Expedia set to phase out short-term rental multifamily business

US: As Expedia Group strategises its recovery from the standstill in bookings during the Covid-19 pandemic, it is believed to be preparing to phase out its short-term rental multifamily building business, which includes its Expedia Group Multifamily Solutions product.

The product was formed after Expedia Group acquired venture-backed hospitality startups Pillow and ApartmentJet in 2018, before merging them for a reported $54 million and bringing in staff from its Vrbo subsidiary. This was rebranded to create a suite of products under the name of Flexible Living Platform, which claims to allow landlord users to “seamlessly enter the sharing economy, earn revenue, increase net operating income [NOI], and create new amenities for your residents”.

In doing so, landlords would be able to utilise the tools to attract more short-term rental bookings in already-vacant apartments which tenants can also offer out to guests.

Speaking to Skift, an Expedia spokesperson revealed the company was in the process of “winding down” its business with Pillow and ApartmentJet as part of its “drive for simplification”.

San Francisco-based Pillow enables residents to list their apartments as short-term rentals without violating the terms of their leases. By the time it was acquired by Expedia, it had already raised $16.5 million in venture capital investment from backers including Mayfield, Expansion VC, Peak Capital Partners, Sterling.VC, Veritas Investments, Chris Anderson, Dennis Phelps and Gary Vaynerchuk.

Meanwhile, Chicago-based short-term property management software ApartmentJet helps property owners to earn money from vacancies. The startup had raised more than $1.2 million in capital from Network Ventures and BlueTree since founding in 2016.

Prior to the acquisition, Airbnb was the exclusive multifamily software partner for Pillow but an Airbnb spokesman has since confirmed to Skift that this was discontinued when Expedia came on board with the startup and decided to build its own service, known as the Friendly Buildings Program.

Two years ago, Expedia signalled its intentions in the alternative accommodations space with the purchase of both startups, following on from a $3.9 billion acquisition of HomeAway and its collective travel brands in 2015.

The move was seen as the first step in competing with Airbnb in its core short-term rental segment. It sought to provide software tools for property managers so that they could efficiently manage short-term rentals on Airbnb competitors including HomeAway and then VRBO.

On buying Pillow and ApartmentJet in 2018, Expedia outlined its ambitions in the space to Phocuswire: “Acquiring Pillow and ApartmentJet will help unlock urban growth opportunities that, over time, will contribute to HomeAway’s ability to add an even broader selection of accommodations to its marketplace and marketplaces across Expedia Group brands, ensuring travellers always find the perfect place to stay.”

However, as time has passed since the coronavirus outbreak emerged earlier this year, the company, led by new group CEO Peter Kern and chairman Barry Diller, has been busy reorganising the company to simplify and streamline its operations, as well as cutting unnecessary costs.

In February, the online travel agency confirmed it was laying off 3000 employees, roughly 12 per cent of its workforce. It followed  claims by Diller that the organisation was “bloated and sclerotic”, and staff were told that it had been necessary to “reduce and eliminate certain projects, activities, teams, and roles to streamline and focus our organisation”.

The last few months have also seen significant upheaval in the company’s boardroom. Kern was appointed as CEO and Eric Hart as CFO just a month ago, replacing previous incumbents Mark Okerstrom and Alan Pickerill, who resigned abruptly in December over reported disagreements with the company’s board on strategy.

In April, the group confirmed through Diller that it had raised $3.2 billion in incoming capital, made up of $2 billion in debt financing and $1.2 billion in equity investment injected by Apollo Global Management and Silver Lake Partners.

The Covid-19 outbreak has led to a significant drop in demand in urban areas, something which one Expedia spokeswoman cited as a reason for the company’s decision to wind down its short-term rental multifamily business.

Reem Ibrahimi, the founder of Boston-based private equity fund Capstron Capital, told Skift that a solution for the multifamily space could be to adopt a “diverse cash flow model” in which mixed-use buildings could hold units for short- and long-term rental, affordable housing and potentially accommodation to target workers specifically.

Rented.com CEO Andrew McConnell told the same publication: “With the reset caused by Covid, a lot of these experiments are just getting shut down to focus on the core business.

“In some instances this might be a forcing mechanism to exercise discipline in cutting things that really should have been cut anyway. In other instances, it might lead to cutting things that are promising, but just don’t make sense right now,” he added.