Sonder’s sudden implosion last month has left a trail of vacant buildings and frustrated landlords across Los Angeles.
Owners who bought properties to be occupied by the defunct short-term rental company are now scrambling to plug holes in their income statements, Bisnow reported. Those owners now either have to find new operators for their properties or sell them off. That’s easier said than done, as they’ll be harder to backfill than they were three to four years ago, when many property owners signed leases with Sonder, as the hotel market in Los Angeles remains depressed.
“From a buyer standpoint, this is going to be a good opportunity,” Alan Reay, president of Los Angeles-based Atlas Hospitality Group, told Bisnow. “From an owner-slash-seller standpoint, it’s going to be extremely difficult.”
Los Angeles landlords that were operating Sonder locations this year claim in pending lawsuits that Sonder owes them a sum of more than $18.9 million in unpaid rent and other fees, according to court records cited by Bisnow. Similar suits have been filed in New York after Sonder’s abrupt shutdown and subsequent eviction of tenants from their living quarters.
Sonder’s high lease rates will be difficult to match for any potential new operators. “First and foremost, they’re not going to find anyone to replicate the income that was promised to them by Sonder, which is why Sonder collapsed, right?” Reay said. “It’s WeWork applied to the hotel industry.”
For owners thinking of pivoting out of hospitality, multifamily conversions could be possible, though they might only offer theoretical relief. Sonder units typically lack kitchens, and in Los Angeles, building out residential infrastructure is costly and slow.
Selling also could be an issue thanks to the often reviled Measure ULA transfer tax affecting any deals above $5 million.
“I have a vacant hotel where the only operating history could be years old, from before Sonder,” Rod Apodaca, president of RJA Hotels, said. “No one’s going to rely on that, and they’re going to want some type of discount if they’re going to buy a property based on a future income stream that is untested.”
The Los Angeles hotel market is struggling as international travelers — usually a significant portion of L.A.’s hotel guests — are visiting in lower numbers, per Bisnow. Still, some hotel management companies have started to swoop in on former Sonder properties and offer their operating experience, Reay said.
Sonder remains in the midst of Chapter 7 bankruptcy proceedings, which has stymied the lawsuits it faces from landlords across the country.
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