We live in an inauthentic world of PR spin, and the vacation rental industry is no exception. We brag about successes and hide failures. And with considerable media attention and millions of dollars flowing into our sector from venture capitalists and private equity firms, it has been exceptionally easy to focus on our industry’s high points, high valuations, and reported exponential trajectory. In contrast, we don’t often take the time to examine the many difficulties experienced by founders in the sector.
Over the past two years, we watched channel management company LeisureLink shut down operations with significant debt after it raised $42 million, read recent reports of metasearch platform Tripping.com’s demise after it raised $52 million, and heard about market-leading vacation rental management company All Star Vacation Homes closing its doors. And these companies are joined by approximately 30 other reports of companies in the industry who have had to throw in the towel on their vacation rental businesses over the past two years. In addition, we’ve seen dozens of others sell their companies in less than optimal conditions in an effort to exit somewhat gracefully.
The story of All Star Vacation Homes (ASVH) has been particularly interesting to vacation rental industry professionals because of its market-leading position and because its cofounder, Steve Trover, served in highly visible industry leadership roles as he built a vacation rental management company many admired. When ASVH permanently closed its doors in 2017—and talk of owners who were not paid began to spread—the vacation rental industry buzzed as one of its most recognizable faces fell from grace.
I sat down with Trover to talk about what happened. As with any tale of difficulty, there are distinct lessons to be learned. And for those who truly know Trover and his undisputed love for the industry, it is not surprising that he is willing to tell his story in hopes of helping other property managers avoid the mistakes he made.
In 1997, Steve Trover and his mother, Sue, founded ASVH as a vacation rental marketing company that worked with Florida property managers to obtain net rates and market Florida vacation rentals to a broader audience.
“We worked with other managers to promote their properties,” Trover said. “We had a strong web presence and it was very profitable. This was in the time before online reviews, and our challenge was a lack of quality control. So we decided to dive headfirst into full-service property management.”
They began focusing on property management and by 2000, the business was growing rapidly. “We began feeling like the business was going to be successful very early on as we started with essentially no start-up capital,” Trover said. “Once we hit 150 properties and about 35 employees, it was really taking off.”
“I can’t say I ever had a love for operations, but I was laser-focused on providing the very best product and service, which I believe we did for many years,” he continued.
Despite travel challenges related to 9/11, flooding in 2003, several hurricanes in 2004, and the Great Recession, ASVH continued to expand and soon became known as one of the premier vacation rental businesses in the highly competitive Orlando area.
ASVR had a strong real estate arm and spun off a side business named Beyond Furnishings, an interior design company, only adding properties to the company’s inventory they had sold and furnished. “Until the recession, our model was to sell the house, furnish it, and rent it,” Trover said. “Our interior design company, Beyond Furnishing, furnished 500 homes in the Orlando area. Our secret sauce was to have more control over the physical product, and we think we did that better than most for a lot of years.”
The industry took notice, and Trover became a respected leader and passionate promoter of professional management. Trover joined the board of directors for the Central Florida Vacation Rental Management Association (CFVRMA), the Florida Vacation Rental Management Association (FVRMA), and the Vacation Rental Management Association (VRMA) in 2008, serving as its president from 2011 to 2013. “At one time, I was on 14 boards and committees,” Trover recalled.
While on the VRMA board of directors, Trover publicly advocated for several initiatives including the PBS television series Getting Away Together, a hefty public relations campaign and online marketing initiative to promote professional rental management, and the ill-fated Switch, a connectivity platform and distribution channel designed to aggregate professionally managed rental inventory and leverage the collective buying power of suppliers to work with OTAs for manager-friendly branding, access to customer data, and reasonable commissions and fees.
In addition, Trover consulted with a property management software company and rental management companies and hosted and visited hundreds of property managers to share information. During this time, Trover remained as the hands-on CEO at ASVH.
