Milwaukee-based short term rental start-up Frontdesk raised $6.8 million in its latest round of funding. The new funding will help the company weather the coronavirus crisis and provide capital for rehires and growth opportunities. The company has raised a total of $9.5 million.
Frontdesk was able to raise new funds despite the travel industry getting battered from travel bans and shelter at home orders. Company co-founder Jesse DePinto told BizTimes that the new funding was “in part to protect the investor’s original investment. However, the company and its investors also believe the businesses in the hospitality industry that survive the pandemic will face some of the best economic conditions on the other side.”
In an interview with the Wisconsin Inno Frontdesk CEO Kyle Weatherly said that the company’s revenue dropped by 60% since the pandemic. He said bookings have picked up in the last couple of weeks. Frontdesk laid off 35 employees or 16% of its workforce in early April.
According to Pinto, “People are forecasting that short term rentals are going to rebound faster than hotels. Our revenues in April, for example, has shown the same story. Our revenue has not taken nearly as big of a hit as hotels, from what we’ve seen.”
Founded in 2017, Frontdesk operates more than 500 rentals in 28 cities. The company leases apartments in upscale neighborhoods and then sublets them to business and vacation travelers. Currently, the company is offering up to a 40% discount on stays longer than 30 days on its website. The pivot to longer-term stays is a trend among STR operators.
This week we wrote how the arbitrage model, in which STR operators lease units and then offer them as short term rentals, can be highly risky in an economic downturn if the underlying leases are master lease agreements versus revenue-sharing agreements. DePinto has written about the dangers of master lease agreements, so we expect Frontdesk’s lease commitments are not all guaranteed payments.
photo credit: Frontdesk