Sonder, the WeWork of apartments, may be bankrupt, but the short-term rental business is healthy

On November 14, hotel and short-term apartment rental chain Sonder Holdings filed for bankruptcy, just days after suddenly announcing it would be “winding down operations immediately,” abruptly kicking guests to the curb and sending employees scrambling for answers. The company had faced major, unforeseen costs from a deal signed in August 2024 to integrate reservation systems with Marriott International and promote Sonder listings through the hotel giant, according to a statement issued four days earlier.

Sonder had long been an outlier in the short-term rental space, which was a big part of its appeal to investors. Most of its competitors—short-term rental companies like Kasa and AvantStay, the big hotel chains, and individual hotels and bed-and-breakfasts—either own and operate their own properties or manage them on behalf of owners for a cut of revenue and profits. Sonder, by contrast, took out long-term leases on apartment units so it could rent them out for short-term stays, a business model similar to that of WeWork, the once high-flying chain of coworking spaces.

But that model wound up saddling Sonder with fixed costs from long-term leases, especially rent payments. That held true even when competition or low demand limited how much it could make from guests, or other unexpected costs from factors like post-pandemic inflation or the Marriott integration added up, analysts and others in the industry tell Fast Company.

“We call it rental arbitrage, where you take out a long-term lease on an apartment building, and then you try to make more than that in short-term leases,” says Jamie Lane, chief economist at short-term rental analytics firm AirDNA. Lane also raises the comparison to WeWork, which famously filed for bankruptcy protection in 2023, entering a court-approved restructuring plan the following year. (Sonder didn’t reply to an inquiry from Fast Company.)

Experts say Sonder’s failure isn’t an indictment of the short-term rental model or the larger hospitality sector writ large, but rather the result of mixing high fixed costs with variable income in a competitive marketplace. Still, other companies applying that approach to hospitality largely failed in the early days of the COVID-19 pandemic—and Sonder’s abrupt shutdown suggests investors are unlikely to back such a model again anytime soon.  

“The broader story here is that the lease-arbitrage model has proven economically destructive across real estate cycles,” says Roman Pedan, founder and CEO of hotel and apartment-rental operator Kasa, which runs more than 70 properties across the country. “It’s sort of a weapon—a toxic weapon of financial destruction.” 

The rental-arbitrage model 

In the heyday of coworking-space businesses like WeWork and before the pandemic disrupted the travel industry, the rental-arbitrage approach made sense to investors.

Sonder essentially applied the WeWork model to travel lodging, replacing the traditional front desk with a tech-forward approach to check-in and guest services (made popular through Airbnb and Vrbo). Other companies with a similar model, including Stay Alfred, Domio, and Lyric, shuttered in 2020 amid pandemic travel disruptions.

Many hospitality chains make money through management agreements in which they share revenue with building owners or other hotel and short-term rental operators that both own and operate their own real estate. Sonder, by contrast, leased the majority of its listings from building owners at a fixed rate, according to the company’s annual report.

For a time, that model made Sonder into an investor darling. Just over six years ago, the company achieved unicorn status, raising a $225 million Series D round at a $1.1 billion valuation. In 2022, the company went public through a special purpose acquisition company (SPAC) merger that valued the company at $2.2 billion.

Sonder closed out 2024 with more than 9,900 hotel rooms and furnished apartments available for rent across 41 cities in nine countries, according to its annual report to investors. And the contract with Marriott brought in an additional $15 million in startup “key money” payments to Sonder since its signing last year.

“Sonder had gotten lucky,” Lane says. “They had raised money just before the onset of the pandemic, so they had a good war chest to sort of get them through it.” And the company later got subsequent boosts from the SPAC deal (which included an additional $310 million in investments) and the Marriott arrangement.

Though the industry has long faced criticism for converting long-term rentals into vacation lodging, constraining the housing supply and at times introducing disruptive travelers into quiet neighborhoods and apartment buildings, occupancy is up overall from before the pandemic, Lane adds, though numbers haven’t yet recovered in some major cities where Sonder offered rentals.  