Over time, Trover became increasingly less passionate about the operations side of the business. He found the dual-mission business model to be especially challenging. “This is a business where you serve multiple masters, the primary being the guests and the owners,” Trover said. “As a servant leader I also counted the team members as a constituency—and then there was our dedication to the industry. That said, there was a long period when I enjoyed that challenge.”
Expansion to Other Destinations and Purpose-Built Development
In 2012, ASVH expanded into Captiva, Florida, and purchased a company in San Diego in late 2013, which grew to the company’s inventory to 350 homes under management.
“Like others, I thought because we were highly successful in one destination, we could easily replicate that success in another,” Trover said. “It wasn’t that simple.”
While expanding into new destinations, directing new initiatives as VRMA president, and consulting with vacation rental companies, Trover ventured into a new area: purpose-built homes.
Trover recognized the need for standards in the industry and studied the hotel model in which there are builders/developers, management companies, and marketing arms.
Trover believed it was possible to mirror models used by Hilton and Marriott, who often design, develop, and build properties; hire management companies for operations; and handle the sales and marketing services for properties. He worked on precursor developments and made the decision to take on outside investment to create Fullhouse, a purpose-built development company that would design and build inventory specifically for short-term rental use.
“We had been working with builders and developers for years with a ton of success, but they wouldn’t listen to all of our advice,” Trover said. “When we built our very first truly ‘Purpose-Built Vacation Home,’ leveraging data and what we called ‘Guest-Influenced Design’ (both were ASVH trademarks), I knew we were onto something huge. We built 25 of them, ranging between 7 and 14 bedrooms, and they were revolutionary. They made the owners money, made the company money, and the guests were raving fans.”
With its new, stronger vision, ASVH added some highly paid executives to the team with the goal of proving the purpose-built model and expanding into additional markets. “This business is all about great people, and we added an amazing team,” Trover said.
ASVH’s Cash Flow Challenges and the Sale of the Business
By late 2014, ASVH was stretched thin with multiple business extensions, expansion into new markets, and large investments into Fullhouse. The diversification diverted focus from the core Orlando business, and with large resources committed to Fullhouse, cash flow became more of a challenge.
Some of the challenges stemmed from prior difficulties during the recession. “The Great Recession took its toll on us like everyone else,” said Trover. “And in 2014, [cash flow] started to become a significant issue when deals we had in the works at Fullhouse fell through. We attempted to power out of it and were able to do so to some extent, but it certainly reduced our resources. That’s why we looked at options to sell the business.”
“There is the old business axiom that ‘cash is king.’ When you run out, the music stops,” said Trover.
With mounting debts, several layoffs, and decreasing funds, while looking for a buyer, Trover still believed the business could be saved. “We had an exceptional team, and I truly believed we could still turn it around,” added Trover.
“Like many entrepreneurs before me, I was willing to pay them before I paid myself because I felt they were worth it.”
Trover was guest-centric in his approach to the cash flow challenges. “It was my number one priority that guests did not arrive without a place to stay. In some cases, as things got bad, we rented homes from other management companies to accommodate guests. Our guests worked all year for their Orlando vacation, and I could not have families bring their children down and not have place to stay.”
Trover eventually found a buyer in 2015, an ASVH homeowner of several large vacation homes who agreed to purchase the business with a commitment to a line of credit that would offer enough runway to put ASVH back on track.
The situation had personal consequences. “At the time we sold the business, I had several family members in the business including my parents, my sisters and my brother,” Trover said. “My wife and mother of my four children, who had been running our vacation home interior design company, was diagnosed with an aggressive form of breast cancer the year prior and was forced to stop working.”
“To say it was a difficult time would be an understatement,” Trover added.
Within a year, the new owner wanted out. He contacted Trover and gave him and his mother an ultimatum, they could either take the business back or he was closing the doors—which meant employees would not have jobs, guests would arrive with nowhere to stay, and owners would have no chance to receive funds.
