Inside Sonder’s Implosion: Master Leases, Growth At All Costs And A Scramble For Cash

Patrick Barrett first saw rumblings of a breakup between Marriott International and alternative hospitality company Sonder Holdings while scrolling social media on a Sunday evening.

He heard that Sonder guests received an email from Marriott saying they needed to check out as soon as possible, but he never saw it himself. The next morning, he was at the Sonder hotel he owns in Cambridge, Massachusetts, trying to help figure out what guests should do. 

“We didn’t know what was going on,” Barrett said.

Sonder issued a press release at noon that day, Nov. 10, saying it was ending operations immediately, but it never contacted him directly. 

“It’s a shame,” Barrett said. “It’s the holidays. Thanksgiving is around the corner. … There had to have been a better way to handle it.” 

It had seemed like business as usual before that. Sonder stayed current on its rent, he said. The closure came out of nowhere. 

But hotel insiders weren’t surprised. The sudden abandonment of 7,500 furnished rental units and hotel rooms and subsequent liquidation bankruptcy filing were years in the making, a former Sonder employee said.

Like WeWork, another rapid-growth real estate company built on long-term leases, Sonder was a venture capital-backed business that went public in the pandemic-era investing frenzy, then never turned a profit before succumbing to bankruptcy. 

Sonder focused more on growth than operations, said Sébastien Long, a former Sonder employee who helped the firm launch in London in 2017. Its demise could make landlords wary of short-term rental operators in general, he said.

“Hospitality is labor-intensive, operationally intensive,” said Long, who only worked at Sonder for a few months and has since founded a rival short-term rental company, Lodgeur. “You have to be a strong operator first. You can't outgrow a weak operating model.”  

Path To Bankruptcy

Sonder began in 2014 when co-founder Francis Davidson began renting out vacant sublets near his college in Montreal.

In 2015, it dropped the subletting business, raised a $3M seed round and started working with property owners and developers to master-lease entire floors or buildings and rent them back out to travelers.

The company began to massively scale up after the onset of the pandemic. It raised $600M in venture capital and went public in 2022 at a $1.9B valuation. At its peak in early 2023, it had 18,200 operational and contracted units. 

Sonder leveraged technology in its operations, claiming it could reduce costs by as much as 50% versus traditional hotels. This “allows our business to scale rapidly while delivering an outstanding, modern guest experience,” it said in its 2021 annual report.

“They weren't operators at heart,” Long said. “It was more about growth, and you can see that everywhere.”

About six months after going public, Sonder announced it was laying off 21% of its corporate workforce to restructure and boost its cash flow. 

The bleeding continued. It launched a portfolio optimization in November 2023 to try to mitigate losses, which culminated in June 2024 when Sonder announced it would shutter 25% of its portfolio. Shortly after, it struck a licensing deal that allowed Sonder properties to be booked on Marriott’s platforms as “Sonder by Marriott Bonvoy” rooms. 

It took nearly a year for Marriott’s Sonder booking system to get up and running, according to court documents. 

Sonder's bumpy integration into Marriott’s Bonvoy reservation system contributed to a sharp revenue decline and “a substantial and material loss in working capital,” Sonder interim CEO Janice Sears said.

The agreement had Sonder paying Marriott a monthly royalty fee plus a percentage of booking revenues. Sonder now owes Marriott $17.7M in unrepaid key money — a common part of hotel licensing agreements where the brand operator makes a financial contribution as a hybrid of debt and equity — and fees, accrued interest and other costs, according to a court filing. 

Marriott said on Nov. 9 that it terminated the agreement due to Sonder’s default. Sonder announced its plans to wind down and file for Chapter 7 bankruptcy the next day, largely blaming “severe financial constraints” from integrating its systems with Marriott.

Sonder was “devastated to reach a point where a liquidation is the only viable path forward,” Sears said. 

Sonder had $21M in cash on hand at the end of 2024, down from $96M at the end of 2023, according to its financial report. Marriott claims Sonder blew through $42.5M of new debt this year and still burned through all of its cash. The hotel giant said it also lent Sonder $1.5M on Nov. 5 to cover a week’s worth of payroll and taxes. 

Marriott alleges Sonder collected tens of millions of dollars in advance payments for reservations that it will never honor and used deposits to fund its operating expenses instead of holding them in escrow.

Sonder said it comprehensively evaluated alternatives to liquidation, including a sale of the business. Sonder’s bankruptcy filing said it had neared a deal to restructure its debt with an unnamed company that would buy essentially all of its assets as a stalking horse in a bankruptcy auction, but the bidder suddenly pulled out on Nov. 2.

The bankruptcy filing came Nov. 14, claiming between 5,000 and 10,000 creditors and $1B to $10B worth of liabilities. At the time of closure, Sonder employed about 1,150 people and operated units across 37 cities in nine countries. 

