Common’s Knowledge: CEO Talks 2022 Approach to Coliving, Workforce Housing
Over the past seven years, Common has primarily made its name in commercial real estate through its property management of large multifamily buildings across the country. The New York City-based startup has tried to differentiate itself from the competition mainly through tech-forward approaches to managing workforce housing and, especially, “coliving” apartments.
With coliving hitting peaks and troughs in an ever-changing multifamily market, LoopNet caught up with Common’s Founder and CEO Brad Hargreaves, first to ask how it fits into multifamily in 2022, and also to rewind a bit to understand just what exactly coliving is and why Common is so bullish on it — having more than 20,000 units under management and in development as it partners with not just landlords — but developers as well — on design, conversions and new construction.
In 2022, which multifamily trends are top of mind for Common?
The average size of the deals we're signing has gone up tremendously, and it’s now up to over 200 units per [property management contract].
That’s indicative of us working with larger partners, but also of the increased acceptance of coliving.
Coliving units are being integrated more and more into new projects and that’s been a big evolution that we've watched very closely.
"For us, coliving suites range from three- to five-bedroom apartments in which bedrooms may be 150 square feet, but they have private bathrooms and open into larger-sized shared living rooms and kitchens."
Common CEO Brad Hargreaves
The other big thing we’re seeing, and this has been a secular trend throughout the pandemic, is more and more capital going into proptech [or property technology, the broad application of technology to real estate]. It seems like every week there’s a new and interesting tool pushing the boundaries, and as a manager you need to have your finger on the pulse of what’s available.
We’re also seeing changes on the financing side of construction. We have seen the return of ground-up development in a big way. In the most recent two quarters, we've signed on to around 3,000 new units each quarter. The vast majority of them were ground-up construction. That’s a marked change from the 15 or so months prior to that.
And ground-up is coming back in major urban centers, too, which is great to see. It’s not just traditional multifamily being built, but buildings with innovative typologies as well: we’re seeing more micro-unit models [studio-style spaces around 400 square feet or smaller] and more coliving.
That’s great for us because, for one thing, it’s a lot easier to manage larger buildings where you can get dedicated or even live-in staff in the building, for example, which is very helpful. Overseeing a bunch of 20-unit buildings scattered over a large area is really tough.
Coliving seems to be a kind of buzz word that’s been going in and out of favor. What is coliving, and how does it benefit multifamily owners?
There are a lot of myths and misconceptions about what coliving is.
First and foremost, we look at coliving as a unit type rather than a totally different standalone asset class, in the same way a studio apartment is one type of unit in a building.
You can see this when you look at the new wave of coliving developments. A lot of newer buildings have coliving units, but not many are 100% coliving. Instead, most are mixed, in which 80% of units are studios and one- or two-bedroom units, while the other 20% are designed for coliving.
But what is coliving? For us, “coliving suites” range from three- to five-bedroom apartments. In those units, the bedrooms tend to be as small as 100 to 150 square feet — but they often have their own private bathrooms, and they open into shared, furnished living areas with typical, or even larger-sized, living rooms and kitchens.
With coliving, we tend to be all inclusive of rent and utilities, Wi-Fi, and weekly cleaning of shared spaces, and we provide the kitchen and bathroom supplies.
This is not to say we’re providing a luxury product by cleaning or buying your toilet paper for you. Instead, it’s to mitigate the top reasons [people living together] fight, which are: splitting bills, buying things, keeping the common areas clean, things like that.
If, as a property manager, you can decrease that surface area of conflict among coliving tenants, and you can do so operationally, you greatly reduce the burden on your team.
The increased density also brings in a 20% to 25% uptick in profit versus conventional units. You can do the math: we rent coliving rooms for about a 20% discount to a studio, but you're talking about [three, four or five tenants] an 850-square-foot unit versus [one tenant in a] 450-square-foot studio.
Who is Common typically targeting for its coliving spaces?
As a multifamily owner, you want to be capturing tenants who are going through a life change.
Coliving is a great product for someone who's new to a city. It's a great product for someone who's a little bit earlier in their career. It's a great product for someone going through a life stage change like a breakup or like moving out of their parents' house.
If you’re able to bring those tenants in, give them a great experience and make them feel like they’re part of a community, which may include people who are living in studios and one-bedroom apartments in the same building, they'll stick with you for a long time.
"If we throw a party and five people show up, it's a terrible failure. But if the tenants organize a running club and five people show up every Saturday, that's a success."
Common CEO Brad Hargreaves
Having coliving in the mix creates a lower rung on the ladder for people to get into the building. Once they're in, those tenants often upgrade to a studio or a one bedroom.
We’re also seeing a macro trend of multifamily owners getting more comfortable with furnished units — and not necessarily just in coliving setups. They’re sometimes catering to perhaps a more transient demographic and leasing on three- to nine-month terms.
As long as you're keeping that [short-term rental product] to a relatively small percentage of the units in the building, you don't really get penalized by your lender.
What’s your philosophy around building “community," an aspect of multifamily that seems very hard to get right?
We want to be a facilitator of community. We don't want to be the cruise ship director. So we’re not creating a community through our vision, but giving the tenants tools to do it themselves.
We put tools in the tenant's hands that enable them to meet others in the building if they want to. Ideally, others in the building have shared interests. One of the steps you take when you sign up as a tenant in any Common building is to choose a number of interest areas.
If you’re a runner, for instance, other tenants with that interest might invite you to join a running club.
