Founded in Brooklyn in 2015, Common Living has pioneered a new venture into residential property management: Instead of renting out entire apartments, rooms will be rented out to individuals. Utilities, Wi-Fi and cleaning costs will be included in the rent and the apartments will be fully furnished.
Coliving has since spread across the US and the world, but Common Living’s journey as a pioneer of the model came to an unceremonious end late last month. when the company announced it was filing for Chapter 7 bankruptcy protection and liquidating its assets.. The firm, which operated a portfolio of 5,200 apartments in 12 U.S. cities, now joins a growing list of co-living operators that have gone out of business, leaving questions about the future viability of the model.
In 2023, Common Living merged with Berlin-based rival Habyt, creating a combined company that operated more than 30,000 units in more than a dozen countries. Luca Bovone, Habyt’s CEO, said that while Common’s closure was unfortunate, its liquidation would make Habyt a profitable company.
“This decision, while not what we had hoped for, will make the rest of the Habyt group more financially agile, with a greater ability to accelerate growth and create value,” Bovone said. said Bisnowsite dedicated to commercial real estate news.
Thousands of Common apartments will be transferred to Outpost Club, another giant in the model, which already manages about 1,500 apartments in 40 buildings in New York. The general director of the company, Sergei Starostin, spoke about this. Luck They took over management of seven properties before filing bankruptcy, and this Outpost has its sights set on Common’s 50% stake.
While many co-living companies have gone out of business during the pandemic, Common has been aggressively expanding its portfolio and raising funding. Between 2020 and 2022, the company acquired approximately 5,000 units, and by 2023, it had collected more than $110 million in venture capital. However, in an interview with the publication That The newspaper “New York TimesCompany founder Brad Hargreaves declined to comment on whether Common was profitable or not.
The Outpost Club’s Starostin said he believes the massive funding that fueled Common may have actually contributed to its financial woes as the investments forced the company to expand rapidly in markets such as Nashville, Ottawa and Chicago.
“The Common had to grow very quickly in a lot of places,” Starostin said. Luck, explaining that acquiring one property in a new market requires creating an entirely new staff and marketing operation. “And if you multiply that by 20… the trip becomes quite expensive. I think it just takes longer for this type of business to scale.”
Habyt CEO Luca Bovone spoke about this. Bloomberg that Common’s bankruptcy was related to the company’s contracts and business, as well as increased interest rate pressure.
This is not the first time Outpost has intervened in the management of a former competitor’s contracts. It took a part Bedly sublease agreements in Manhattan and New Jersey when the company closed in 2019, and the same thing happened when the German company Quarters declared bankruptcy in 2021.
Like Common, Quarters failed despite success in attracting venture capital. Live Medici Band raised $300 million for its German subsidiary expand to the US in 2019.
“Venture capital doesn’t do very well in real estate because we see demand growing quite quickly in about 10 or 15 different markets,” Starostin said. “So I think these companies failed because they were pressured to grow too quickly in too many different markets, and that’s very difficult to do in real estate.”
Clara Arroyave is the CEO of Co-Living Cashflow, a platform for buying, selling and investing in co-living real estate. While she said she was upset by the news about Common earlier this month, she also said it was not surprising given the amount of investment that has gone into the company’s expansion.
“When you raise venture capital, you are forced to grow and achieve results very quickly,” said Arroyave, who founded and ran a co-living company in Boston. before he went bankrupt during a pandemic. “And often you are forced to expand the number of rooms, demand or market, and you continue to grow without profitability or with very high overhead.”
Unlike other well-known competitors who have pulled out of the game, Starostin said Luck that Outpost had decided to focus its operations—and expansion plans—in New York, where it had already established staff and marketing networks.
The pandemic has posed a major challenge to the model, and some of its largest operators have closed their homes as many potential tenants balk at living closely with strangers. When Quarters exited, it was operating about 3,000 units and developing another 1,500. 2021 also saw the demise of WeLive, a co-living offshoot of WeWork, and The Collective, a UK firm that had nearly 100,000 housing units in its portfolio when it announced about bankruptcy.
Beyond the pandemic, expansion challenges and high interest rates, co-living companies are having to grapple with issues more specific to their still relatively new approach to housing. Many companies market themselves not as traditional landlords, but rather as platforms for people to find available rooms. Potential renters won’t have to worry about finding roommates to rent a full apartment or rent for a year. Rooms are rented individually and people often stay for just a few months. However, the somewhat flexible and hands-off approach has led to problems in some cases.
In 2022 That Daily Beast reported that some tenants at Common Living properties have complained to the company about safety issues, poor maintenance and potentially dangerous residents living on site. One tenant wrote in an apartment group chat that he was going to set the building on fire, but tenants quoted in the article said Common’s response team failed to communicate or handle the situation in an appropriate and timely manner.
Yet despite the closure of Common and other competitors, Co-Living Cashflow’s Arroyave and Outpost Club’s Starostin said they believe the business model is here to stay. Although the idea of co-living has evolved in fits and starts, the flexibility and easy access to housing that lies at the core of the co-living idea is more than in demand among young renters.
“Young people can’t afford rent, and basic housing conditions—in New York, Boston, Los Angeles—the numbers aren’t going to change dramatically anytime soon,” Arroyave said. “But for co-living to remain strong, the question is, what part of the business model is not working?”
“This step is already there,” Starostin said. “I don’t think this will go anywhere. The only question is who will grow in this market, but the market itself exists.”