The short-term rental company is winding down its operations “immediately” due to ongoing liquidity issues.
Canadian-based, San Francisco-based alternative lodging company Sonder Holdings is winding down its operations after terminating its licensing agreement with hotel giant Marriott International.
The company announced this week that it would wind down its operations “immediately” and plans to begin… Chapter 7 Liquidation of its business in the United States while simultaneously commencing insolvency proceedings in its international markets. The announcement came a day after Marriott said its license agreement with Saunder “lapsed due to Saunder's default.”
The bankruptcy comes just five months after Sonder co-founder and CEO Francis Davidson left the company. Davidson led the firm through numerous problems and liquidity problems in recent years, including income accounting errors that led to trials and layoffs in The post-COVID-19 hospitality landscape.
Sonder has spent nearly $3.7 million integrating with Marriott this year, according to its second-quarter earnings report.
After resigning, Davidson said he would receive a 20-year contract. strategic licensing agreement with Marriott in August 2024 was “the hardest thing” he's ever done. As a result of the transaction, Sonder shares were included in the Marriott portfolio under the slogan “Sonder by Marriott Bonvoy.” In exchange for the ability to book its rooms through Marriott's website and loyalty program, Sonder paid Marriott a fee.
However, Sonder said in a statement that it “faced significant financial constraints” and delays caused by the integration of its reservation systems and engines with Marriott's, as well as other unspecified factors. Marriott now says Sonder is no longer affiliated with Marriott Bonvoy and that Sonder hotels are no longer available for new bookings on its channels.
The sudden termination of the deal left countless travelers in trouble as they were informed that upcoming and ongoing orders had been abruptly cancelled.
According to its latest earnings report, Sonder has closed some of its apartments starting in 2023 as part of its portfolio optimization plan. Messages on Ottawa subreddit indicate that two of its properties in the city were abruptly closed in September and converted into apartments. Closure notice image posted one commentator reads: “This property no longer has any connection to Sonder.”
Sonder interim CEO Janice Sears said Marriott's integration problems resulted in “significant, unanticipated” costs as well as a sharp decline in revenue from membership in Marriott's Bonvoy reservation system. The company spent nearly $3.7 million on integrations in the first half of this year, according to Sonder's second-quarter earnings report released last month.
“These issues persisted and contributed to significant and material working capital losses,” Sears said. “We have explored all possible alternatives to avoid this outcome, but we are left with no choice but to proceed with the immediate wind down of our operations and the liquidation of our assets.”
CONNECTED: Sonder co-founder Francis Davidson steps down after deal with Marriott
Sonder said it has evaluated financing and other options, including the sale of its business and operations, to improve its financial condition. However, it was unable to close a viable deal or obtain additional liquidity after engaging “multiple strategic and financial parties.”
In its first-quarter earnings report earlier this year, Sonder indicated that its “liquidity may not be sufficient to meet obligations” for next year and that there was “substantial doubt” about its ability to continue as a going concern. Sonder provided the same caveat in its second-quarter earnings report last month, which noted it had received $15 million to date from Marriott and amended its deal to “defer certain fees and other amounts” owed to the hotel chain for up to a year.
Sonder notified the U.S. Securities and Exchange Commission (SEC) of several executive changes in recent months, including the departure of CFO Michael Hughes in August and co-founder Martin Pickard, who served as chief real estate officer, in September. According to documents filed with the SEC, Picard left the company with “plans to participate” in a potential bid for Sonder. BetaKit reached out to Picard for comment but had not received a response at the time of publication.
Later that month, Sonder appointed Paul Stewart Aronzon and Jeffrey Stein to its board of directors. In his SEC filings, Sonder highlighted that Aronzon “served as lead corporate restructuring and turnaround advisor” while Stein previously served as chief restructuring officer for investment platform Linqto.
Sonder was founded in Montreal in 2012 by Picard, Davidson and Lucas Pellan under the name Flatbook, but later moved its headquarters and registered in the United States. As of 2024, the company managed more than 9,000 rental properties in 10 countries, ranging from apartments to boutique hotel rooms.
Although travel demand has recovered following Covid-19, Saunder fought after going public in early 2022 at a valuation of US$1.9 billion through a special purpose acquisition company. The company's stock price on Nasdaq plummeted from around $200 per share to under $2 when Davidson left, and is trading at $0.17 per share as of this writing.
Saunder said more information about the litigation and its closure, including an update on the company's operations outside the U.S., will be provided “in due course.”
Image courtesy of Sonder.