If we throw a party and five people show up, it's a terrible failure. But if the tenants organize a running club and five people show up every Saturday, that's great. That's a success.
Tell me more about those tools: the ever-changing technology array that is so prolific and sometimes overwhelming in the multifamily market.
You've got to be thoughtful about how you approach proptech.
There are a lot of exciting tools available, but you want a manager who is not thinking about just bolting on new technology, but distinguishing between what’s innovative, interesting and sustainable versus what’s just window dressing.
To start, you never want to bet on unsustainable technology.
An example that I love to cite is how popular iPads were in multifamily buildings around five years ago, when there may have been iPads on all the unit doors, for example. Now, you have a beautiful new five-year-old building that looks like it just came out of the ground with absolutely ancient hardware bolted to it. Today, even the USB ports on them are out of date, and so you need another $500 per key to rewire everything and replace the ports. And you didn't budget for that as a capital expenditure or in your reserve, because you saw it as new technology.
And then there’s integration.
A lot of property managers work on, say, six different systems. They might have a building on RealPage, and 10 other buildings on 10 different instances of Entrata or Yardi and another on AppFolio.
It’s very, very tough to integrate new technology when [the applications you use are siloed].
So in contrast, our investments have first and foremost been in software. It’s much easier to update software than it is to update hardware. I can click a button and roll out an update to software, and it hits all 95 buildings that we manage. For hardware, I’d have to convince 20 different owners to build that into next year's capital expenditures budget.
How do these new applications affect operators and tenants?
We favor technology that improves the renter experience on the back end, as opposed to throwing snazzy new proptech at tenants. We always think sparingly about the technology we put in renter's hands.
That’s because you're going to have different types of renters, with different abilities, across different age groups, or workforce housing renters that have different ways of using technology than urban renters.
So we’ve found that the highest return on technological investments is achieved by putting tech in the hands of our own people.
This involves things like making credit and background checks easier to conduct, facilitating the matching of tenants to units and making building accounting and financial reporting easier and more reliable.
So that's where we're investing. It's less sexy, but in my view, it has better impact, both on the owner and on the renter.
Tenants don't need that flashy tech experience. You have just a handful of features that are really meaningful to the renter such as submitting and monitoring maintenance tickets, paying bills and maybe meeting other renters in the building. Once you go beyond those fundamentals, there’s a diminishing return and you end up trying to compete against other apps on the tenant's home screen.
As a property manager, I don't think that is a winning value proposition.
You're seeing more development, but aren't conversions are hot now, too?
Hotel-to-residential conversions, particularly for coliving, are no-brainers.
You already have the mechanical systems and you already have something that looks like a residential layout.
Leisure travel has come all the way back, but most business travel is still in the dumps. So, there's a great opportunity there to serve residential tenants who don't need as much space, but are looking for convenience and affordability.
Some owners make hotels into hybrid structures with some units operating as hotel rooms and others converted for residential use. Say you have a 300-key hotel, and you take 200 of those keys and convert them to residential units, lowering your operating expenses significantly and generating predictable cash flow. It makes a ton of sense — particularly in central business districts. So we're seeing that strategy play out a lot.
What about the far more tricky office-to-residential conversion?
Yeah, offices are much tougher due to the large floor plates and totally different [mechanical, electrical and plumbing systems], but we're actually seeing (and also working on) several projects.
Offices don't have the mechanical systems you need for residential buildings. You need to run more electrical and more plumbing. The HVAC systems are completely wrong, and you need to redo all that.
But there is potential in office conversions, particularly and ironically, in older office buildings. There are smaller floor plates in an early 20th-century office building versus a mid-20th century office. It's incredibly site-specific.
What about workforce housing?
I'm super excited about workforce housing and our continued expansion into it.
"Opportunities for new construction technology, paired with what we're doing to drive down operating costs on the management side to make ground-up development of workforce housing more feasible, could be transformative to housing affordability in the United States."
Common CEO Brad Hargreaves
A number of our owners came to us after working with us on coliving assets. They said they like the way we manage the property, they like the technology we use and the reporting we provide, and they wanted us to help out with their workforce housing units. Now we manage over 1,000 units of workforce housing, primarily in the Northeast Corridor.
But we have not seen much ground-up development of workforce housing. Most of these assets catering to the workforce housing demographic [loosely known as housing that is affordable to households earning 60% to 120% of the area median income] are existing buildings that are affordable given their of combinations of size, location and age.
So, I'm excited about opportunities for developers to use new construction technologies, that, with what we’re doing on the management side, will drive down operating costs and make ground-up development of workforce housing more feasible. That would be transformative to housing affordability in the United States.
Workforce housing is often in less desireable locations than a mixed-use asset in a CBD. So what do you look for in location?
I think we're going to outperform [other property managers in conventional multifamily markets] and do well in an era in which more and more Americans can work from anywhere.
But it's been tricky over the past 12 months to develop a great macroeconomic perspective with rents going up everywhere. In times like these, you have to go back to the fundamentals when it comes to location.
Look for areas that are located where people want to be. They should be relatively affordable, but walkable — with access to amenities, bars, restaurants, live music, fun places to be and in places with better weather.
We certainly love mixed-use, but a lot of developers are building in areas that may not have nearby amenities like a grocery store bar or coffee shop. In those cases, especially, it’s important that there’s an eye toward mixed-use development so that at least some of those amenities can be situated nearby or even in the building itself.
This interview has been edited for clarity and brevity.
