Alternatives lean in

Accommodation alternatives are continuing to mature and develop in stature, as the pandemic starts to reveal relative winners and losers.  

And as lockdown restrictions have widened the view of consumers around alternatives to hotel rooms, so the battle for the guest is being conducted on a broader front than previously. Long stay and home rental niches, in particular, are looking to maintain traction.  

And two of those that have been able to maintain traction out of the pandemic, Sonder and Inspirato, are heading to public listings, keen to draw in funds to accelerate growth.  

Serviced apartment group Sonder, which is about to reverse into a SPAC listing, revealed first quarter revenues up 11% in the first quarter at USD31.6m, compared to the final quarter of 2020. Revpar, at USD77, was 64% of the level enjoyed in Q1 of 2019. The company now has stock in 35 city markets, across eight countries. It has just launched in Spain, offering properties in Barcelona and Madrid. 

Francis Davidson, co-founder and CEO of Sonder said positive momentum had continued through April and May. “We anticipate demand will continue increasing as more people feel safe to travel again, creating significant and sustainable tailwinds for Sonder during the traditional peak leisure summer season and beyond.” 

Sonder will list by merging with existing listed vehicle Gores Metropoulos II. “We are confident that entering the public markets through our merger will enable us to best capitalize on this momentum and our significant, growing market opportunity,” added Davidson. 

In Europe, serviced accommodation group Edyn has launched an additional serviced apartment brand into its portfolio, Cove, joining its Locke, Moorgate and Wittenburg brands. The brand is said to embody the notion of flexible living, with seamless technology built in. The brand will be an adaptable one: “The launch of Cove will allow us to transform the traditional serviced apartment model and bolster our portfolio,” said Edyn CEO Stephen McCall. “We have a tremendous opportunity to evolve and grow Edyn at a time when flexible, thoughtfully designed accommodation has never been more in demand.”  

The company aims to convert eight legacy Saco branded properties to the brand over the summer. It has also signed its first new site to Cove, a block of 77 apartments in the Liverpool One development. The property, with a mix of different sized apartments, will operate under a 25-year deal with landlord Grosvenor. 

Edyn says it saw occupancy average over 70% during the first half of 2021, building on a solid performance in 2020 that saw it pivoting away from the traditional guest towards other, pandemic-driven accommodation needs.  

Elsewhere, the luxury villa market is seeing a wave of consolidation, with those businesses that did well through the pandemic picking up smaller peers. UK-based villa and experiences group Red Savannah recently made its first acquisition, taking over Homebase Abroad, a US-based company that specialises in Italian luxury villa rentals.  

Red Savannah already drives 45% of its business from American clients, and the move will add further source market presence there. The group lists luxury villas across the globe, while Homebase has a more restricted listing of close to 50 Italian properties.  

George Morgan-Grenville, Red Savannah’s chief executive and founder commented: “We have looked at several opportunities over recent years, but Homebase Abroad was the first business we felt was properly aligned from both a philosophical and demographic standpoint.” 

Also in Europe, luxury home rental brand Le Collectionist has acquired Bramble Ski, giving it a claim to be the European leader in luxury home and chalet rentals. Bramble has more than 160 chalets across the Alps listed. Le Collectionist has previously indicated its desire to grow by acquisition, to cement its market position, with its first acquisition being Bonder. The company achieved double digit sales growth in 2020, and aims to reach a total of EUR100m in sales by the end of 2022 – with an average villa booking out at EUR20,000 per week. Le Collectionist lists more than 1,400 luxury properties, predominantly across France, Italy and Spain, as well as the Caribbean.  

One attraction for Le Collectionist is that Bramble has exclusivity with its listed properties, while only around 20% of Le Collectionist’s current inventory is marketed on that basis. CEO Max Aniort told Les Echos: “We want to move forward on this issue of exclusivity, because this allows us to rapidly increase the number of available reservations.” 

Also heading for a SPAC listing in the US is travel company Inspirato, which will be reversing into listed Thayer Ventures Acquisition Corp. The move will give the business, which launched in 2011, an enterprise value of USD1.1bn.  

Inspirato operates as a membership club, which provides accommodation both from villa and home properties it directly leases, as well as from selected hotel partners. Members pay from USD600 per month, with a additional nightly charges, or an all-in USD2,500 per month for the Inspirato Pass.  

The company achieved USD220m in revenues in 2019, and in an investor presentation is expecting growth to take it to USD885m in 2025. Currently it operates with over 385 residences, largely US based currently, and more than 500 hotels. Subscriber numbers dropped to 12,300 in 2020, but a target of 24,900 has been set for 2025.  

For hotels, Inspirato says it is able to offer incremental business in both low and high seasons, and can sell rooms in a way that enables discounting while removing direct price comparisons. “There is 32% spoilage in the hotel industry, due to rate parity rules that restrict nonconforming pricing across distribution channels; brand degradation risk from discounting, especially in the luxury sector; and low-spend guests from traditional opaque and “flashsale” channels”.  

HA Perspective [by Chris Bown]: The accelerant that is Covid-19 has allowed serviced apartment business and villa rentals to make hay – so now is the moment to scale up and strengthen brand visibility. We’ll expect to see more of this activity over the coming months, as a wall of private equity money looks to deploy, either via strategic direct investment or the SPAC listing route. 

As Accor has shown with its writedown of the investment in OneFineStay, running a successful luxury home rental business can be a challenge. But those who are getting it right – and that includes resources to deliver value-add experiences for guests – are bouncing out of the pandemic to grow their brands.  

Additional comment [by Andrew Sangster]: The big news last week on subscription models was the pricing of the Soho House IPO. At a valuation of USD3bn, Membership Collective Group, as it is officially known, the loss-making company is hoping to raise up to USD480m. 

Already, some commentators are asking “Is Soho House the new WeWork?” and the question does not seem unreasonable. 

Losing USD228m in 2020 is not unreasonable given the pandemic lockdowns but seeing losses climb from USD91m in 2018 to USD128m in 2019 does raise questions. In fact, during its 25-year history, the company has never made a profit. There is also substantial debt and lease obligations. 

But would-be shareholders are buying into the vision of growth put forward by founder and CEO Nick Jones. In particular, investors will be attracted by the “member-obsessed culture”.  

The group says: “Our diverse global membership is the soul of our company. It is the people that define our culture and shape the experience – in turn attracting new members.” 

It is this emphasis on culture rather than technology that separates Soho House from WeWork. There are parallels: the split share class that leave the publicly offered Class A with 10% of the voting power per share as the restricted Class B. Then there is the USD826m of total debt, more than double 2020’s turnover of USD384m and more than the USD642m of sales achieved in 2019. 

And the ways out of the challenges, are, like WeWork, launching or expanding multiple unproven new business lines including (ironically) co-working called Soho Works; the homewares retail offer Soho Home; and the Mykonos beach experience Scorpios Beach Club. 

Like WeWork, the numbers underpinning Soho House do not look like a sustainable business at present. But there is a solid concept and foundation. The time for a re-spin of members’ clubs has come, just like the concept of co-working.  

You can damn the numbers but don’t damn the underlying business idea. Soho House is based on a good business idea but it still has to prove it can be scaled sufficiently to deliver profits. 

The challenge is expressed by Groucho Marx who said: “I refuse to join any club that would have me as a member”. There is a danger that Soho House dilutes its specialness as it grows sufficiently to generate profits. 

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