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Sonder turns vacant office, multires into apartment hotels

The co-founder of apartment-hotel company Sonder says his firm is being approached by a growing n...

IMAGE: Martin Picard is Sonder's co-founder and vice president of real estate. (Courtesy Sonder)

Martin Picard is Sonder’s co-founder and vice-president of real estate. (Courtesy Sonder)

The co-founder of apartment-hotel company Sonder says his firm is being approached by a growing number of landlords in Canada’s three biggest cities seeking to lease out vacant office and multiresidential spaces.

“I can see a lot more of those deals happening in the next few years,” Martin Picard, Sonder’s co-founder and vice-president of real estate, told RENX. “A lot more office landlords are reaching out to us to know whether or not we would have interest in taking over an office building and making it into a Sonder property.”

On the multiresidential front in Montreal, where the vacancy rate is about six per cent, “you can see developers are getting concerned about the lease-up of these properties,” he added.

Picard says Sonder is not trying to be opportunistic about the situation faced by some landlords. “We’re trying to see if we can be part of a solution right now,” he said, “but we are definitely seeing a lot more inbound interest, especially in the office front.”

Sonder’s model and its history

Aside from Montreal where Sonder has 230 units, Sonder has a Canadian presence in Toronto (with 122 units) and Vancouver (66 units). The company expects to add 500 to 700 units in Canada over the next year.

Worldwide, Sonder has 4,500 units and an additional 6,500 units that should come onto the market in the next 12 to 18 months.

The company is active in about 30 cities, 25 in North America. It also has facilities in London, Dublin, Madrid, Rome and Dubai and plans to open another four European markets this year.

Sonder got its start in Montreal in 2012, but moved its headquarters to San Francisco two years later. In December, Sonder agreed to establish a hub office in Montreal that will result in the creation of as many as 700 jobs by 2025, many in engineering, data science and AI. It currently has 120 employees in the city.

The decision came after the Quebec government agreed to provide the company with a $30 million loan through Investissement Québec.

Picard returned from San Francisco to lead the Montreal office.

How Sonder differs from Airbnb

Unlike Airbnb, Sonder is not a home-sharing platform. Sonder leases and manages all of its spaces, which Picard said allows the company to provide “a consistent experience throughout all of our properties.”

Most of Sonder’s portfolio consists of apartment units with a kitchen, living room and one or more bedrooms.

About 18 months ago, the company started adding hotels to its offerings. Today, about 10 to 15 per cent of its properties are hotels. “The objective is to have a more comprehensive offering for the guests.”

Most Sonder spaces have self check-in, 24/7 digital concierge services and no front desk, providing a contact-free experience Picard said is popular during the pandemic.

The Sonder app “guides the entire experience,” from check-in to accessing the unit to interacting with staff, he said. “It’s much more of a tech-enabled hospitality experience.”

Picard said commercial real estate may be the only real estate sector that will perform worse this year than last. Some office leases up for renewal will not be renewed, while others will be renewed with less space.

As tenants leave or downsize, the Sonder model of transforming spaces into apartments that can be licensed as hotels “becomes quite compelling for a landlord.”

Prefers to lease entire buildings

Sonder prefers to lease entire buildings, so it can control lobbies and other areas. As a result, smaller class-B office buildings are of greatest interest to the company, Picard said.

“There’s been a lot of outreach, both (from) large institutional groups and more local landlords,” he added.

For zoning purposes, in a city like Montreal it’s easier to transform office to hospitality than it is to go from residential to hospitality, he noted.

Sonder now has four buildings in Montreal, including the 53-unit Guerin Lofts on Drolet Street in the Plateau Mont-Royal area which opened in October. The five-storey building once housed a textbook publishing company.

Plans are to open another four properties in Montreal during 2021, including 150-unit properties downtown and in the Old Port in which it will operate the entire buildings.

Other Canadian cities

The company opened its first building in Vancouver last October, the 66-unit Sonder at Revival on Comox Street in the West End. Properties in Toronto included the refurbished Beverley Hotel on Queen Street West.

There are no current plans to expand to other Canadian cities: “We’re really just focused on making sure that we have more units in our top three cities right now. But nothing’s off the table.”

Picard says during the early days of COVID-19, Sonder’s occupancy fell to about 45 per cent compared to its traditional rate in the low 80s. Occupancy rates have since rebounded.

“We’ve probably done slightly better than a lot of the hotels out there,” in large part because of the contactless experience.  “You don’t really need to interact with other people and that’s something that resonates with people right now.”

Sonder guests are booking average stays of 10 days, compared to the previous four-day average, making its spaces with kitchens and living rooms more attractive.

Picard says Sonder is operating on a timeline that may see it go public at the end of 2022. However, “we’re still navigating a very volatile environment for our industry.”

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