Vacation rentals have historically not been the purview of institutional capital and management. But a new nontraded REIT is trying to change that by leveraging technology to assemble and manage assets.
Wander REIT was launched in 2021 with a single asset. The portfolio now includes 14 rentals, but the company’s executives have much grander aspirations.
And for investors, they argue, it’s an opportunity to gain exposure to a property type that not many investors have dabbled in.
“It’s an opportunity to invest in a diversified pool of vacation rental homes. I think there's been a lot of folks in the last 24 months who've got bought a short-term rental and potentially bit off more than they could chew,” David Molotsky, vice president of finance at Wander. “This is the chance to do it passively.”
WMRE caught up with Molotsky to ask about the investment vehicle.
This interview has been edited for style, length and clarity
WMRE: Why vacation rentals?
David Molotsky: It's really about the return profile. Within the vacation rental sector we have high-single-digit cap rates today, which within the real estate landscape is very, very difficult to find. But for us the risk profile from a liquidity perspective is significantly stronger [than other real estate] because we can always just sell the home back into the single-family market.
Market wide there was 6 percent growth in top line revenue for vacation rentals, according to AirDNA, one of the leading market data providers. Multifamily over the last 12 months the most recent figures I saw were closer to 3 percent.
WMRE: How many homes does Wander now own?
David Molotsky: We have 14 homes today that are up and running. We launched bookings in January of 2022. We bought those 14 homes over the course of the last 18 months—we're roughly 80 percent occupied. Our average daily rate for 2023 is up 25 percent relative to 2022 bookings.
We'd like to have another 50 homes by the end of the year.
We have an existing credit facility that was originated with Credit Suisse that is now managed by Apollo. And we've capitalized the company to date with $32 million in venture capital equity. So that's sort of giving us the juice to go out and buy new houses.
We will basically buy homes onto Wander’s balance sheet and then as we get them stabilized and as we raise money into the REIT then we'll transition them from Wander’s balance sheet to the REIT and capitalize them that way. Then in the long term, we can put a term loan type solution into the REIT… probably from a life insurance company.
The assets themselves are in irreplaceable locations—so all of our all of our homes at the beach are beachfront modern homes all of our homes in the mountain are very close to ski. The average price is roughly $2.5 million, so we target the very high-end homes and we're targeting the highest-end consumer.
WMRE: Where do you expect to be in five years?
David Molotsky: In five years, probably 1,000 homes. That's 60 months, so you've got to get to a point where you're buying 10-to-15 homes a month.
By the end of 2024 we think we'll have roughly $200 million of assets inside the REIT. We're targeting basically getting to the point where you're raising like $5 million a month.
WMRE: How much of your time is spent like going through the listings? Do you do the conventional home buyer stuff? Or do you have another source to buy your homes?
David Molotsky: We've got a team dedicated to acquisitions that I manage. One of the big, big things that we're focused on in 2023 is just building the funnel of potential opportunities. There is the multiple listing service—you can use technology to really efficiently go through all the listings. Then you have a number of homes that trade off-market, whether that's through pocket listings or knowing a broker who knows who's selling. Another potential avenue is looking at developers who have projects that they potentially want to get out of.
Development is something we want to do more of. We actually have two development projects underway: one right out right outside of Yosemite and one outside of Malibu. There are some markets that they're either underserved by vacation rentals or there are incredible barriers to entry.
WMRE: How do you manage these rentals?
David Molotsky: Leveraging technology is really important. We install smart home technology in every single home that's on our platform. Guests manage their stay completely through an app where they can unlock doors, turn the lights on and off. And we're able to use technology so that we can operate and manage the homes remotely.
WMRE: I'm imagining that you can do the credit check and verify identity where they hold their drivers license up to their phones camera and take a picture?
David Molotsky: Yeah, they can do all that with our app.
WMRE: What are the things that a wealth manager needs to know about your REIT?
David Molotsky: It's a 506C offering, so it's for accredited investors only, today. One of our big goals is providing access to as many investors as possible and really democratizing access to this really cool asset class. So, over the course of the next year we're hoping to eliminate the accreditation requirements and ultimately create more of your traditional non-traded REIT where anyone can invest with a $2,500-type minimum.
WMRE: What yields are you expecting?
David Molotsky: From a return profile we're targeting 8 percent annual dividends 14 percent total returns.
WMRE: How much have you raised so far?
David Molotsky: Like I said we just launched very recently. We're seeing a good early signal in terms of fundraising. We've raised about a million and a half dollars in equity. It's basically all high-net-worth individuals so far.
WMRE: If they need to get their money out, how fast can they?
David Molotsky: We do offer some redemptions, limited to 5 percent annually. Our redemption schedule is very consistent with other (non-traded) REITs.