Sonder’s Short-Term Rentals Business Failed for Very Specific Reasons

Sonder Holdings, once seen as a potential Airbnb rival in the short-term vacation rental market, took a different path and collapsed trying to lease apartments and hotel rooms by the thousands, then rent them for short stays.

Sonder filed for Chapter 7 bankruptcy and court-supervised liquidation on Nov. 14 following the termination of the company’s crucial partnership with hotel heavyweight Marriott International. Sonder’s collapse appears unlikely to derail the short-term rental business, but it left many of Sonder’s unpaid landlords scrambling for solutions.

In November, Marriott abruptly terminated a license agreement to handle online bookings for stays at Sonder properties via the Marriott Bonvoy app and Marriott’s website, and to market a collection of properties called “Sonder by Marriott Bonvoy.”

After Marriott told Sonder on Friday, Nov. 7, that it terminated the agreement, some weekend guests at Sonder properties faced sudden eviction. Three days later, on Nov. 10, Sonder announced its plan to liquidate itself in bankruptcy and “to complete winding down operations immediately.”

“From day one, lots of Chapter 7 cases come in with some type of crisis — there was certainly a crisis here,” said Jeffrey Testa, an attorney with McCarter & English in Newark, N.J., who cited “news about people being forced out of their hotel rooms.” Testa has served as a bankruptcy trustee, but isn’t involved in the Sonder case.

Marriott terminated its license agreement with Sonder “because Sonder informed Marriott that Sonder was headed for an imminent free-fall liquidation and about to abandon thousands of hotel guests across three continents,” according to a motion Marriott filed in the Sonder case to confirm court approval of Marriott’s efforts to assist guests evicted from Sonder properties. 

The motion further alleged that “Sonder then attempted to leverage guest safety as a bargaining chip — threatening that, unless Marriott financed its wind-down, it would shut down hotel systems and leave thousands of guests locked out of their rooms mid-stay.”

A damaged company long before its breakup with Marriott, Sonder has suffered net losses and negative cash flow every year since it started in 2014. For example, Sonder’s operations consumed $240 million more in cash than they generated in 2023 and 2024, and ongoing net losses had lifted its cumulative deficit to $1.6 billion by the end of 2024, according to an annual 10-K report the company filed in July with the U.S. Securities and Exchange Commission.

Sonder has tried to hold down its prices by taking over thousands of apartments and hotel rooms under long-term master lease agreements. At the end of 2024, the average remaining lease term on these properties was 6.8 years.

“We have been hearing from a number of their landlords to see if we’d like to take over their properties,” said real estate developer Harvey Hernandez, CEO of Miami-based Newgard Group. “If you are a landlord and you have an entire building leased to Sonder, and [Sonder’s] not able to pay rent anymore, then you’re going to have to start talking to everyone about solutions. … A lot of these properties were flawed. They’re either too small or in locations we’re not interested in pursuing.”

As a provider of short-term stays in apartments and hotel rooms across the United States and in eight other countries, San Francisco-based Sonder developed a design-driven approach to its business and a technological style that put contactless check-in and other services on guests’ phones. Sonder started 2025 with more than 9,000 apartments and hotel rooms in 41 cities, with 37 percent of those properties in the top five cities ranked by number of units. These include New York City, Dubai, Montreal, Miami and London.

Among other risks detailed in its latest 10-K report, Sonder cited copycat competitors: “Our competitors may continue to adopt aspects of our business model, which could reduce our ability to differentiate our services. For example, some competitors, including traditional hotels, have introduced contactless check-in and self-service technologies.”

Sonder’s leased properties include hotel rooms and furnished apartments with as many as three bedrooms. Most of the company’s portfolio consists of apartments in properties that range from boutique buildings with as few as 10 units to towers with more than 300. In recent years, Sonder has switched its focus from leasing portions of apartment buildings to leasing entire buildings. A smaller part of the company’s portfolio consists of hotels, some of which have been converted to Sonder-branded properties by their independent owners.

“This reminds me quite a bit of WeWork,” said Daniel Lesser, co-founder, president and CEO of LW Hospitality Advisors, a New York City-based real estate consulting firm that works exclusively in the hospitality industry. 

