What Sonder Can Teach the Hospitality Industry
Sonder, a company managing hotels and short-term rentals, went public this week at a valuation of over $1.9 billion. Sonder describes itself as “A better place to stay. Inspiring, award-winning design meets modern, mobile-first service. Welcome to the future of hospitality.”
Why was Sonder’s initial public offering important for the future of the hotel industry?
Currently, for lending purposes, hotels are considered commercial real estate from both the equity investor and lender perspectives. The other commonly defined sectors of commercial real estate are office, retail, industrial, multifamily and special purpose. This real estate classification creates the wrong mindset among many hotel owners and operators who operate the properties like real estate businesses.
True, any hotel operates from and within the physical confines of a real estate asset. But so do retail stores, colleges, hospitals, manufacturing, etc. Do you consider the retailer Target a real estate company because it operates out of 2,000 big box stores with multi-million dollar real estate value each? Is Amazon a real estate company since it leases more than 160 million square feet of warehouses out of which the company conducts its business? Or Tesla with its eight gigafactory manufacturing plants? Of course not.
Why is operating hospitality as real estate detrimental? In my view, it shackles the industry to old-fashioned and even obsolete business models and operations, stifles innovations and adoption of technologies, and ensures an outsized role of ownership in day-to-day decision making.
A hotel operator needs owner’s approval for any capital investment, technology implementation or personnel and marketing expenditure, whether it is a much needed cloud project management system and Artificial Intelligence-powered revenue management system to better handle demand in this crazy-dynamic marketplace or a must-have customer relationship management system to increase repeat business. How about updating the five-year old property website and finally moving it to a mobile-first design or investing in omni-channel marketing campaign to boost occupancy?
