Investment firms target short-term rentals

From left to right: Ryan Craft, General Manager, Saluda Grade; Sean Breuner, Managing Director, AvantStay (Saluda Grade, AvantStay, iStock)

Short-term rentals are no longer just for family owners: Wall Street has taken notice of the market and is getting in on the game.

New York-based investment firm Saluda Grade is launching a venture to buy about $500 million in short-term rental properties in conjunction with AvantStay, The Wall Street Journal reported. The company will target the acquisition of properties within driving distance of population centers; AvantStay will manage properties.

“There’s a lot more yield available in the short-term market,” Saluda Grade CEO Ryan Craft told the outlet. The company will also increase debt by selling home-backed mortgage bonds, which it says is the first vacation rental mortgage securitization.

Saluda Grade is not the only one. Startup Andes STR has signed a deal with Chilean investment firm WEG Capital to buy $80 million worth of short-term properties in the United States, according to the Journal.

The surge in investor interest follows sustained demand for short-term properties due to factors such as the rebound in tourism and remote working, as well as low interest rates which appear to be favoring strong investment. Local regulations are emerging, however, which could create challenges for investors who will likely need to purchase properties on an individual basis.

“Regulatory risk is a huge issue,” said Andes STR CEO Sebastian Rivas.

AvantStay is a strong proponent of short-term rentals, basing their business around the concept. Last year, the company launched a brokerage arm, hiring real estate agents to help customers find second homes. At the time of the announcement, the company had over 600 homes in its portfolio and expected to hire 200 agents within 12 months.

Many short-term rental companies have made their public debuts in recent months. Vacasa, Sonder and Inspirato all went public last year, each trying to capitalize on increased demand for vacation property stays. Ohio-based asset management firm ReAlpha also plans to spend up to $1.5 billion in the market, enough to buy nearly 5,000 homes.

At the start of 2021, demand for short-term rentals was well above pre-pandemic levels, helping investors earn a lot of income. Demand for vacation homes beyond the short-term rental market is also strong, as it was 87% above pre-pandemic levels last month, according to Redfin.

[WSJ] —Holden Walter-Warner