The Collapse of Sonder and Its Implications for Hotel REITs and Franchise Models

The sudden termination of Sonder Holdings Inc.'s licensing agreement with Marriott International in November 2025 has sent shockwaves through the hospitality and real estate sectors. This decision, coupled with Sonder's subsequent Chapter 7 liquidation, underscores a critical inflection point for real estate-backed hospitality assets. For investors in hotel REITs and franchise operators, the fallout raises urgent questions about the risks inherent in third-party management agreements and the long-term viability of hybrid residential-hotel models in a post-pandemic market.

Franchise Risk and Investor Confidence in Hotel REITs

Marriott's abrupt termination of its licensing agreement with Sonder-citing the company's default on financial terms-has exposed vulnerabilities in franchise models that rely on brand partnerships, according to a Lodging Magazine report. Sonder's properties were removed from Marriott's booking systems, directly impacting the company's 2025 net rooms growth projections, which now hover near 4.5 percent, the report notes. For hotel REITs, this incident highlights the fragility of revenue streams tied to third-party operators.

Investor confidence in REITs with heavy exposure to franchise agreements has already begun to wane. According to a WRIC report, the termination signals broader uncertainties in franchise agreements, particularly for properties dependent on brand partnerships for operational and financial stability. This is compounded by macroeconomic headwinds, including shifting consumer behavior and economic volatility, which amplify the risk of oversupply and softening demand in the hospitality sector, a 2025 Q3 analysis from A prio noted.

The Long-Term Viability of Hybrid Residential-Hotel Models

Sonder's collapse has also cast doubt on the sustainability of hybrid residential-hotel models, which blend short-term rentals with residential amenities. These models, once seen as a post-pandemic innovation, now face scrutiny over their financial and operational risks. Sonder's Chapter 7 liquidation-triggered by its inability to secure liquidity and its failure to meet profitability benchmarks-reveals the perils of asset-heavy strategies in a capital-intensive industry, a Markets Financial Content article reported.

However, the market is not without alternatives. AvantStay, a competitor to Sonder, has emerged as a case study in successful hybrid model execution. By offering institutional-level support to property owners, AvantStay has helped formerly Sonder-managed properties achieve a 20-30% year-over-year revenue increase and improved guest satisfaction, according to a PR Newswire release. This suggests that while the Sonder model failed due to poor financial management, hybrid models can thrive when paired with robust operational expertise and strategic asset optimization.

Strategic Implications for the Industry

The Sonder-Marrriott saga underscores the need for hotel REITs and franchise operators to adopt more resilient strategies. Key lessons include:
1. Diversification of Brand Partnerships: Over-reliance on a single brand or operator increases exposure to sudden terminations.
2. Operational Efficiency: Hybrid models must prioritize cost control and high-performing solutions to maximize ROI, a PR Newswire release reported.
3. Financial Prudence: Asset-heavy models require stringent liquidity management to avoid the pitfalls that doomed Sonder, a Markets Financial Content article reported.

For investors, the takeaway is clear: real estate-backed hospitality assets must balance innovation with risk mitigation. The collapse of Sonder serves as a cautionary tale, but it also highlights opportunities for well-managed competitors to capture market share in a rapidly evolving landscape.