There is a league of short-term rental operators quietly reducing competition through consolidation.
There are deals that make a splash: Airbnb buying HotelTonight or Vacasa Buying Turnkey, and then there are deals that are made behind the scenes, with no fanfare.
AvantStay, the California-based hospitality and real estate company, is one active acquirer.
“We can confirm that we are actively acquiring select managers across the country and integrating into the AvantStay brand. Our ability to leverage our platform to elevate the short-term rental experience in new markets has proven to be a big success,” Reuben Doetsch, co-founder of AvantStay, told Skift.
Doetsch confirmed that AvantStay acquired Lakecations last June to launch rentals around Lake Norman in North Carolina. It also expanded its geographic footprint: It launched in the Poconos in Pennsylvania, Port Aransas in Texas and Whidbey Island in Washington state, with the acquisition of Poconos Rentals, Sway Vacation Rentals and Tara Vacation Rentals. That same month, AvantStay also laid off 10% of its staff in a third round of job cuts.
Charleston, South Carolina-based property management company Portoro, which snapped up StayLocal Austin in January 2023, is slated to have a portfolio of 200-plus homes with an acquisition this month, and six others in 2024.
Oregon-based full-service management company Meredith Lodging does a couple of small deals every year and plans to accelerate the pace in 2024.
Why Build When You Can Acquire It?
The increased M&A activity can be attributed to many factors, but chief among them is the industry reverting to pre-Covid norms.
“We’ve sort of settled down from the heights and peaks, so we can look back at the past three or four years and know the true financial metrics of businesses,” said Dustin Abney, CEO of Portoro. “Right now, we are not in a crazy up, or crazy down scenario, so I can look back at 2018, 2019 and take out the Covid years and then look at 2022, 2023 and put it all together and say these are the long-term metrics.”
The pandemic prompted many to quit their traditional jobs and become full-time Airbnb hosts due to the surge in vacation rental demand, creating more supply and lower revenue per host.
In 2024, the market is expected to normalize.
Short-Term Rental Investability From 2018-2023
The U.S. Outlook for Short-Term Rentals
A normalizing industry will bring to fore the good businesses with legs — a bedrock of which in the short-term rental industry is good local relationships, strong regional demand, and positive cashflow.
“If you’re a property manager, and you want to expand outside of your core market, there’s already installed local management companies that have local relationships, reputation and brand. It is extremely hard to just show up and say, trust me, I’ll manage your home. Nobody wants to be the new guy on the block,” Abney said. “Any market we want to go into, we look to see who we can acquire. These property managers have great portfolios, meaning they have good assets. From a growth perspective, it’s worth it to buy these operators. If you look at the cost of the acquisition versus spending on an entire marketing and sales team.”
That said, Abney admits that since every buyer thinks this way, most M&A conversations happen behind closed doors with zipped lips.
There is a balance to be struck: You want to keep a low profile to avoid bidding wars but also let sellers know you’re interested.
“From the summer of 2023 to now, it’s a very healthy market,” said Jacobie Olin, president of C2G Advisors, which is a M&A consultancy firm for the short-term rental industry. “There are some of the larger groups that are acquiring, some small but the majority of the ones that are buying are doing these quiet acquisitions, where they’re not doing big press releases.”
Olin said it’s a smart strategy, given the politicsof short-term rentals in communities.
And there are companies that have long operated on this principle. “A lot of people out there are pounding their chest about everything in this industry, but the smartest people I know, you don’t hear from,” said Jon Oksenholt, co-founder of Meredith Lodging.
In one of its latest deals, Meredith Lodging bought Arizona-based Rebl Rentals in April 2023. Oskenholt said there were many bidders.
Are all buyers made alike? Olin doesn’t think so. And neither are the types of deals they make.
Companies like AvantStay and Portoro buy smaller, regional property management firms, whereas private equity firms like TPG are buying single-family homes to be rented out on a nightly basis.
“The way I talk about the demographic of buyers is there’s the venture capital-backed buyers, there’s a sponsor backed buyer (backed by a financial backer or a family office) and then there’s the private equity ones that are trying to come into the industry to find their platform,” Olin said.
Olin sees various brand strategies depending on the type of buyer.
“Mostly the private equity backed and the sponsor-backed they do this play called ‘house of brands,’ where they buy a collection of different brands, and they are completely almost unbranded themselves and they’re just a lot of different brands in each individualized market. Whereas a lot of the venture backed companies, they do kind of a national brand play which we’ve seen with groups like Vacasa, but we’re starting to see some of those focus more on localized brands as well,” Olin said.
Time = Opportunity
The local brands that Olin refers to are also undergoing transformation. One overlooked factor is that some founders are retiring. Others might simply be burnt out and looking for an exit.
“This is a brutal business, and it is absolutely difficult. And when you’re under 100 units, you can’t even afford to hire the staff. And so, often it’s a family team that is totally burned out. So we see a lot of that,” Oksenholt said. “Also, right now what I’m seeing is a lot of problems that were masked in a lot of companies by just a massive influx of revenue during Covid. And so, we have already started seeing some companies go bankrupt, and we actually bid on the bankrupt assets of one of the companies.”
Oksenholt summarized the property management business as such: “Over 100 units, the wheels start falling off the bus and under 100 units, it’s just incredibly time consuming and difficult.”
While Covid inflated revenues, and the valuations of a lot of smaller operators, the last two years pricked that bubble.
“And I think there’s going to be more larger deals coming to market where they either pre-spent money that they shouldn’t have, they’re starting to see the wheels come off the bus, and they want to get out quick,” Oksenholt said. “So yeah, I just think there’s more opportunity. And I think there’s gonna be more distress.”