Common Co-Living

NYYCRE's picture
Rank: Gorilla | banana points 631

Anyone here know anything about this new co living firm? Also what are your guys thoughts on co living?

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Comments (44)

Feb 21, 2019

I'd say they are one of the better co-living companies.

Array

Feb 21, 2019

Hi,
Co-living is one of the newest ideology which is welcomed among people. In my point of view, Co-living is a brilliant idea which can develop a friendly neighborhood and even help people to earn a few bucks too!

    • 13
Feb 21, 2019
mike47946:

Hi,
Co-living is one of the newest ideology which is welcomed among people. In my point of view, Co-living is a brilliant idea which can develop a friendly neighborhood and even help people to earn a few bucks too!

Lol clearly this guy has a dog in the fight. Strong first post.

    • 3
Feb 21, 2019
NYYCRE:

Also what are your guys thoughts on co living?

I think it is interesting but incredibly niche. Student housing for young adults, essentially.

    • 1
Feb 22, 2019

'Student +' as some call it here.

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Feb 21, 2019

I'm skeptical it will take off in any meaningful capacity because

  1. The Capital Markets will not understand or underwrite deals to the benefit of co-living
  2. It's incredibly niche - it's only attractive to a certain age group
  3. From an interior design/construction perspective, i wonder if it's best to build co-living to spec, rather than retrofit existing MF into co-living type environments
  4. I also believe that since it involves tenants and physical space, there will be a lot of hurdles for adoption.
  5. Not an expert on zoning, but does zoning allow this for the total addressable market?
    • 1
Feb 21, 2019

I work with a few developers in this space.. Most clients are building co-living to spec. The city sees the unit as a 6BD/6BA condo (whatever the max zoning allowance for bedrooms per unit is) however the units are built more like 6 individual studios with some common space. The returns on these are KILLER compared to standard multifamily rents. Like 2x the $/sf compared to a traditional apartment building. There is insane demand for this type of product especially in high COL areas like the Bay Area and there is a lot of money being invested into this model.

Many people I've talked to see coliving as the future of housing as an increasing % of the workforce in certain areas will likely end up being renters for life.

Most Helpful
Feb 21, 2019

Agreed that the rent per square foot is killer. However, who are the long-term tenants for these? The way I see it, the co-living spaces are great for a recent college graduate who is moving to a new city and doesn't have any friends or a significant other to live with. For those people, living in a co-living space is likely the best bang for their buck.

For those who have potential roommates (friends or a significant other), they would choose to live with them in a traditional apartment since the quality-of-life relative to the cost is much better.

    • 4
Feb 21, 2019

Could you share who these developers are? I'm curious if they're some of the more common MF developers you'd see around high COL cities.

I'm not surprised about the high rent PSF generated. But this model sounds like the expenses are much higher, including marketing and turnover because of all the churn. Have you seen the returns or is this just a "sense" that the returns are really high based on seeing really high PSFs relative to the market?

Feb 21, 2019

As someone that lives in a coliving appartment, I can attest to the spread between what is paid by the coliving tenants and what can be attained in the open market. I live in a 3 bedroom apartment. Three rooms are individually rented out. All three tenants pay $1000 each. From my perspective its a win because for $1000 I will not even get a studio. Here I get a furnished apartment, my own room and bathroom (many co living communities take an existing apartment and when they renovate it, they try to squeeze in an extra bedroom or bathroom even if its tiny), landlord sends cleaners to clean the place twice a month. From the co-living developer's perspective, its a win because for a similar three bedroom, the rents in my neigborhood are typically $2500-2700 if its rented as one unit.

    • 2
Feb 22, 2019

Co-living is a good business model in very select Tier I markets (New York City, San Francisco, etc). Thereafter, the business model tends to breakdown as people gravitate towards more traditional apartments (why would you not?). Lastly, there have been zero exits to date in the United States. The last I heard brokers are adding 25 - 50 bps on the exit cap rate as the lease durations are shorter and lower quality tenant. The increase in NOI is somewhat negated by the higher exit cap. Lastly, co-living has higher construction costs PSF than traditional multifamily.

Personally, I'm a fan for very high COL cities like New York City, San Francisco, Seattle and maybe a few other cities. It makes much less sense in say a Dallas or Houston. These companies are somewhat limited in where they can operate.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Feb 22, 2019
Feb 21, 2019

The question is, what was the investment performance in that exit? I think that's the most pertinent question.

I have a debt broker buddy that dealt with a deal that had a master-lease assigned to something like 30% of a 300-unit project in a Tier II city (think like an Austin/Dallas/Miami/Portland). He said it was pretty tough because most lenders end up with lower leverage/higher pricing, also negating some of the extra revenue received.

Feb 22, 2019

Allow me amend my earlier statement, there have not been any exits in the United States. I'm not surprised there has been an exit in Europe given the density and challenging development environment. I'm much more bullish on the potential ubiquity of co-living in Europe as opposed to the United States.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Feb 22, 2019

Allow me amend my earlier statement, there have not been any exits in the United States. I'm not surprised there has been an exit in Europe given the density and challenging development environment. I'm much more bullish on the potential ubiquity of co-living in Europe as opposed to the United States.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Mar 4, 2019

They keep refering to it as a scheme, and makes it sound shady.... Anyhow a 4% yield, by that I am assuming that is a cap rate?