“We were given an ultimatum by the new owners: Buy it back or it would be immediately closed,” Trover said. “They had purchased it to leverage it for a large project that was not coming into fruition. It was an exceptionally difficult decision. If we did not buy it back, all employees would immediately lose their jobs. Owners and vendors would receive nothing, and guests would have shown up to find they had no property to stay in.”
Trover felt like his back was against the wall, and in a gut-wrenching move, he decided to take the business back.
“I have seen this play out several times and even though it was no longer our liability we couldn’t let it happen,” Trover said. “The company had been cut down to a fraction of its former self. We knew it was a long shot, but we had to try and make it work.”
Ultimately, a come-from-behind success story was not in the cards for ASVH. In 2017, the company permanently shut down operations and began the painful process of dealing with the aftermath.
Having to close the business, especially with extensive debt, was a hard blow for Trover and his family as he had built what once was a respected business, industry relationships that had evolved into close friendships, a public role as an industry advocate, and a reputation for being successful. But with four children to set an example for, Trover is not sitting still. His love for his family and the industry drives him forward, and he wants to use his experiences, with all their ups and downs, to help other vacation rental professionals.
Ideas and Innovation versus Focus
The vacation rental industry is full of shiny opportunities, with new markets and models. Trover admittedly saw opportunities in many areas and identified solutions to challenges facing the industry. And to his detriment, he often saw them too early. However, the truth he found is that chasing one idea meant diverting focus from another, and the scarcest resource that vacation rental industry innovators have is time.
“This business [property management] requires 100 percent of our focus,” Trover said. “While there are a lot of innovative and exciting things to do, property managers have to decide if these things are the right thing to do for their business. Then they have to decide if they have the resources to succeed.”
“This was also true for us at VRMA while I was president,” he added. “If we had picked one or two of our initiatives to focus on instead of trying to solve the problems of the entire industry, we would have found greater success during that time.”
Risks in Expansion
With a growing number of multi-destination vacation rental managers reliant on external funding, it is tempting to jump into expanding new markets.
Upon hearing the ASVH story, I had to ask: “If you could go back in time, would you have expanded to Captiva and San Diego?”
“No, I would not, and I advise colleagues and clients on that regularly,” Trover said. “So many of us want to be that big brand with dozens of destinations. Like others, I thought because we were highly successful in one destination, we could easily replicate that success in another. It wasn’t that simple. Just because you are a rock star in one destination, it doesn’t mean you can easily replicate that success in a tight market. Whether you use an organic growth approach or an acquisition model, it’s harder than you think to expand. I am sure a multi-destination company will eventually figure out the formula, but for all the attempts there have not yet been significant successes.”
When Trover talks to other managers considering expansion, he asks two questions: Have you maxed out your destination from a market share perspective or is there more you can do to gain inventory in your own market? And do you have the resources for this to fail in the new market for five years?
Trust Accounting: An Industry-Wide Best Practice
Only a few states legislate a business practice called trust accounting that requires vacation rental managers to hold rental payments received from guests in escrow accounts to be distributed to homeowners after guest check-in or departure (depending on the state). The practice of trust accounting protects the funds owed to homeowners by prohibiting managers from using guest payments as operating cash.
Even though most states do not require this process, Trover regrets that he did not implement trust accounting and believes that while it cannot be legislated overnight, it should be a best practice for vacation rental managers. “When I consult with clients today, it’s one of the first questions I ask. I think there is a need for a federal mandate or at minimum, state laws similar to those in North Carolina in this regard,” Trover said.
Besides providing accountability, trust accounting—when utilized by a state or market—builds a barrier to entry for new, less responsible businesses. As Trover pointed out, in North Carolina’s Outer Banks where trust accounting is required, the reason there are several large management companies instead of dozens of small companies is that the trust accounting requirements are burdensome for fly-by-night operators. And the greatest benefit is for guests who then work with experienced managers who have established, solid businesses and guest services. In addition, markets that require trust accounting are far less reliant on OTAs for bookings.
