Sonder secures $126M in capital and a tie-in to Marriott hotels

Sonder Holdings, an alternative-lodging firm whose value fell to $29 million from nearly $2.3 billion in 30 months, has landed $126 million in financing and a rebranding with the Marriott name in its title.

The San Francisco-based manager of short-term apartment hotels received a $43 million commitment in preferred equity and $83 million in more loans from existing lenders, Bloomberg reported. Both the investor and lenders were undisclosed.

The deals came as Sonder inked a licensing agreement with Maryland-based Marriott International to add the Marriott name to the company’s more than 9,000 boutique hotel rooms and apartment-style short-term rentals. The roll-out is expected sometime next year.

Sonder will make its properties available on Marriott’s platforms under the “Sonder by Marriott Bonvoy” brand. Sonder will pay royalties to Marriott in return for making its lodging inventory bookable through the larger company’s website and loyalty program, according to Bloomberg.

The deals provide both “short-term liquidity support” and the potential to relight growth.

Sonder’s market capitalization had fallen to $29 million through the close of trading on Aug. 16 from $2.3 billion in February 2022.

“We feel confident that we have a business that works and can be expanded,” Sonder CEO Francis Davidson said in a statement, adding he expects the Marriott partnership to “drive incremental demand and cost savings that will accelerate our path to profitability.” 

Sonder, co-founded by Davidson in 2014 in Montreal, combined apartment-style lodgings popular on home-sharing websites with the professional management found in hotels. Five years later, it had expanded to 21 cities, drawing $225 million in a funding round that valued the company at more than $1 billion.

The company has rental lodging in San Francisco’s Hayes Valley, two in Downtown Los Angeles, one in Santa Monica and another in Beverly Hills, according to its website. Last month, the owner of the century-old Hotel Carlton in San Francisco sued its former operator, Sonder, for failing to pay $1.2 million in back rent.

The firm became a competitor to Airbnb — while also serving as its largest host. Sonder, valued at $2.2 billion when it went public through a special purpose acquisition company in 2022, then struck a financial reef. 

Last year, Sonder reported negative cash flow of $108 million, according to a financial filing.  By April 2023, the company had faced rounds of layoffs and a delisting notice from Nasdaq after its share price dropped below $1 for 30 consecutive trading days.

Sonder shares soared Monday after the Marriott deal was announced. By the close of trading, its stock had shot up nearly 131 percent to close at $6.04.

Demand for lodging plunged during the pandemic, but that quickly shifted to a new problem: higher interest rates ratcheting up pressure on money-losing companies to focus on profit over growth, according to Bloomberg.

Last spring, Sonder hired New York-based Moelis & Company to help right the ship. Sonder told investors that it wouldn’t file quarterly results on time, and that earlier financial statements were sketchy. It then focused on renegotiating leases in the buildings where the firm offers lodgings.

The agreement with Marriott, which lasts for 20 years with potential extensions, has the potential to ease financial pressure by giving Sonder a way to get bookings that’s cheaper than partnerships with online travel agencies such as Expedia, according to Bloomberg.

Sonder’s $83 million in loans from existing noteholders includes $4 million in new financing, as well as an extension on the paid-in-kind period of existing loans.

Marriott, meanwhile, has expressed a growing focus on short-term rentals. 

“With the planned addition of Sonder by Marriott Bonvoy, we will be able to provide guests seeking apartment-style urban accommodations with even more options,” said Tim Grisius, Marriott’s global officer for mergers and acquisitions, business development and real estate.

— Dana Bartholomew

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