What can $500 million buy? Apparently, big vacation rentals where to party without the owner or the neighbors complaining. Imagine that you run AvantStay, a vacation rental management company specialized in providing an “epic group travel experience”. On the supply side, you need large properties of at least 4 bedrooms. You also need vacation rental property owners who are ok with guests hosting events. Due to new restrictions on short-term rentals, complaints from neighbors, fear of damage for the owner, there is a shortage of supply. Add to that Airbnb’s ban on bookings by groups of more than 16 people, then you have demand that needs to find supply. Supply that allows groups and gets the necessary licenses if needed. This is a nice business opportunity for a short-term rental fund to come, find and buy such properties and give them to AvantStay to manage.
So, AvantStay and Saluda Grade are creating a $500 million short-term rental fund to create a PropCo. So what does this mean? In layman’s terms, Saluda Grade will be the owner of the properties they are purchasing and AvantStay will work as the sole property manager. They will not be taking on any individual property or vacation rental managers. The companies also say that the new venture will be seeking to establish a “new precedent for best practices with local communities and their governing bodies”, which may mean making house parties more acceptable to their neighbors. To be fair, this is a real need, with a lot of demand, and working on whitelisting guests while finding the right supply can be tricky, but rewarding financally.
What is AvantStay?
AvantStay is a hospitality and vacation rental brand that targets larger groups. AvantStay’s focus is on hosting groups, such as family reunions or team offsites, saying on their website, “Travel with the people you love. Group travel has never been this easy – check out our homes and locations across the country.” For this, you need big properties that allow groups.
AvantStay looks for homes and investment properties that have at least 4 bedrooms in one of their designated destinations. So long as the properties are large enough and in one of its destinations, AvantStay doesn’t care if it is a well-loved home or just an investment.
It currently manages over 1,000 vacation rental homes in 100+ cities between the United States and Mexico. AvantStay’s ultimate goal is to manage the largest luxury short-term rental portfolio in the U.S., getting thereby creating dozens of partnerships with other brands. And so far AvantStay is seeing results because in 2021 it ranked on the Inc. 5000, a list of the fastest-growing privately-owned businesses in the United States. AvantStay ranked 332nd overall and number 2 in the hospitality sector. Overall, in the last 3 years, AvantStay has seen a growth rate of 1411%.
Who owns AvantStay?
AvantStay is owned by its founder and CEO Sean Breuner along with its co-founder Rueben Deutsch and remains a privately owned company.
How long has AvantStay been in business?
AvantStay was founded in 2017 and in its first 4 years in business it has already managed to become a major player in the vacation rental industry because of its focus on larger groups. It does resemble Sonder, which went public in 2021, in its business strategy of working with real estate investors and it is possible we could see it go in a similar direction in the future.
What is a PropCo?
A PropCo, or Property Company, is “a subsidiary company created specifically by a parent company or opco to hold and manage its income-generating real estate,” according to Investopedia. PropCos are the ones who actually hold all of the assets, such as real estate, and then the operating company (in this case Saluda Grade) generates revenue from it. Companies do this in order to divide the crediting rating issues between both parties and allow the operating company to remove all carrying costs, while the PropCo gets to hold on to the assets as collateral, diversify its portfolio, and can even raise capital as it pleases to create competitive rates.
What is Saluda Grade?
Saluda Grade is an alternative lending firm that works with a number of different types of companies from finance to technology. Saluda Grade either invests in or creates strategic partnerships with regional private lenders in order to create growth. Their focus seems to be on the “alternative” nature of their finances and investments, which entails relying on new financial structures such as the BlockChain, cryptocurrency, and others. Their investments are into companies promoting and researching new ways to utilize alternative financial sources in everyday transactions, which in turn would support their financing of other businesses through these alternative methods.
It should be noted that Saluda Grade does not offer very clear details of the specifics of what it does on its website and it uses convoluted and overly complicated language when describing the specifics of the company, which feels as if it is being done on purpose to keep themselves and the clients they work with more exclusive.
Details of the Deal
The move comes as Saluda Grade looks to enter the short-term rental industry. Its investment in the PropCo with AvantSay is part of its strategy to fuel their own growth, with Saluda Grade’s CEO Ryan Craft saying in the press release,
“We believe AvantStay’s dynamic and fast-growing customer base makes them the perfect partner for our firm to finally enter the burgeoning STR space. We were attracted to their higher-yielding product and differentiated channels of supply, and we are confident they will continue to lead the industry with their robust offering of hospitality, tech, design and real estate as an all-in-one package.”
About the deal, AvantStay’s CEO Sean Breuner said,
“AvantStay continues to break barriers for the STR industry. With this new capital and partnership with Saluda Grade, we will pioneer and institutionalize a new asset class that will inevitably pave the path for travelers to have a better experience and for investors to generate attractive returns.”
And though AvantStay will be working so closely with Saluda Grade, it won’t lose its drive to benefit the local communities it operates in and even hopes
“to set a new precedent for best practices with local communities and their governing bodies” by “focus[ing] on engagement with local communities and compliance with their regulations empowers the communities to extract maximum benefit from tax revenue, direct and indirect employment growth, as well as tourism dollars directed towards local small businesses.”
While this sounds nice when packaged like this, what they are actually saying is that it is very common for the large groups who stay at the properties to have large, loud parties, which disturb the neighbors and lead to tensions between AvantStay and local authorities. This quote is AvantStay’s way of saying it will try and do better going forward.
It will be interesting to see if this half-billion-dollar PropCo will between AvantStay and Saluda Grade be as advantageous for both companies as they are predicting and if they can set new industry standards as they state.