“From my experience, being able to ‘sleep at night’ is what shapes markets….and it is why there are so many big companies and not a ton of smaller ones in North Carolina. The barrier to entry in North Carolina is more difficult. I think the quality of properties and services where there are more requirements is higher—the companies and bigger, and there are fewer small fish who lack experience.”
“While I am not a proponent of heavy legislation, I believe Florida should work toward requiring trust accounting by vacation rental management companies,” added Trover. How do we get to that? It’s a bad math problem…it is very difficult for a 100-unit FL management company to get there, especially if they are upside down, and too many are. To be fair, we would need a three-year runway.”
Trover believes that developing homes purposely built for vacation rentals still has a future.
“What went wrong [with Fullhouse] was we never scaled this into communities as we had planned to,” Trover added. “We came very close multiple times, including the purchase of a land parcel from Disney. I still feel very strongly that this concept will survive and thrive, and we will see vacation rentals designed and developed that achieve the highest returns and the happiest customers.”
In the vacation rental industry, we are now seeing signs of development and funding for purpose-built vacation rental communities.
The vacation rental industry is rapidly evolving and margin compression is becoming more of a challenge for managers. According to Trover, when managers take their eyes off the core business for expansion, new models, or personal reasons, it is easy to fall behind.
“For 17 years, ASVH was a leading company in Orlando and respected around the U.S. It was only in the last few years that things got challenging.” Trover said. “As many seasoned managers know, it is easy to have a great business for a short time and much harder to maintain success over the long term. When you are successful, it is easy to think it is going to just keep going, but this industry changes.”
Know Your Strengths and Ask for Help Sooner Than Later
As Trover explained in our discussion, not everyone who starts a vacation rental management company—or any business—has a financial background.
“Get help quickly,” he said. “As entrepreneurs, we think we can fix the problem we caused. However, it is unreasonable to believe that the thinking that caused the problem can solve the problem or, in some cases, even identify it.”
According to Trover, one of the challenges is that when a company doesn’t have strong financial controls, they don’t even see problems when they start to have them.
“When you see your balance sheet going down, and the cash flows depleting, you have a problem,” said Trover. “But when you start having difficulty paying owners or making payroll, it is a catastrophic problem. My advice is don’t wait until you get to that point. You must have backup funds in this industry. There are too many variables—weather, the economy, etc. You can’t control everything. Strong financial controls are rare in our category, and so many of us don’t have that background. If you don’t have a finance background, you better go find it.”
Be Smart When Looking for a Buyer
When it is time to sell, finding the right buyer may be more challenging than expected. Trover shared, “Unless you are willing to walk away and not care about the business moving forward you need to view the search for a buyer like you search for a partner. They are going to take what you built and make changes. Try to find a buyer that has similar values to yours.”
As Trover mentioned earlier, many members of his family were involved in the business and the effects of the company’s closure were widespread. However, they have held together in the hard times and stayed true to their love of the industry.
“My family is resilient, and they don’t stay down,” Trover said. “My brother is in operations at another VRM. My sisters started their own company leveraging their experience in the space and my parents are semi-retired. I’m proud to say that my wife is now a four-year cancer survivor and doing great as a third-grade teacher. I’ve gone from running multiple companies to focusing on consulting. With two decades of experience, both good and bad, I know I can make an impact.”
To Wrap Up
It is easy to tell a success story, but much more difficult to talk about the hard times. However, as many of us who follow the vacation rental industry closely know, there are more management companies struggling with changes to the business than we are able to discuss.
In closing, I asked, “If you could go back to 2012 and have a talk with your former self, what would you tell that guy?”
Trover replied, “I would remind me what a wise businessperson had already said years prior: ‘Son, you may think you are superman, but you don’t have the cape. Pick one thing you can be world class at and focus on it.’”
Look for more on this story in the upcoming fall issue of VRM Intel Magazine.