Hospitality Proptech: It’s Always Peak Season Now

“Summer is our peak season for the most part across the country,” said Roman Pedan, founder and CEO of Kasa, a hotel and short-term rental brand and management firm. “Our sense from talking to our guests and seeing how people are traveling this summer is that it’s the summer of making your dollar go further. There was the summer of revenge travel after COVID, where no matter what it cost you went away.”

Now, that desperate thirst has mostly been quenched and inflation-battered consumers are looking for greater travel value, said Pedan, whose company operates nearly 100 hospitality properties across the U.S.

“We are a brand and manager of hotels and apartment hotels for the consumer,” Pedan said. “Think of us as if Marriott and Airbnb had a baby, and that baby is Kasa. One of the things Kasa does best is to lower the costs of operating hotels and apartment hotels dramatically. That allows us to make the owner more money, but also to deliver a better value to our guests, so that their dollar goes further.”

The company does this by combining elements of traditional hotel stays and more modern hospitality experiences. 

“We are the actual host, so we can deliver a reliable experience with every stay, because we are responsible for housekeeping, customer service, the check-in experience, the Wi-Fi, the comfort of the bed, etc.,” Pedan said. “We are a manager of those properties and we make them significantly more profitable. We generate more net operating income for the owner primarily by lowering the costs of running those properties as well as improving the revenue generation for them.”

Having been built by founders from the hospitality and tech sectors, Kasa focused on profit-and-loss line items that could be eliminated or reduced in cost through automation, said Pedan.

“For example, in removing a line item, we do not have a front desk that requires you to check in with us at any of our properties,” Pedan said. “Removing the front desk and allowing the guests to go straight to their room saves the hotel money and makes the experience better. To automate a line item is something that consumers don’t see. Hotels often have on-site accounting and finance staff doing work that can be automated, and we’ve automated a large portion of that.

“Hotels have staff people at the property, whether the hotel is full or empty, that are doing revenue management, corporate sales, front office, management, accounting and finance. We instead centralize those teams. We have no revenue managers at a given property. As a result, if a property is less full, the cost is not incurred by the property.”

The coming together of hospitality and technology began 10 to 15 years ago, Raja Ghawi, partner at proptech venture capital firm Era Ventures, said in an email.

“The three major trends were the Expedias of the world, which help navigate all listings and offerings; the tools and software being sold to brands, helping them move from paper to digital; and Airbnb, which brought new supply at a lower price point, making travel more affordable for everyone,” Ghawi said.

There is also a trend toward the professional management of Airbnbs, said Ghawi. “There are short-term rental companies that raise real estate money and buy up a bunch of homes. Then they raise money to build an operating company as well. In this space, we are seeing both venture-backed and non-venture-backed plays. As a consumer, if you like the Airbnb experience, you have more options when it comes to professionally managed homes.”

The confluence of travel, hospitality and proptech investment is a focus of Derive Ventures, a San Francisco-based early-stage technology venture capital fund, said Mike Scott, its managing partner. Derive closed its first fund in May, raising $42 million. The firm has invested $28 million in 30 portfolio companies, Scott said.

“We’re taking the best practices of early-stage venture and late-stage private equity to advance the travel and hospitality industry,” said Scott. “We look at the world of technology both through a travel vertical lens and then a horizontal lens. So we’re investing across the spectrum of travel and hospitality, tech companies, as well as fintech, enterprise [software as a service], and businesses that sell to a variety of different industries.”

Scott and co-founder Tyler Carrico came out of the real estate investment and technology sectors, respectively, and combined their experience in creating Derive Ventures.

“We saw a lot of opportunity,” said Scott. “One, to be invested in tech companies that ultimately go on to be big disruptors in the industry, and then also the synergies that could be created with real estate and later-stage portfolio assets. How can technology power these assets and either generate incremental revenue or produce cost savings? That was our strategic foray into venture and finding ways to bridge that gap and capitalize on them.”

During and after COVID-19, traditional real estate had to figure out ways to differentiate and have staying power to attract consumers to their property. That led owners of industrial, multifamily, office and retail to realize they needed to create a technology-driven, hospitality-like brand and experience for their properties, as well as to start treating tenants like guests instead of customers or clients, said Scott.

“Actually, our first investor in the fund was Lincoln Property Company and they don’t own any hotels,” he said. “They purely invested in us for a differentiated look in the industry, taking best practices from hospitality and applying it to other types of real estate. And we’ve found a little wedge for ourselves in that category. A lot of the businesses we invested in go both ways. Some are purpose-built for hospitality and then find their ways into office or multifamily, and, then, other times, we find something that’s more traditional proptech, and find ways to apply that into the travel ecosystem.”

Among Derive Ventures’ investments are two hospitality-oriented proptech companies: Amsterdam, Netherlands-based Mews, a property management system; and San Francisco-based Canary Technologies, the No. 1 software integration partner on the Mews platform.

“Mews is a kind of central dashboard that you need to run a hotel,” said Scott. “What makes it unique is their cloud-based-first model, where there’s the core product and then a lot of other softwares can integrate into it to power various functions of a hotel. And because it’s so flexible, it could easily be repurposed for other types of real estate as a central hub that then other products can plug into.”

As for Canary, Scott said more hotels use it than any other guest management software. “It powers all the stuff related to guest check-in and messaging. They even do digital tipping if you don’t have cash. They’ve been probably the most AI-forward company in our portfolio, adopting a lot of AI tools to power what are really just traditional software solutions, but making them far more effective.”

Another company addressing an aspect of hospitality is Miami-based Kambio, a startup that prefabricates homes and hotels, said diego kuri, the company’s founder and CEO. The U.S. auto industry building some 65 percent of its vehicles in Mexico for use in the U.S. and other countries gave Kuri the idea for Kambio.

“In 2021, I started connecting the dots,” said Kuri. “I said, OK, what happens if we start creating an industrialized process to build single-family homes in Mexico for the U.S. and Mexico?’ We created a couple of single-family homes, but the last year our inbound pipeline was mostly hospitality-related projects — either second homes in hospitality markets where they want to build to rent like Airbnb, or hotel chains that want to set up a hotel in less than six months in places that are difficult to access or have no labor force.” 

Kambio’s cross-border business continues to grow, said Kuri. “For all of our products in Mexico, the target market is American citizens spending time there. There have been more than a million Americans that have moved to Mexico City to work just the last two years, as they’re starting to discover what the country has to offer.”

In another slice of the proptech hospitality pie, startups like Guesthouse, which describes itself as a coworking space that is part bed and breakfast and part hub for creatives, attempts to connect its guests to local businesses, said Trevor Cornwell, CEO of Guesthouse.

“Guesthouse is innovating by using the downtown through what I call ‘tea lights’ — local partnerships with restaurants and great places where guests will be able to have privileged access — sometimes through simply letting the owner know they are coming, or getting a discount, or a chef’s table,” Cornwell said in an email. “The goal is to make the area surrounding our group stay a part of the community so that guests can experience the authentic self of the stores and shops in an accessible way.”

Era Ventures’ Ghawi sees a greater future for proptech and the hospitality sector, but one that is still a bit murky.

“It is not obvious what the next big proptech hospitality play is,” he said. “It is unclear whether the incumbents need more technology, and it is also unclear where we can create a new marketplace or new supply. The future will likely be surrounded by how we can create more pick-and-shovel plays around single-family rentals. That is where we are seeing people build brands around villas or higher-end homes. So, likely, some of the growth in the proptech hospitality space may be luxury and leisure-oriented.”

Philip Russo can be reached at prusso@commercialobserver.com.