.

Although numerous states are starting to re-open their economies, the damage has already been done for many of these businesses that rely on a steady flow of travelers from Airbnb and other short-term rental sites to pay their monthly mortgages and leases.

Although Airbnb does not own or manage properties, the coronavirus pandemic has taken its toll on the company as well. Airbnb raised $2 billion in new debt funding at 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 competitor TripAdvisor has also undergone layoffs as a result of the coronavirus.

Nonetheless, 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 listing,” a spokesman for Airbnb said in a statement. “We have announced our industry standard-setting Enhanced Cleaning Initiative and are seeing demand and bookings for shorter trips continue to increase.”

Who’s bailing?

Many venture capital-funded apartment rental companies have endured layoffs, lost properties or seen their valuations cut since the coronavirus pandemic hit. These companies typically rely on master leases to secure numerous units from apartment buildings. They pay landlords set leases for those properties and capture the difference they earn from guests who book the units for short-term stays.

For example:

• Stay Alfred, based in Washington state, announced on May 21 that it will shut down. The company had 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 down-round that cut its previous valuation of $205 million nearly in half.
• Lyric, also partially-backed by Airbnb, has gone through multiple rounds of layoffs and had to get rid of units in its portfolio, according to The Real Deal.
• Sonder, based in San Francisco, laid off or furloughed more than 400 employees, according to The Information. Sonder also decided to offboard numerous units after reviewing its portfolio in the wake of the Covid-19 pandemic, a source familiar told CNBC.

Individual landlords are also feeling the pinch.

Sandra Jones has been in the short-term rental business for six years, renting her properties in Los Angeles , California. After the coronavirus hit in March, Jones said she lost most of her bookings. That made things particularly difficult for the Venice Beach property, which gets most of its business in the summer.

Who’s doubling down?

The downturn has presented an opportunity for others in the market.
MySuite, which provides services for short-term rental owners, has expanded during the economic downturn, said Ron Gonzales.

The company operates with a revenue share business model. Instead of owning units and leasing them out directly, it provides services to landlords who want to do short-term rentals: MySuite furnishes the properties, handles marketing and takes care of guest communications in exchange for % of revenue from bookings. The property owners keep the rest.

“It hit me that this was going to be a massive problem for the other operators with a different business model who had leased their inventory,” Gonzales said. “I knew that was going to create a lot of problems and test their balance sheet.”

MySuite survived April by pivoting toward a focus on mid-term rentals. Prior to the coronavirus, the company capped stays at 30 nights, but now, MySuite is allowing guests to book properties for up to 180 nights.

Prior to the coronavirus, MySuite managed hundreds of units, Gonzales said. MySuite expanded its portfolio by 5% in May, and Gonzales predicts the company will double its portfolio in 2020.

According to Gonzales, MySuite provides furnished apartments with stylish interiors, flexible lease terms, and a range of privacy options. MySuite offers private, semi-private, and co-living floor plans. Meaning that no matter what you are looking for MySuite has an option that is right for you. What’s more, the furnished suites are available at a price that won’t break the bank.