When hospitality firm Sonder abruptly closed on Monday after Marriott International terminated its licensing deal, guests staying at Sonder properties were told to check out immediately and find alternate accommodations.
What followed was nothing short of “chaos,” with guests refusing to leave and building owners scrambling to secure their properties, according to a lawsuit filed Wednesday by two of Sonder’s New York City landlords.
The Sonder hotel at 2 Washington St. is one of more than 100 across the country the hospitality chain abruptly closed on Monday.
The owners of 2 Washington St. in Battery Park and 37 W. 24th St. in the Flatiron District sued three Sonder affiliates, claiming the San Francisco-based chain indicated it plans to breach its lease contract and asking a New York state judge to grant an injunction that gives the landlords back control of the properties.
The Moinian Group, run by Joseph Moinian, owns 2 Washington, while Fortuna Realty Group, run by Joseph Moinian’s younger brother, Morris, owns 37 W. 24th. Each landlord is seeking at least $10M in damages from Sonder, claiming it violated New York law with its abrupt exit from the buildings.
“As a result of the Defendants’ arbitrary and sudden action, chaos has ensued at the Properties, with certain tenants refusing to leave the Properties despite conditions which may compromise the safety of individuals and the Properties,” the lawsuit states. “In addition, guests and tenants have been left without a place to stay and without access to their belongings.”
Marriott announced Sunday that it had terminated its partnership with Sonder, which was integrated last year into the Marriott Bonvoy platform.
The world’s largest hotel chain emailed guests who had booked rooms at Sonder buildings that they needed to vacate and find alternative accommodations.
The next day, Sonder announced it would immediately shut down and seek to file for liquidation through the Chapter 7 bankruptcy process. As of Wednesday night, no filing had appeared in federal court records.
“We are devastated to reach a point where a liquidation is the only viable path forward,” Sonder interim CEO Janice Sears said in a statement. “We explored all viable alternatives to avoid this outcome, but we are left with no choice other than to proceed with an immediate wind-down of our operations and liquidation of our assets.”
Sonder was founded in 2012 and built a business leasing apartment buildings and hotels and running them as fully furnished short-term rentals. The company raised $600M in venture capital and went public in 2022 at a $1.9B valuation.
It scaled quickly, eventually growing to a portfolio of 12,000 rooms in more than 40 countries, but profits never followed.
It lost more than $200M in each of the past five years. Last year, it told investors it planned to shutter more than a quarter of its portfolio after disclosing that its financial statements going back more than a year couldn’t be relied upon, resulting in multiple class-action lawsuits.
Amid those challenges, it struck a deal with Marriott to bring Sonder into the Marriott Bonvoy booking platform, which also came with some financial breathing room. The integration of Sonder into Marriott didn’t go according to plan, however.
“Unfortunately, our integration with Marriott International was substantially delayed due to unexpected challenges in aligning our technology frameworks, resulting in significant, unanticipated integration costs, as well as a sharp decline in revenue arising from Sonder’s participation in Marriott’s Bonvoy reservation system,” Sears said. “These issues persisted and contributed to a substantial and material loss in working capital.”
Those issues don’t allow the company to break its lease and strand its customers, the landlords claim in their lawsuit. Sonder signed a 10-year lease at 2 Washington in January 2020 and at 27 W. 34th St. in December 2021, according to the suit.
At each building, the landlord claims it is owed no less than $10M based on the remaining rent due on the leases. Sonder is also obligated to mitigate damages to the landlord and the property in the event that it defaults on its lease, according to the suit.
“If not immediately addressed, such safety issues, impairment of ability to mitigate damages, and damages to the Properties may quickly escalate exponentially,” the lawsuit says.
The Moinians are seeking permission to terminate Sonder’s leases and take immediate control of their respective buildings.
Spokespeople for Sonder and the Moinian Group didn’t respond to Bisnow’s requests for comment. Attorneys for the landlords declined to comment.