Distressed but Unbroken: Flexible Rental Management and Hosting Companies in Transition
It wasn’t exactly the rearranging of the deck chairs on the Titanic, but there was a lot of furniture being moved around.
The past year was not pretty for many short-term rental service providers and apartment operators. Lofty ambitions were followed by extreme economic downfalls, especially in the travel industry, thereby crushing the short-term market. COVID-19 wrecked a lot of companies that bet big on Airbnb-style renting.
Furniture that had been placed in short-term rental units collected dust. Then, they were nearly sent to collections. Many of these vendor companies were faced with the dilemma of bankruptcy or working out arrangements with apartment owners and managers after failing to deliver on revenue-generating agreements in a master-lease business model.
A review of the past year’s hardship, along with what was learned and what can happen next was the focus of “Distressed but Unbroken: Flexible Rental Management and Hosting Companies in Transition,” part of the Flexible Rentals Investment Conference, that included panelists Ken Veltri, Executive Vice President, Asset Management, AMLI; Aryn Self, Real Estate Transaction Attorney, Munsch Hardt; and Jesse DePinto, Co-Founder, FrontDesk; with moderator Stephen Lefkovits, Joshua Tree Media.
“As they say, when the tide goes out, you can see who’s been swimming naked,” Veltri says of his failed vendor relationships. “We didn’t want to stop doing short-term rentals. We just wanted to shift to companies that could continue doing them [for us]. We’d rather our [former] partners give the furniture to someone who could use it.”
Settlements, also called workouts, are agreements where both parties agree on how to move forward after agreements go awry, Self says. “Every situation is unique. You need to do some creative thinking. Workouts might only last two weeks, and then they don’t workout. So, you have to do workouts from the workouts.”
Veltri said his needing to do workouts are all COVID related, and that some began back in March. “We didn’t want to go through the whole bankruptcy process to find out who gets the first dollar,” he says.
Veltri says AMLI still wants to do short-term rentals with master lease agreements. “The groups we’re using now are doing better than we thought. They’re 75 percent occupied and are making $120 a night. They have good REVPAR, but overall, our [standard] rents are really depressed.”
Self says that one positive to come from the downturn scenario was the industry discovered what companies can “make short-term rentals work.” She says, “During times of crisis, going through it with companies, you can develop closer relationships. And you’ll see the benefits of that one or two years from now.”
Right now, Self says, others can see about available vendors and say, “I want to work with them.”
Said Veltri, “We have a much stronger relationship with the one partner we have left.”
DePinto said the STR market has been like riding a rollercoaster, but today, “it seems like we’re near the top, climbing that last big hill.”
DePinto says there were signs of bad conditions for some master-lease STR service providers about a year ago when those companies began announcing layoffs. “Then, COVID was the nail in the coffin,” he says.
The Dividing Line
Technology will play a key role in STRs’ revival. DePinto says some owners will think they can go it alone. That is yet to be seen.
“Technology is the dividing line on who can be successful at this and who can’t,” Self says.
DePinto says technology makes the difference. “When customers talk to us now, they are asking about our software, not about our resident policies.”
Says Veltri, “We’re in the apartment business. We’re not a tech company. We’re not in the short-term rental business. We’ll let a company that knows how to manage this do this.”
DePinto sees a bright future for STRs in 2021. “We expect a huge comeback,” he says. “Any time there are reasons for big dips in travel there becomes a ton of pent-up demand. And there’s growing consumer sentiment about not wanting to be in hotels [for health reasons]. Plus, we’ll see a boom for travel for remote workers. People will pretty much be traveling 52 weeks a year. The question we’ll get is, ‘Do you live there or work there?’ ”
Veltri, too, is pushing forward. “We think Q3 next year will be really good,” he says.
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