Can hotel owners and short-term rental operators marry their interests? A legal battle in New Orleans over the famous Jung Hotel illustrates some key challenges.
According to news sources, in 2018, New Orleans real estate developer Joe Jaeger inked a deal to ensure that the millions of dollars he spent renovating 111 luxury apartments in the Jung Hotel on Canal Street would pay off.
After struggling to lease the properties, he turned to Sonder Holdings Inc., a San Francisco-based rental platform that bills itself as an upscale Airbnb and that was rapidly growing in New Orleans. The two local hospitality giants agreed that Sonder would take over the units in the 1920s-era building and operate a “hotel within a hotel,” on the Jung’s eighth through 17th floors.
Four years later, and after dozens of scathing online reviews, the deal has soured. In a lawsuit filed last week, Jaeger asserts that Sonder has damaged the Jung’s reputation and value, costing him untold millions of dollars in lost revenue, by failing to address critiques on the Sonder website describing dirty guest rooms, soiled linens, stained furniture and public safety issues, including gun battles on the property.
The suit is the latest salvo in an escalating dispute between the hospitality heavyweights.
“This points to some of the pitfalls of these arrangements and also for the need to have stricter regulations of short-term rental operators around safety codes,” said Lenny Wormser, executive vice president of HREC Investment Advisors.
The problem, Wormser said, is that platforms such as Sonder do not have the on-site staff of trained employees who can tend to guests expecting an experience similar to that of a hotel.
“Short-term rental people really do not pay attention to the guest services, the guest satisfaction as much as they should,” he said. “You potentially end up with a degradation of the property and after three or four years; nobody wants to stay there.”
The suit also alleges Sonder failed to provide security and that non-hotel guests could gain access to its floors, leading to criminal activity, including prostitution, drug use and high-profile shootings nearby.
“Sonder has allowed the name of the hotel to become associated with several negative events that have tarnished the Jung Hotel name, reputation and value,” Jaeger’s suit says. “Through its disregard for safety and security, Sonder has breached its legal obligation.”
Real estate partnerships like this one often start out great but end up in court. Disputes are EVERYWHERE! And when those things negatively impact YOU and/or YOUR business including bankruptcies, landlord/tenant matters including unlawful detainers, contract issues, nuisance ADA claims and even collections, call in your good guy business litigator, Dean Sperling to resolve YOUR matter with YOUR best interests in mind!
More on the case: