Sonder, a San Francisco-based real estate startup, is leasing an entire 26-story Dallas apartment building, managing 270 units. Sonder, like its apartment-hotel peers Lyric and Domio, has positioned itself as an alternative to ‘cookie-cutter’ hotel rooms.
Initially, these apartment-hotel companies would lease a few floors in apartment buildings to leisure travelers, but now they have gone after entire buildings as they make a move for the business traveler, a more lucrative segment and a direct threat to big hotel operators.
“These companies undercut hotels’ ability to boost daily room rates when occupancy is close to full, often around big events like the Super Bowl, other sporting events or a major conference. It has been getting harder for hotels to push rates up significantly, in part because these firms have given customers another option,” said Patrick Scholes, senior lodging and leisure analyst with SunTrust Robinson Humphrey Inc tells The Wall Street Journal.
Developers are getting onboard with leasing to hospitality companies as it reduces their project risk. Ari Rastegar of Rastegar Property Co., the developer of Sonder’s planned Dallas building, tells The Wall Street Journal, “We de-risked the building with the 10-year lease, and that enabled us to secure phenomenal financing. Within the first year, it will be 100% occupied.”