Frequent Residing, which was based in Brooklyn in 2015, was an early pioneer of a brand new enterprise in residential property administration: Slightly than leasing out whole items, rooms could be rented out to people. Utilities, WiFi, and cleansing prices could be bundled along with lease—and residences could be totally furnished.
Since then, co-living has ballooned throughout the U.S. and globe, however Frequent Residing’s journey as a trailblazer of the mannequin ended unceremoniously late final month when the corporate introduced it was submitting for Chapter 7 chapter safety and liquidating its belongings. The agency, which operated a U.S. portfolio of 5,200 items throughout 12 cities, now joins a rising listing of co-living operators who’ve flamed out, leaving questions concerning the future viability of the mannequin.
In 2023, Frequent Residing merged with a Berlin-based competitor, Habyt, making a joined entity that operated greater than 30,000 items in additional than a dozen international locations. Luca Bovone, Habyt’s CEO, stated that whereas closing Frequent was unlucky, its liquidation would make Habyt a worthwhile firm.
“This decision, although not what we had hoped for, will make the remainder of the Habyt group more financially agile, with greater capacity to accelerate growth and generate value,” Bovone instructed Bisnow, a website devoted to business actual property information.
1000’s of Frequent’s items are going to be taken over by Outpost Membership, one other large within the mannequin that already operates round 1,500 items throughout 40 buildings in New York Metropolis. Sergii Starostin, the agency’s CEO, instructed Fortune they’d taken over administration of seven properties earlier than the chapter was filed, and that Outpost was focusing on 50% of Frequent’s stock.
Whereas many co-living firms went out of enterprise in the course of the pandemic, Frequent was aggressively increasing its portfolio and elevating funding. It acquired round 5,000 items between 2020 and 2022, and by 2023 it had raised greater than $110 million in enterprise capital. Nonetheless, in an interview with the New York Instances, firm founder Brad Hargreaves declined to touch upon whether or not Frequent was worthwhile or not.
Outpost Membership’s Starostin stated he believed the huge funding that fueled Frequent might have really contributed to its monetary troubles, as investments drove the corporate to increase at a fast tempo in markets like Nashville, Ottawa, and Chicago.
“Common needed to grow in many places very fast,” Starostin instructed Fortune, explaining that choosing up a single property in a brand new market requires constructing fully new workers and advertising and marketing operations. “And when you multiply that by 20…that becomes a pretty expensive journey. My opinion is that to scale this kind of business, it just takes more time.”
Habyt CEO Bovone instructed Bloomberg that Frequent’s chapter was associated to the corporate’s contracts and enterprise, in addition to the elevated strain of rates of interest.
This isn’t the primary time Outpost has stepped in to handle a former competitor’s contracts. It took over a few of Bedly’s sublease agreements in Manhattan and New Jersey when the corporate shut down in 2019, and it did the identical when the German firm Quarters declared chapter in 2021.
Like Frequent, Quarters failed regardless of its success in elevating enterprise capital. The Medici Residing Group raised $300 million for its German subsidiary to increase within the U.S. in 2019.
“Venture Capital is not working very well with real estate, because we see demands to grow in like 10 or 15 different markets pretty rapidly,” Starostin stated. “So I think that those companies failed because they were demanded to grow too fast in many different markets, and that is very difficult to do in real estate.”
Clara Arroyave is the CEO of Co-Residing Cashflow, a platform to purchase, promote, and put money into co-living properties. Whereas she stated she was upset by the information about Frequent earlier this month, she additionally stated it wasn’t stunning contemplating the quantity of funding staked within the firm’s growth.
“When you raise venture capital, you’re pressured to grow and to deliver very quickly,” stated Arroyave, who based and ran a co-living firm in Boston earlier than it went out of enterprise in the course of the pandemic. “And many times you’re pushed to expand your amount of rooms or demand or market, and you keep growing without profitability or having a very high overhead cost.”
Not like different outstanding rivals which have flamed out, Starostin instructed Fortune that Outpost has chosen to pay attention its operations—and plans for growth—in New York, the place the corporate already established workers and advertising and marketing networks.
The pandemic was a severe take a look at for the mannequin, and a few of its greatest operators shuttered as many potential tenants veered away from close-quartered residing preparations with strangers. When Quarters went down, it operated round 3,000 items and was creating 1,500 extra. 2021 additionally noticed the demise of WeLive, the co-living offshoot of WeWork, and The Collective, a U.Ok.-based agency that had virtually 100,000 items in its portfolio when it declared chapter.
Past the pandemic, issues with growth, and excessive rates of interest, co-living firms must grapple with issues extra particular to their nonetheless comparatively new strategy to housing. Many firms promote themselves much less as conventional landlords, and extra as platforms to attach folks with obtainable rooms. Potential renters don’t have to fret about discovering roommates to go in on a full unit, or a yearlong lease. Rooms are rented individually and other people typically keep only a few months. However the considerably fluid, hands-off strategy has led to issues in some cases.
In 2022, the Each day Beast reported that some tenants of Frequent Residing properties had complained to the corporate about safety points, poor upkeep, and occupants residing on website who had been doubtlessly harmful. One tenant posted in an house group chat that he was going to set fireplace to the constructing—however the residents quoted within the article reported that Frequent’s response group failed to speak or deal with conditions in an acceptable or well timed method.
And but regardless of the shutdown of Frequent and different rivals, Co-Residing Cashflow’s Arroyave and Outpost Membership’s Starostin stated they consider the enterprise mannequin is right here to remain. Whereas it has progressed in matches and begins, the flexibleness and quick access to housing on the core of the co-living thought is one thing that there’s greater than sufficient demand for amongst younger renters.
“Young people cannot afford rent, and the fundamentals of housing—in New York, in Boston, in L.A.—the numbers are not going to change dramatically anytime soon,” Arroyave stated. “But for co-living to stay strong, the question is, what is the part of the business model that is not working?”
“The move is already there,” Starostin stated. “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.”
