Frontdesk plays its own cards in the shadow of Vacasa and Sonder
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“We hope to be a Vacasa, not a Turnkey,Frontdesk co-founder and chief product officer Jesse DePinto said earlier this week, referring to the fact that Vacasa acquired rival Turnkey in 2021. In other words, Frontdesk, which raised $22 million dollars in total financing, aspires to be an acquirer.
But DePinto is not done bragging.
“We are a financially cautious Sonder,” he added, referring to the struggling public company.
Sonder and Vacasa have both lost big bucks and pledge to start turning red ink into greenbacks as early as next year.
As AvantstaySonder and Vacasa, to name a few, Frontdesk “restructured” a few months ago, DePinto confirmed, and laid off 3.5% of its workforce, about 13 or so employees, in concession to what could unfold in terms of macroeconomic conditions.
You may never have heard of Frontdesk until now. So why is it worth a column? Because it highlights the challenges of the multitudes of regional property managers who operate out of the spotlight and sometimes become the target of the bigger players’ “portfolio acquisitions,” which are relatively small transactions to increase inventory.
Frontdesk manages approximately 1,000 units at 160 locations in 32 cities. Sonder, which manages many multi-family properties and offers a few hotel rooms, said it had about 8,400 “living units” as of June 30. Meanwhile, Vacasa, which is geared towards vacation homes in leisure destinations, said it had more than 35,000 shares in its management portfolio.
Meanwhile, as it did earlier in the pandemic, Frontdesk, which is a city-centric property manager comprised mostly of multi-family buildings in second-tier cities like Indianapolis, Indiana and Milwaukee, has picked up some remains of a defeated peer, Stroll, which you may not have heard of either.
That’s what it’s like when you’re a local or regional property manager and escape the notice of much bigger rivals and other industry players. with hospitality estimated in 2021 that there were around 140,000 short-term rental property managers globally, and the market, many believe, is ripe for consolidation.
Several weeks ago, Frontdesk took over the management of four Wanderjaunt properties, representing 33 units, in three cities, namely Tempe and Phoenix, Arizona, and Austin, Texas. Wanderjaunt abruptly closed in June, giving owners, guests and employees only a few days’ notice, or even less in some cases. Wanderjaunt is holding an asset sale, Skift learned exclusively in July.
Frontdesk’s DePinto doesn’t think Wanderjaunt will be the last property manager to close operations. Of course, that won’t be the case.
When Frontdesk took over some of Wanderjaunt’s properties to manage them, it was like repeating a playbook. At the end of December 2020, for example, Frontdesk inherited 55 units in New Orleans, Louisiana; Indianapolis and Pittsburgh, Pennsylvania from Property Manager Alfred staywhich had ceased operations about six months earlier.
DePinto argues that Frontdesk, which piloted a second wave of tech-enabled property managers, came into being around 2017, years later than Vacasa, Sonder and the defunct Stay Alfred and Lyricallearned the lessons of the older generation.
Among them, he argues, long-term leases don’t work at scale, as seen when travel demand fell to near zero at the start of the pandemic, and you can’t withdraw equation hospitality in the name of so-called technological prowess. Frontdesk, which began to focus only on head leases, still signs leases, but during the pandemic the company shifted to the revenue-sharing model, DePinto said.
DePinto also said “Tier 1 markets are almost more trouble than they’re worth” given all the competition and heightened regulatory scrutiny.
Domestic players are not a major concern, however, he argued. “Nobody sees this as a winner taking all kinds of plays,” DePinto said.
He said there was strong customer demand in second-tier cities, which is Frontdesk’s goal, like Milwaukee and Indianapolis, but “it’s a limited-supply business,” and he doesn’t. There is generally not an excess of properties to manage in city centres. In these types of locations, the challenge is to develop relationships with institutional investors, real estate investment trusts, and wealthy families who are likely to own the local real estate.
Of Airbnb for Vacasa and Sonder, as well as the relatively small Frontdesk, this is a land grab in terms of registering hosts or owners.
The trick is to balance growth and bottom line, as Vacasa, Sonder and many others discovered when the stock market drove down their stock prices earlier this year.
“In June, we announced our positive cash flow plan, which shifted our focus from hyper growth to steady growth with a strong focus on quickly achieving sustainable and positive free cash flow” , Sonder co-founder, president and CEO Francis Davidson said on August 10. .
DePinto said property management companies cannot grow at any cost. It’s a people business, he said, and smart companies won’t treat short-term rental management like a software business devoid of hospitality.
At this point Frontdesk, which is privately held, is losing money like most – but not all – of the other big names in the property management industry.
Frontdesk grew its unit count by 42% year-over-year, DePinto claims, and is profitable when you exclude “growth costs.”
But isn’t that precisely the conundrum – even in Tier Two and Tier Three cities?
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