Sonder, the short-term rental co. emblematic of proptech’s VC-fueled boom-bust – raised $600M+ from investors, SPAC’d at a $1.9B valuation but kept bleeding money – is shutting down, effective immediately. The firm announced Monday that it expects to initiate a Ch. 7 liquidation, a day after its most notable partner, Marriott, said it was terminating its license agreement w/ Sonder.

When the deal was struck last summer, we had our resident hotel insider break it down for us – he described it as “Marriott – very, very cheaply – bought themselves an option on Sonder getting their shit together.” The $15M in Key Money it came w/, he wrote, “can probably be scrounged from the couch cushions in Bethesda.” That piece (exactly the kind of content you can expect w/ The Promote Insider) is worth revisiting in light of this breakup – some great insider deets about the business o’ the hotel business. “If I’m [Marriott CEO] Tony Capuano, a true-blue deal guy, I do this deal 10 times out of 10,” our insider wrote. From Sonder’s perspective, however, it was more of a Hail Mary. “It is existential that Sonder gets this right FAST, as otherwise they’ve got a [REDACTED 😢]% - I’d expect to be between 7-10% - of Gross Rooms Revenues flowing out the door to Marriott at a time when they’re bleeding money.”  

Now, the deal is over, and with it, Sonder. News reports are flowing in of guests being asked to vacate properties within 24h, and Marriott is also taking heat online for the abrupt termination. Francis Davidson, who stepped down as CEO in June, founded Sonder in ‘14, and all told raised $600M+ from the likes of Fidelity, Valor Equity Partners, and Greenoaks Capital. In early ‘22, right around when Sonder SPAC’d, Davidson bought Pharrell’s Hollywood Hills home. “Now working on new ideas,” his bio reads.

Sonder is also a side villain in a distressed property closely tracked by NYC CRE insiders. In ‘18, flush w/ VC cash, Sonder inked a master-lease deal w/ Nathan Berman’s Metro Loft Management for 8 floors at the office-resi conversion 20 Broad St. That deal helped Berman land his $250M ($470K / 🚪 loan basis) in takeout financing from Athene in ‘19, but came w/ a host of headaches: Berman had a 3Y legal battle w/ Sonder over its attempt to break its lease – Sonder attempted to use reports of a Legionnaires’ disease outbreak at the property to get out of paying rent. This fall, 20 Broad’s mezz lender (undisclosed, but likely still Athene) took over the property from Berman, whose equity was wiped.

This one you can call a comeback: In March ‘24, Steve Mnuchin’s Liberty Strategic Capital (along w/ Sander Gerber’s Hudson Bay Capital, Milton Berlinski’s Reverence Capital & Ken Griffin’s Citadel Global Equities) put $1B into the sinking New York Community Bank 🛟 , and kicked off a revamp of the bank’s business: It dramatically slashed its CRE exposure, w/ Mnuchin’s pick for CEO Joseph Otting saying the bank, now known as Flagstar, aimed to have CRE be just 1/3 of its book. The next few quarters were a torrent of offloading loans – see here, here, here – but now, Flagstar says it’s once again ready to rock.

“We’ve now reached a point in our evolution where we’re re-entering the originations space,” Flagstar CRE prez Scott Shepherd told CMA, noting that CRE exposure would continue to be scrutinized. Gone is the heavy (and ultimately painful) focus on fixed-rate lending to NY multifamily; just before the Mnuchin-led infusion, about $18B of the bank’s loans were backed by the city’s rent-stabilized units, per WSJ, representing more than a fifth of its total loan book. Instead, the bank will look to ramp up floating-rate lending to bigger national sponsors x most major asset classes. Target loans will be in the $20-30M range, compared to the historical avg. of $6M.

“I like the franchise a lot,” Mnuchin said last March. “Whatever issues there are in the loans we’ll be able to work through.” He’s among the crop of deep-pocketed pvt. investors that see big rewards to be reaped in plays for struggling banks – also see Fortress’ bet on TX bank First Foundation, which has outsized exposure to CA multi.

(Editor’s note: Thrilled to publish this collab w/ an active data-center & credit investor who’s part of The Promote Insider’s stable of expert contributors. The issues raised here are both timely and a welcome counterpoint to much of the breathless coverage in this white-hot space. Enjoy! - HS)

There’s a glaring flaw in how data center SASB deals are structured today. Despite the industry’s growing calls for data and disclosure (see: MF1 and CRE CLOs), many data center SASB securitizations are notably opaque about one key detail: who’s actually paying the rent. 

SASBs are (generally) issued as Rule 144A private placements, bypassing the more rigorous standards the SEC demands of conduit deals. As a result, SASB deal documents routinely omit tenant names under the guise of confidentiality and security concerns – a practice so common it’s become a running joke that underwriting these deals is more about guesswork and instinct than hard data 🔮. But in a system where underwriting hinges on the predictability and certainty of cash flow, this level of opacity is a real problem. And think of the stakes: 13% of SASB deals are now for data centers, per Goldman Sachs, and you can expect that share to grow further, given the sheer capital needs of the asset class - by ‘29, Morgan Stanley estimates that $3T worth of capital will be spent on data centers.

In a typical conduit CMBS, investors receive full rent rolls with tenant names and lease terms. To put it simply, they know who’s on the hook for making rent and for how long. But in data center SASBs, borrowers have far more leeway to withhold that information. Many flat-out refuse to disclose tenant identities, citing “information security, privacy, and competition.” If you land a hyperscaler, you keep that shit close. Recent deals have taken this to extremes 👇