Mar 12, 2019

Found this project in Miami:

https://www.bisnow.com/south-florida/news/commerci...
Looks like they are expanding in lower tier, but still very burdened markets

Feb 22, 2019

Odd - Miami is not that expensive for rentals and there's massive amounts of multifamily supply coming online in Midtown/Wynwood area. Property Markets Group recently opened their X Miami, but very well-located in Downtown Miami with all the amenities one could ask for...

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

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Feb 22, 2019

I personally think it has a place in the market if done right. See too many schemes with as many rooms bet into a small space as possible without building on the community aspect that I think necessary for the business model to work.

Feb 22, 2019

Do any of you guys have experience with Bungalow? Co-living company I just learned about. Looks like they have good deals but I'm skeptical

Edit: speaking from a tenant perspective. If anyone has a co-living company they used and enjoyed let me know.

Feb 22, 2019

I've heard mixed things about Bungalow. Message me for details I'd rather not post pubicly.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Feb 22, 2019

I think co-living has a nice outlook in 'gateway' markets. I think the experience for tenants will get old quick however, so I'd underwrite higher turnover compared to traditional multifamily.

I like upscale hostels more than co-living. People usually travel in groups and spend very little time in their actual hotel rooms on vacation.

Mar 5, 2019

Turnover will surely be higher, but I think demand for this space (provided excellent walk-ability to city center) will only rise in markets like Seattle, SF, NY, LA, etc...

At the low end of the rent spectrum, renters aren't as sensitive to RRPSF - they are paying attention to RRPU while maintaining the same walk-ability. New multifamily development has become absurdly difficult in these markets due to out of control bureaucrats who have little to no understanding of economics. Unless building codes, rent restriction requirements, and municipal fees change, no obtainable housing near city center will be able to be developed.

If high-paying tech and finance jobs continue to centralize in these markets within CBD, prospective employees will have no choice but to lease these units if they want to avoid ridiculous commutes.

Feb 23, 2019

So I have significant experience in the space. I have worked on a bunch of Co living transactions. The real money is in value add transactions and not ground up deals. You buy an existing assets and can really jack up the NOI/per sqft. As someone noted before that max leverage is reduced but in these markets cap rates are so compressed that you end up with 10-15% higher leverage on these deals.These deals do make money but there isnt a real liquid market on the sell side for these assets so it's a long term play.

    • 1
Mar 5, 2019

Does the value-add strategy involve demising larger units into sub-units? How necessary is bed/bath parity? Any color on planning/zoning challenges?

Feb 21, 2019

Interested in this as well

Feb 22, 2019

Largely, it needs to be highly customized (read as ground-up development or floor gutted) for their purposes. I've heard a few have gotten creative around dividing up traditional units into co-living units where this could be reversed upon sale. High COL cities are very very amenable to the business model as more density and cheaper rents to assuage the affordability crisis.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Mar 5, 2019

Test

Mar 11, 2019

The Collective, based in London, is working on several projects in the US, three of which are in Brooklyn. Their focus seems to be ground-up rather than retrofitting. They're looking to grow geometrically in the next few years but that may be too aspirational.

Agree the space is still very new but curious who are the takeout lenders for a construction loan. Perhaps with minimum 3 years seasoning CMBS could be the answer, but not sure about that. High tenant turnover is a concern but mitigated, I think, if overall avg. occupancy remains steady. Curious what downtime length between tenants is and whether high turnover also leads to high maintenance expense. You'd think so.

My concern is that if the concept doesn't succeed, co-living properties can't be readily converted to standard multi family.

    • 1
Mar 5, 2019

I bet debt funds will fill the space. Maybe T + 300-400bps... I'm sure Fannie/Freddie will get into the game soon too...

Mar 11, 2019

Pricing sounds tight for an untested product

Mar 12, 2019

From an architectural/design perspective, are there any case studies floating out there? A few people have mentioned the trouble one might have converted to standard multi-family. I'm wondering if this model could be done with semi-traditional multifamily units, or do you have to fully re-design the unit to accommodate tenants moving in and out.

Mar 12, 2019

As other postings have mentioned, my big concern would be your exit. Pretty sure lenders are sizing their loans for these type of assets as if multifamily rents were going to be cleared. What I do think is a good way to seize demand for this type of property use in gateway markets is setting aside a small portion of the unit count (say, 10-20%) for this type of product, and try to get away with no widening of your cap rate upon exit. Could make a project work where it otherwise would not have.

Feb 22, 2019

Agreed - if you're doing a 100+ unit building, it makes sense to set aside 10-20% for co-living that hypothetically should lease-up quicker than traditional multifamily given the price point. Although, you might be cannibalizing your own Studios at that point ($1,500 for co-living vs. $2,200 for Studio)... I'd jump to the former if the building was highly amenitized and I knew this was temporary (1 - 2 years max).

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Mar 18, 2019

Co-living is one of the newest ideology which is welcomed among people. In my point of view, Co-living is a brilliant idea which can develop a friendly neighborhood and even help people to earn a few bucks too!

Mar 20, 2019

Most seniors nowadays can't really afford to retire. Might be a good idea to make some senior housing facilities into co living spaces.