Lesser was referring to the New York-based company that leased too much office space and faced a pandemic-driven slump in rental demand. WeWork then entered Chapter 11 bankruptcy, restructured itself and recovered, ousting co-founder and CEO Adam Neumann along the way.

“They did the same thing [as Sonder]; they went around taking down these leases and having this inventory on their books that they had to get rid of or lease up,” said Lesser. “It was those [lease] obligations that got to them, because the demand obviously wasn’t there. This is the same story.”

Lesser dismissed the notion that Sonder filed for bankruptcy because Marriott stopped booking stays at Sonder properties. “It’s not that the affiliation with Marriott is what blew this thing up,” he said. “It was on the verge of getting blown up pre-Marriott.”

Sonder and Airbnb, also based in San Francisco, may have looked alike to many travelers. But their business models — and outcomes — fundamentally diverged. Airbnb has a market value of nearly $70 billion, and Sonder is bound for extinction. While Sonder hoped to make more money on rentals than it pays on leases, Airbnb generates most of its revenue from booking fees. 

“Airbnb gets their cut from every booking — it’s a whole different risk profile,” Lesser said. “Airbnb is very similar to Booking.com or Expedia, or any other one of these booking engines.”

Sonder properties in recent years have been busier and pricier than hotels in general. Sonder’s occupancy rate was 80.9 percent in 2024, down from 82 percent in 2023, while its average daily rental rate rose to $196 from $184, according to the company’s 10-K report. The American Hotel and Lodging Association reported that the nation’s overall hotel occupancy rate was about 63 percent in 2024 and 2023, while the average daily rate was $159 in 2024, up by about $3 from 2023.

Yet Sonder’s total costs and operating expenses chronically exceeded its revenue. For 2024, the company reported a net loss of $224 million on $621 million of revenue and $803 million in total costs and operating expenses. Sonder’s net loss the year before was $295 million on revenue of $602 million and $880 million in total costs and expenses.

Cash payments for operating leases totaled $303 million in 2024, up from $285 million in 2023. Dwindling cash reserves, meanwhile, reduced Sonder’s liquidity. The company’s cash, cash equivalents and restricted cash plummeted from $136 million at the end of 2023 to $72 million at the end of 2024.

“They have this huge liability with the master leases,” said Newgard’s Hernandez. “It creates a big issue, not only on their financials because of the liability of the master leases, but also when it comes to cash flow. That’s the biggest problem.” 

Hernandez remains a believer in short-term residential rentals despite Sonder’s stumble. His firm is developing Natiivo Fort Lauderdale, a 40-story building licensed as a hotel, with 384 fully furnished condo units. Natiivo Fort Lauderdale will allow short-term rentals of the condos and offer owners the option to rent out their units with an in-house booking platform comparable to Airbnb.

Led by interim CEO Janice Sears, Sonder began heading for liquidation in mid-November via the U.S. Bankruptcy Court in Wilmington, Del. Management, however, tried hard to recruit an unidentified white knight to save Sonder from bankruptcy.

A filing in the Sonder case disclosed that the company in October “engaged in extensive, hard-fought, good faith, arm’s-length negotiations with a prospective purchaser/lender regarding the terms … of a debtor-in-possession financing facility and a stalking horse purchase agreement for substantially all the assets” of Sonder. But, on Nov. 2, the prospective purchaser/lender “suddenly and unexpectedly” withdrew from discussions about a financing facility and purchase agreement.

Sonder’s lower-ranked creditors may include unpaid building owners that leased their buildings to the company. “They’re probably going to wind up as unsecured creditors, with other general unsecured creditors,” said Testa, the attorney with McCarter & English.

In addition, “it appears that there will be a dispute over monies that were advanced to Sonder and Sonder had not repaid to Marriott and others,” Testa said. “I anticipate a full forensic investigation by the trustee.” 

The trustee is also likely to consider whether deposits from Sonder customers were handled properly and held in escrow. The Chapter 7 case may serve as a foundation for future litigation to recover assets on behalf of Sonder creditors, Testa said. But creditors ultimately may face a long wait for compensation. 

“These cases just take time,” Testa added. “There has to be a professional retained by the trustee. The investigation has to take place. … These cases can take years to get to the finish line before creditors get money.”