Sonder asked Marriott to fund its wind-down costs, leveraging guest safety as a bargaining chip and first requesting $50M, according to court filings. It dropped the request to $28M, then $14.3M, but Marriott repeatedly declined, Marriott's attorneys wrote. 

Sonder threatened to “leave thousands of guests locked out of their rooms mid-stay” with no regard to whether the rooms contained essential items or the guests would be left with no place to sleep, according to the filing.

At least two landlords have filed suit, alleging Sonder's abrupt exit left some guests unable to access their rooms and others arriving only to be told the hotel was closed. 

While Sonder's landlords may field multiple offers to take over unexpired leases, some have become wary of the business model.

Sonder used four-to-seven-year master leases, which allow primary tenants to rent out to subtenants, with up to two five-year renewal options. The majority of its leases were fixed, meaning it agreed to a periodic fee per unit that may be subject to rent escalations, according to its 2024 annual report.

The company said it could boost apartment developers’ income by eliminating lengthy lease-up periods, simplifying rent collections and removing operational burdens. In recent years, it shifted toward more full-building leases, and a small but growing proportion of its portfolio was previously independent Sonder-branded hotels.

“For independent hotel owners, we offer a steady stream of income while taking the operational headaches off their hands,” Sonder’s most recent annual report said. 

Hospitality companies in the U.S. more commonly use management contracts. Master leases are long-term contracts based on short-term revenues, which become economically fragile amid market shocks, said Roman Pedan, CEO of short-term rental company Kasa. 

Kasa has taken over 12 former Sonder properties, all before the company announced its wind-down, and is in conversations with property owners for more. 

“You could see in their filings they were in a challenging position, and so we knew there was going to be some fallout,” Pedan said.

The master lease model appears to be the core of what went wrong at Sonder and at other companies like WeWork and LuxUrban Hotels, which also filed for a Chapter 7 liquidation this year and abandoned properties and guests who booked rooms in them.

“It’s proven to be problematic and sort of an economic weapon of mass destruction,” Pedan said. “It’s especially problematic when the company that's using it is capitalized or fueled by venture capital.” 

Venture capital values scale, and growing fast in a real estate-intensive business is most simply accomplished by paying higher rents, which secures more properties but makes the company less profitable, he said. 

Lodgeur considered taking over some Houston properties that Sonder exited, but Long said he immediately found that the company wouldn’t be able to match Sonder’s lease terms. One of those properties ended up going with a hospitality management company called Reside, he said. 

“If these properties do want to continue working with somebody, I'm sure that every building is going to have somebody that would be willing to step in,” he said. 

Barrett, who owns the 67-key hotel at 907 Main St. in Cambridge, moved on quickly. 

The hotel will reopen Dec. 3 under the management of boutique hotel management company Lark Hospitality. Lark founder Rob Blood said he was able to swoop in because his company saw “the writing on the wall” and began outreach months ago.

“We’re racing right now to get the hotel back open so people can come back to it,” Barrett said. 

Moving Forward 

Landlords with leases still in place as of the bankruptcy filing should closely monitor the case, said Jeffrey Testa, a partner at McCarter & English law firm who has represented Chapter 7 trustees. The leases will be assumed or rejected, meaning they will either be assigned to someone else or terminated, at the discretion of Chapter 7 trustee Jami Nimeroff, who was appointed on Nov. 17. 

Trustees carefully review opportunities for each lease, Testa said. Landlords would get notices of any relevant hearings and have objection rights, but the trustee will have the ultimate say, subject to approval by the bankruptcy court.

Landlords will be considered unsecured creditors in the case, Testa said. Sonder said in its bankruptcy filing that after any administrative expenses are paid, it estimates no funds will be left over for unsecured creditors. 

“So if there is any potential for any type of sale to occur, it seems like a path worth exploring for the landlords,” Testa said. 

Blood has spent the past two weeks calling hotel owners who have leases with Sonder. He found that some are considering resuming operations themselves, while others want a bridge solution such as a one-year management contract. Others want to immediately find another long-term operator. At least one landlord had written the master lease off completely, Blood said.

“It’s human nature to try to have optionality after you’ve been burned,” he said. 

Barrett terminated Sonder’s lease for his Cambridge property prior to the bankruptcy filing, he said, declining to give more details. He took quick action because he is an attorney who likes to plan for contingencies, he said. 

Barrett had never developed a hotel before this one, which he planned to open in Cambridge’s Central Square in March 2020. His plans fell apart because of the pandemic, but Sonder approached him about a master lease in 2021.

“They appeared as a sort of alternative model for our property to help us weather the storm,” Barrett said. 

But Barrett always wanted to have a full-service hotel and be integrated with the management team, he said.  

“I do a lot of things with the local community, so this property in particular just means a lot to me,” Barrett said. “To have it back under our control and to be able to produce the experience that we always intended to produce, that’s kind of exciting.”