Will Renters Embrace the Adult Dorm Trend?

Learn how co-living offers the chance to make micro apartments more attractive to urban renters.

April 13, 2016

Coliving apartment complexes—micro apartments with a heavy social layer added on—are sprouting up in big cities where rents have soared. The idea is that millennials seek both affordable living arrangements and friend networks as they make their way from college into the work world.

“Coliving provides an affordable way to settle into a new city,” says Jason Stoffer, a partner at San Francisco/Seattle-based venture capital firm Maveron, which backs Common, a company that operates two coliving buildings in Brooklyn, N.Y. “It also feeds a need for community. Say you move to New York City for a small company, and you don’t know anyone. It’s lonely, and that’s not addressed by [traditional apartment complexes.]”

Other cities seeing this trend include San Francisco and Washington, D.C. The apartments can range from 175-square-foot studios to 550-square-foot one- or two-bedroom units. Rents generally start around $1,800 and can reach $3,500. Meanwhile, the median rent in Manhattan reached record highs in February; studios were going for $2,351 and one-bedroom units were at $3,400, according to data from real estate appraisal company Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

The coliving units are often furnished, including space-saving items such as fold-up beds, and may include maid service. WeWork’s WeLive buildings in New York City and Crystal City, Virginia (outside Washington, D.C.), charge a monthly fee of $125 for cable, Internet service, utilities, furniture, kitchenware, laundry, group activities, a cleaning service, and other expenses.

The idea of bringing housekeeping into units represents part of a trend toward “hotelification of residential spaces,” says Chris Bledsoe, cofounder of Ollie (a play on the term “all-inclusive”), a company that manages a 207-unit coliving building on the Upper West Side of Manhattan and plans to open another in the borough’s Kips Bay neighborhood soon. He says that the exceptional space and services luxury hotels offer to well-heeled guests can be accessible to all.

“We’re saying normal people like this too, and to fund this service we eliminate less-valued space,” Bledsoe says. “You can get housekeeping, Wi-Fi, and furniture in a unit by cutting space. Do you really need dining space?”

Residents often share kitchens and lounges, with social events like potluck dinners encouraged. Common has a small budget for its residents to run these events, and at one of its buildings, tenants established a book club and movie nights.

“This goes hand-in-hand with the sharing economy,” says Brad Hunter, chief economist for Hanley Wood Co.’s housing research firm Metrostudy in Palm Beach Gardens, Fla. “I think it’s a real concept. You have co-working, car sharing, bike sharing, Airbnb. This absolutely makes sense, especially with the affordability issue of renting apartments.”

Millennials have embraced the sharing economy, and they are the ones who have the most problems with rent affordability, Hunter notes. “They want to be in urban areas, and sometimes that is prohibitively expensive.” Also, as they aren’t too far removed from college dorm life, coliving isn’t too big an environmental shift.

But it’s not just millennials who are interested in coliving. Forty percent of Ollie’s Upper West Side residents are outside that demographic. They include recent divorcees, empty nesters and retirees who want to be close to the city’s activities, and long-distance commuters who need a low-maintenance crash pad in the city, Bledsoe says.

Despite their somewhat itinerant profile, tenants have recently surprised some property managers with an eagerness to sign longer-term leases than the usual month-to-month agreements that are common to coliving arrangements. “This winter we offered slight discounts in exchange for a longer stay [of] six to 12 months,” says Brad Hargreaves, CEO of Common. “More than 70 percent of our members took us up on it. That’s great for building a community.”

All of Ollie’s Upper West Side tenants have leases of at least one year, and 20 percent opted for durations of more than two years, Bledsoe says. “It’s not as transient a community as we anticipated.”

What’s good for tenants is apparently good for landlords too. Executives at both Ollie and Common report that the buildings they manage are profitable. “Our investors are very happy,” Bledsoe says. “It’s a sustainable way to do attainable housing.” He notes that just because the coliving units are smaller doesn’t mean that rents have to be reduced proportionally. “The smaller the unit, the higher per-square-foot price for leases. Tenants are paying for performance and functionality. They don’t think about rent per-square-foot.”

There are plans for expansion in the works at WeLive, Common, and Ollie. Bledsoe says that Ollie is even considering partnering with a nonprofit that houses several hundred teachers in Tulsa. The group found that when teachers are housed downtown, there’s a 40 percent retention rate at the end of two years, compared to only 20 percent in suburban locations. “They’re interested in providing a living experience for teachers that makes them stick around longer,” Bledsoe says. He notes that, thanks to the subsidy paid by the nonprofit, “essentially the teacher would pay $1 per square foot.”

Alan Durning, executive director of Sightline Institute, a social policy think tank in Seattle, says that while some cities may resist coliving due to concerns over high-density housing, the opportunities are plentiful. “I think the market is absolutely enormous.”

He views coliving developments as a sort of throwback to the room-and-board houses that were common in big cities around 100 years ago. “You’d rent a bedroom; the bathroom was down the hall, and a dining hall provided meals. It’s interesting that the old style has been re-created.”

Of course, these group living arrangements eventually fell out of style as Americans embraced more individualistic digs. Still, experts say that even if the trend is short-lived, or if an individual coliving project does fail to make money for its investors, it can always be converted into standard rentals. “There’s still huge demand for rental space, and there are other viable models that could be utilized,” Hunter said. “So the risk isn’t too big.”

Dan Weil has worked as a reporter at Bloomberg, Reuters and Dow Jones, where his work appeared in The New York Times and The Wall Street Journal. He is now a freelancer, and his work has appeared in Institutional Investor, CBS Money Watch, Bankrate.com, Slate, The Fiscal Times, The Street.com, The Real Deal, Foxsports.com and Tennis magazine.

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