Sonder, the company that offers corporate-style rentals of furnished units for several months at a time and which controversially took control of 52 units in a building at the intersection of Church and Market Streets last summer, is now suing to get out of its lease at the property, citing the pandemic.
What seemed like a good idea a year ago — offering rentals of 30 days or more at rates well above market for transient tech workers and the like — no longer seems like a viable business plan, apparently. And Sonder wants out. As the SF Business Times reports, the SF-based company has filed suit against developer Brian Spiers to get him to honor what it says are its contractural early-termination rights for the lease.
The lawsuit reportedly cites state and local emergency measures to "limit the spread of the Covid-19 pandemic" which have "crippled Sonder’s efforts to draw potential tenants to the premises." The suit also points to eviction moratoriums that could mean having tenants who "effectively stay rent-free for months," and it says that curtailing of most corporate travel has had a "crushing" impact on its business model.
Sonder hasn't commented on the suit, and neither has Spiers.
The case of 2100 Market Street, a seven-story building on the former Home restaurant site that went through multiple design iterations before starting construction in early 2017, was the latest in a decade of angry-making loopholes and debates about short-term rentals and their impact on San Francisco housing availability. While the city for years has made efforts to make developers build more affordable units, the Planning Commission was never made aware that this building was set to open outside the regular rental housing market altogether — even though legally Spiers was within his rights to use the units in this way, and so long as the stays were over 30-days this didn't technically count as a "short-term" rental property subject to the city's Airbnb-inspired regulations.
"San Francisco neighborhoods never signed up for corporate hotels masquerading as rental housing," said District 8 Supervisor Rafael Mandelman last July, after news stories about 2100 Market emerged. Mandelman set about confirming whether this was even legal — it was — and said, "we need to change the law and close this loophole."
And as former Planning Commissioner Dennis Richards said at the time, "It's legal but it's not right."
A year on and a pandemic later, and the market for two- and three- and six-month rentals at super-sized prices seems to have evaporated. And if Sonder gets their way and gets out of this lease, it will mean that the 52 units that were not already designated as affordable, below-market-rate rentals will enter the regular market where rental rates for one-bedroom units in particular have been plummeting in the last month.
Interestingly, two weeks ago, Sonder just closed a Series E funding round of $170 million, boosting its valuation to $1.3 billion. This despite the hotel and hospitality industry in general being in dismal shape around the globe — and despite Sonder having to lay off or furlough a third of its staff back in March.