Flush with an infusion of private equity, a new type of hotel operator that provides home-like space within residential or office buildings is expanding its product line in Chicago, adding space in two downtown properties.
San Francisco-based Sonder said it will provide 92 units in the new Essex on the Park highrise at 808 S. Michigan Ave. and 48 units in a vintage building at 330 S. Wells.
The buildings will join the 130 units that Sonder currently makes available here for short-term rentals. The units are downtown or in popular neighborhoods such as Lincoln Park and Bucktown.
The units might be in a skyscraper with stunning views, a renovated landmark or a neighborhood townhouse with street parking. Unlike with Airbnb, they are not someone else’s home.
Sonder has a long-term lease for each one and is responsible for the furnishings and upkeep. “We don’t offer just one cookie-cutter experience for our guests,” said Ellen Schulz, Chicago general manager for Sonder.
“The type of hospitality product we offer is cutting-edge, and where people want to be,” she said.
Like Uber, Sonder uses a “dynamic pricing” model. A check of its units available here next week showed one- to three-bedrooms listed for from $135 to $265 per night.
The company landed in Chicago in 2015 and has seen growth accelerate, she said. Schulz said several hundred additional units are possible here in the next few years.
With operations in 20 cities around the world, Sonder can talk confidently about expanding because it’s due to get $225 million in a fourth round of private equity funding. Sonder said the investment values the company at about $1 billion.
It said the money is coming from Valor Equity, Westcap and Nickolas Pritzker’s Tao Capital Partners. Pritzker is a former chairman of the development unit of Hyatt Hotels and second cousin of Illinois Gov. J.B. Pritzker.
Sonder competes with other companies such as Stay Alfred and Lyric in an evolving end of the lodging business. Analysts said it is growing because travelers want a hotel’s cleanliness and consistency but with more conveniences such as a full kitchen and in-unit washers and dryers.
Susan Tjarksen, managing director of capital markets for real-estate firm Cushman & Wakefield, said short-term rentals will continue to grow, in part because they can tap into the features of high-end apartment buildings.
“A lot of today’s apartment buildings have become so much more like hotels in terms of services or amenities,” she said. “They have rooftop decks, pools, spa rooms and lobbies with coffee shops.”
For the landlord, assigning some units to Sonder or a similar operation also can greatly increase their income compared with what they can get from a monthly renter, Tjarksen said.
Full-time residents of a building are often leery of more transient guests, but Schulz said Sonder works to minimize trouble by enforcing a “no parties, no pets, no smoking” rule for all units.
In addition, she said the company tries to lease full floors in a building whenever possible to separate its guests from full-time residents. For some locations, Sonder will perform a criminal background check for any prospective lodger.
Last year, Sonder leased the entire 12-story Plymouth Building, a landmark at 419 S. Dearborn St., to provide 30 larger units. It also has taken space in the Jewelers Building at 19 S. Wabash Ave. and the Waterman Building at 127 S. State St., a seven-story building next door to the Palmer House Hilton.
Its new units at 808 S. Michigan are due to be available at the end of the month. The units at 330 S. Wells St., the redeveloped Insurance Center Building, are expected to be offered in September.