The bankruptcy of the pioneer of common coexistence, Common Living, highlights the uncertain future of the model

Founded in Brooklyn in 2015, Common Living pioneered a new initiative in residential property management: Instead of renting entire units, rooms would be rented to individuals. Utility, WiFi and cleaning costs would be included along with the rent, and the apartments would be fully furnished.

Since then, co-living has exploded across the United States and the world, but Common Living’s journey as a pioneer of the model ended unceremoniously late last month when the company announced it was filing for Chapter 7 bankruptcy protection and liquidating their assets. The company, which operated a US portfolio of 5,200 units in 12 cities, now joins a growing list of co-living operators that have disappeared, leaving questions about the future viability of the model.

In 2023, Common Living merged with Berlin-based competitor Habyt, creating a joint entity that operated more than 30,000 units in more than a dozen countries. Luca Bovone, chief executive of Habyt, said that while Common’s closure was unfortunate, its liquidation would make Habyt a profitable company.

“This decision, although not what we expected, will make the rest of the Habyt group more financially agile, with greater ability to accelerate growth and generate value,” Bovone told Bisnow, a site dedicated to commercial real estate news.

Thousands of Common units will go into the hands of Outpost Club, another giant of the model that already operates around 1,500 units in 40 buildings in New York City. Sergii Starostin, CEO of the company, stated Fortune They had taken over management of seven properties before it filed for bankruptcy, and Outpost was targeting 50% of Common’s inventory.

While many co-living companies closed during the pandemic, Common was aggressively expanding its portfolio and raising financing. It acquired around 5,000 units between 2020 and 2022, and by 2023 it had raised more than $110 million in venture capital. However, in an interview with New York TimesThe company’s founder, Brad Hargreaves, declined to comment on whether Common was profitable or not.

Outpost Club’s Starostin said he believed the massive financing that fueled Common may actually have contributed to its financial problems, as the investments led the company to expand at a rapid pace in markets such as Nashville, Ottawa and Chicago.

“In many places it was necessary for the common to grow very quickly,” Starostin said. Fortune, explaining that acquiring a single property in a new market requires developing entirely new staff and marketing operations. “And when you multiply that by 20… it becomes a pretty expensive trip. My opinion is that to scale this type of business, it simply takes more time.”

Bovone, Habyt’s chief executive, told Bloomberg that Common’s bankruptcy was related to the company’s contracts and businesses, as well as increased interest rate pressure.

This is not the first time Outpost has stepped in to manage the contracts of a former competitor. He took over some of Bedly’s sublease deals in Manhattan and New Jersey when the company closed in 2019, and did the same when German company Quarters filed for bankruptcy in 2021.

Like Common, Quarters failed despite his success in raising venture capital. Medici Living Group raised $300 million for its German subsidiary to expand in the United States in 2019.

“Venture capital is not doing very well with real estate, because we see demands growing in about 10 or 15 different markets quite quickly,” Starostin said. “So I think those companies failed because they were required 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 to buy, sell and invest in co-living properties. While she said she was upset by the news about Common earlier this month, she also said it wasn’t surprising considering the amount of investment put into the company’s expansion.

“When you raise venture capital, you’re pressured to grow and deliver very quickly,” said Arroyave, who founded and ran a co-living company in Boston before it closed during the pandemic. “And many times they pressure you to expand your number of rooms, your demand or your market, and you continue to grow without profitability or with very high general costs.”

Unlike other prominent competitors that have failed, Starostin said Fortune that Outpost has decided to concentrate its operations (and expansion plans) in New York, where the company has already established staff and marketing networks.

The pandemic was a serious test for the model, and some of its largest operators closed as many potential tenants turned away from living in close quarters with strangers. When Quarters closed, it operated about 3,000 units and was developing 1,500 more. Also defunct in 2021 were WeLive, WeWork’s co-living subsidiary, and The Collective, a UK-based company that had almost 100,000 units in its portfolio when it filed for bankruptcy.

Beyond the pandemic, expansion issues and high interest rates, co-living companies are having to deal with issues more specific to their still relatively new approach to housing. Many companies advertise themselves less as traditional landlords and more as platforms to connect people with available rooms. Prospective tenants don’t have to worry about finding roommates to live in an entire unit or on a one-year lease. Rooms are rented individually and people usually stay only a few months. But the somewhat fluid, hands-off approach has led to problems in some cases.

In 2022, the Daily Beast reported that some tenants at Common Living properties had complained to the company about safety issues, poor maintenance, and potentially dangerous occupants living on-site. A tenant posted in an apartment group chat that he was going to set the building on fire, but residents cited in the article reported that Common’s response team did not communicate or handle situations appropriately or in a timely manner.

And yet, despite the closure of Common and other competitors, Arroyave of Co-Living Cashflow and Starostin of Outpost Club said they believe the business model is here to stay. While progress has been made in fits and starts, the flexibility and easy access to housing at the heart of the idea of ​​co-living is something for which there is more than enough demand among young renters.

“Young people can’t pay rent, and the fundamental housing numbers (in New York, Boston and Los Angeles) are not going to change dramatically anytime soon,” Arroyave said. “But for coexistence to remain strong, the question is: what part of the business model is not working?”

“The measure is already there,” Starostin said. “I don’t think it will go anywhere. It’s just a question of who will grow in this market, but the market itself is there.”

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