Common + Habyt

Some retrospective and forward-looking thoughts on Common and the future of the coliving sector.

Earlier today, the Wall Street Journal announced the merger of Habyt—the largest coliving operator outside the US—and Common, the largest operator within the US and the company I founded in 2015. Common will continue growing and operating its portfolio as before, and I couldn’t be happier to see these two great companies come together.

I started Common eight years ago to create better places for people to live. Today, Common has designed and manages thousands of housing units in the United States while expanding beyond its coliving origins to workforce housing, family-oriented apartments, and more.

But the job isn’t finished, and this merger will only give Common more resources and reach to achieve its vision. Renter households continue to face rising cost burdens, while real estate owners and developers struggle with rising rates and operating costs. New housing models are as needed as ever for renters and owners alike.

I am incredibly proud of and thankful for the entire Common team, particularly CEO Karlene Holloman who has done an exceptional job carrying the vision and executing since taking the helm this past summer. I’ve also been incredibly impressed by Habyt CEO Luca Bovone, who has built a global business with strong economics in a challenging macro environment.

Roof deck at Common Beverly in LA, this one done in partnership with the wonderful folks at Category Company.

Given my role in the coliving sector over the past eight years, I’d like to share a few retrospective thoughts on building a leading coliving operator as well as the likely path forward for the industry in the years to come.

Scale is key to unlocking operating leverage

Successful real estate operations don’t just execute their business model well, they do so at the right scale. Real estate developers with ownership and GP interest may benefit from operating at a smaller scale with one or two sites under development, particularly at the proof of concept phase. Many of Common’s partners do this well, focusing on one individual project before moving onto the next.

But third party managers and brands like Common need to get to scale quickly once the operating model is established. More units under management unlocks greater investment in technology and operations, making the entire organization more resilient and effective.  Redundancy in field operations is particularly essential and can only happen with a certain scale in any given market. Going from two maintenance technicians in a neighborhood to four makes everyone’s lives easier and is a better renter experience.

This is a major driver behind consolidation in both the coliving and STR markets. Both business models get much, much stronger with greater operational scale.

… but scaling physical community is a Very Hard Problem.

Fairly early on, we decided that Common would be a utilitarian product first and foremost: living at Common would be friendly and social, but it wasn’t an intentional community. The events were there for people who wanted to participate, but we didn’t ask Common residents to commit to a set of shared values or principles.

We made this decision for a few reasons. One, the majority of people seeking us out were doing so because we offered great value: a nice, well-managed apartment or room in a good neighborhood at a reasonable price. Fewer than 10% of our applicants cited a desire for community or new connections as the primary driver for renting with Common. Furthermore, community-focused ad copy achieved the worst results across multiple media and platforms.

That’s not to say people didn’t want to be social; events still got resident interest and attention. But it wasn’t a primary selling point.

In addition, there aren’t many good examples of physical communities operating at any kind of scale that don’t devolve into bureaucracies or cults. Even relatively small co-housing communities—of which we visited a number in the early days of designing Common—required a level of effort and engagement from residents that would be off-putting to most renters:  think an HOA on steroids. “Community” was a headline value proposition of many coworking brands in the early days; since, almost all have pivoted to managed office space for enterprise clients with the social aspect taking a back seat.

Coliving is increasingly integrated with multifamily.

Five years ago, most coliving projects were standalone assets: a developer built 20, 50, or 100 coliving rooms in one project. Today, the majority of developers are blending those units into much larger projects, achieving the differentiation and NOI gains of coliving while creating a more diverse, resilient, and financeable asset.

While not a Common project, PMG’s X Miami was an example of this working well. While only ~30% of the units were coliving, those units helped differentiate the asset and lift NOI. The asset sold in mid-2021 for a sub-4 cap rate, demonstrating the success of the blended unit mix model.

X Miami, one of the first institutional-scale coliving / multifamily hybrid assets to trade. It was acquired by Rockpoint in mid-2021.

Diversification is also essential to addressing the operational scale challenge mentioned earlier. Achieving a reasonable scale when every unit needs to be built from scratch is very time-consuming and challenging. Owning and operating larger projects with a mix of units—coliving, studios, and larger apartments—is critical to achieving operating leverage.

Real estate is not an efficient market; opportunities abound.

Many in real estate would have you believe that it’s an efficient market and all the good opportunities are picked over. I don’t think that’s the case at all, particularly for operators and investors that don’t need to deploy cash at a Blackstone-level scale. 

A few months ago, I started writing a newsletter series called Thesis Driven that dives deep into emerging real estate themes. We do this by profiling a handful of GPs executing on each theme with a meaningful analysis of their strategies, capitalizations, and returns. Since our first letter in September, we’ve discovered a wide array of models and opportunities: GPs converting offices and hotels to apartments, using ADUs to build student housing, leveraging big datasets to select development sites, making investments across PropCo and OpCo structures, and much more.  

There are a lot of opportunities yet to be found, particularly for small, agile operators!

It really is all about the people.

While it may be obvious to some, it’s worth repeating: recruiting and retaining great people is key to building an operating business. Common wouldn’t have gotten where it is today without having a great team. And at scale, it’s not just about picking great people, it’s about creating a machine—culture, processes, and systems—that will ensure that great people make their way into all levels of the organization.

Without question, this is more difficult to scale than pure software.  But it’s a worthwhile challenge, and the end result—creating and running homes that people love—is a powerful one.

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I’m thrilled to see what Common and Habyt are able to accomplish together. Innovation in the built environment is more needed now than ever, and this combined team and organization is well-positioned to make magic happen.

yours,
Brad Hargreaves