In short, others in the industry say, the problem is with the lease-arbitrage model, not the concept of renting whole homes or apartments to tech-savvy travelers. 

“Significant capital commitment” 

Sonder’s business model may have also seemed like a boon to property developers, especially when the company would lease out entire buildings to effectively convert into apartment-style hotels, says Emir Dukic, founder and CEO of Rabbu, a real estate marketplace for short-term rental owners.

The practice, though often criticized by housing advocates for taking entire buildings off the traditional rental market, saved landlords the trouble of finding individual long-term tenants.

“Something that usually, as a landlord, would take you a year to lease up in a building, Sonder came in and did it overnight, and made a significant capital commitment to get those leases,” Dukic says. “So it was a win-win situation at the time for both parties, and they were able to scale it quickly.” 

Those apartment-style units, often larger than traditional hotel rooms, were likely appealing to Marriott for effectively expanding the chain’s portfolio, Dukic explains. But they were also commonly clustered in competitive urban markets with other hotel and apartment rental options nearby. Even with self-check-in and other tech features, hospitality remains a labor-intensive business, he adds. Rooms still need to be cleaned, and someone still needs to be on call around the clock to help guests with lockouts, clogged toilets, or flaky Wi-Fi.

Most of Sonder’s inventory was subject to “fixed leases, whereby we agree to a fixed periodic fee per unit that may be subject to negotiated rent escalations,” according to the company’s annual report. In other words, unless landlords were willing to renegotiate, those payments would remain due regardless of what room rates the company could demand, rising costs due to inflation, or the apparent failure of the Marriott agreement to significantly boost occupancy. 

What about the landlords?

Lane and others emphasize that the short-term rental industry, which includes a mix of chain businesses and smaller operations renting houses and apartments to travelers, is still generally faring well.

But what Sonder’s bankruptcy will mean for building owners, essentially its landlords, remains unclear. The company had already exited some 3,300 units across 85 buildings as of June 30, 2025, according to the company report, and Pedan says Kasa has taken over management of more than a dozen former Sonder properties.

Kasa, which announced a $40 million investment round in August, citing more than $100 million in annual booking revenue, typically operates with a more standard hotel management contract. Kasa is responsible for day-to-day operations, including marketing, housekeeping, and pricing, while building owners are responsible for capital improvements, which can include things like HVAC and roofing upgrades. The company’s agreements ensure both parties benefit when properties do well, keeping interests aligned, Pedan says.

“When I say ‘aligned,’ I mean we want to win when the owner wins and make less when the owner is making less,” he says. “So we make money as a percentage of their profit and their revenue.” 

Another short-term rental management company, AvantStay, also issued a statement on November 10 urging landlords affected by the Sonder shutdown to consider adding their buildings to AvantStay’s portfolio of more than 2,500 properties. The company has already connected with a big fraction of affected property owners, says founder and CEO Sean Breuner, who like others remains optimistic about the industry as a whole. 

“I think the industry is very healthy,” Breuner says. “It’s alive and well, and demand in aggregate is the highest it’s ever been since we started 10 years ago.”

Sonder’s shutdown came shortly after Marriott announced the termination of the companies’ deal “due to Sonder’s default.” (Marriott didn’t respond to an inquiry from Fast Company.)

But in a filing in the bankruptcy case, the company said it ended the agreement and reached out to guests after concerns that Sonder would abruptly lock paying customers out of their rooms. “Guests who were occupying Sonder-managed properties might be prevented from retrieving their personal belongings, including medication, passports, personal effects, or other essentials,” according to Marriott.

Just before the bankruptcy filing, Janice Sears, interim CEO of Sonder, declared in a statement that the company had reached “a point where a liquidation is the only viable path forward,” with guests and employees alike abruptly given notice that operations would shut down. At least two lawsuits have been filed by Sonder employees alleging the company violated federal and state laws requiring warning periods before mass layoffs.

Brian Nettle, an attorney who represents a Sonder employee seeking class-action status in one of the cases, says, “It’s just an unfortunate situation for plaintiffs in the class to have just lost a job suddenly.”

View the full article