Friday, May 31st, 2019 May31st2019

Sell for More News: Co-living is ready for the big time

Published on May 31st, 2019

Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.

 

I believe demand for co-living buildings, or high-end communal housing, is strong.  The question is…where is the supply?  It turns out there are a number of challenges that co-living landlords must overcome.

Unlike its sister concept co-working, which often involves repurposing single-floor office leases, co-living’s requirements are far more robust. In many cases, entire buildings with shared kitchen and other communal spaces are needed to make it work.

“To scale, you really have to do ground-up development,” said Common’s co-founder and CEO, Brad Hargreaves.

But those in the business claim demand for their services is rising, with more tenants willing to pay for flexible leases and all-inclusive amenities. In 2018, Common said it had more than 14,000 applications for just 700 open beds nationwide.

Debt brokers, meanwhile, say banks and other lenders are becoming more comfortable with co-living, thanks to an increase in returns that can beat out other rental properties.

Lenders interested in co-living are the same firms providing debt for standard rental apartments, student housing and hotels. Their acceptance of the co-living model has steadily increased within the past two to three years.

That shift comes as European co-living companies flood into the U.S. in an effort to build on a concept that has swelled in popularity overseas. However, some remain skeptical about co-living’s viability given American cultural norms.

With the fate of co-living’s growth leaning on new development, the sector could also face the same challenges as affordable housing:

  • A lack of supply constrained by high land costs
  • Strict zoning laws
  • A relatively shallow, though growing, pool of financing options

Co-living residents rent bedrooms in shared spaces, furnished and stocked with virtually anything they would need — from new friends to an array of entertainment options. In return, they pay a premium on a square-foot basis.

As a result, co-living spaces can cost more than a bedroom in a shared apartment. Co-living providers seek to give customers a better arrangement when it comes to the quality of the bedrooms and shared amenities.

Co-living startups, such as Common and Ollie, began small in New York boroughs and have since branched out to do multiple ground-up projects nationwide. European outfits like the Collective and Quarters, meanwhile, have sought to capitalize here in the States on their success at home.

One ongoing question is whether co-living can reinvent the wheel of apartment renting on a scale comparable to co-working’s office leasing impact.

On the other end of the spectrum, the We Company has shown less confidence in its WeLive division. The co-working giant’s co-living endeavor is one of three businesses under the parent company’s umbrella. But WeLive only two has locations, in Washington, D.C., and Downtown Manhattan, with a third planned for Seattle. That expansion rate that pales in comparison to its core WeWork business.

The co-living trend is asking renters to make a new, different set of trade-offs. Co-living will never be the cheapest option.  But it may put you in the best location, surrounded by people who you consider “your tribe” and provide you with amenities that are life enhancing.  I get the sense that many high performers, particularly single folks, would be more than happy to pay a premium for that lifestyle.

Developers are working through the initial inertia of this new business model now…but they’ll gain momentum soon enough.  And I expect that there will be a co-living building in your community soon.  You heard it here first.

 


Estimate how much your property is worth, for free, before you list it for sale.  Plus get the step-by-step blueprint to sell your property for the highest price the market will pay (click here)


How to get an unfair advantage.  Click here to join Sell for More Club today.


Pop the champagne.  Our clients celebrate when their sale closes…and we supply the champagne.  Click here to schedule a no pressure call to get started.


About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 414.324.4938, 615.603.9770, click to schedule a call or Beau@ProwessIRES.com