Coliving in Los Angeles – what you need to know
On Wednesday February 27th, Common, Polsinelli, and George Smith Partners brought together a diverse group of real estate owners, developers, lenders, architects and investors to discuss coliving in Los Angeles. The panel was moderated by Zack Streit from George Smith Partners and included Brad Hargreaves (Founder and CEO of Common), Daniel Pourbaba (Founder and CEO of Proper Development), Jordan Goforth (Director of Ready Capital), Herman Enayati (Partner at Polsinelli), and Rich Littlehale (Co-Founder of Six Peak Capital).
Panelists discussed the thesis and principles underlying the coliving business model, Common’s first coliving home in Los Angeles, and the challenges inherent in the underwriting, development and financing of such projects.
The combination of rising land values in LA and a 20% increase in construction costs over the last 5 years (according to the Turner Building Cost Index), has made it increasingly difficult for developers to build affordable ground-up multi-family projects. Rich Littlehale, Co-Founder of Six Peak Capital, said “You can’t build market rate apartments in LA that are affordable to someone making $60,000 a year [other than coliving].” And considering that 78 million Americans today live with roommates, Common has emerged as the leading solution to this problem, providing affordable workforce housing for renters while providing a premium NOI to developers.
Brad Hargreaves, Common’s CEO, described coliving as a workforce housing product that typically undercuts comparable studio rents by 20-25%. As a result, middle-income workers in Los Angeles are able to live close to work in nice, new-construction units at a price point they’re able to afford.
Many developers, lawyers and financiers are also discovering that developing new coliving buildings is an increasingly less risky investment than building traditional luxury ground up. This is because there’s a large demand from renters (making 80-120% of the area median income) for coliving price points. Littlehale and Pourbaba agreed that a coliving building is less risky than a brand-new building offering 1 bedrooms at a higher price point.
Pricing and operations is also essential. Jordan Goforth, Director of Ready Capital, who has lent on coliving deals, said “Having a good operator is, for us, the biggest thing,” and makes sure that there is a substantial discount in per-bedroom pricing compared to nearby studio and 1-bedroom market rents. Herman Enayati, Partner at Polsinelli, confirmed that an experienced operator is extremely important to ensure that the co-living projects are operated in accordance with local laws and regulations.
Common in Los Angeles
As a trusted and experienced operator, Common entered the Los Angeles market to provide its workforce with an affordable, convenient place to live. Common, based in New York City, currently operates 23 homes across the United States with over 700 members at a 98% occupancy rate. Common receives over 2,500 web applications a week and is focused on increasing its pipeline to meet this demand, setting the ambitious goal of operating 30,000 beds by 2023.
Common opened its first project in Los Angeles, Common Melrose, in partnership with Proper Development, in December 2018. The project, with bedrooms starting at at $1,550, leased up in 6 weeks with over 9,000 applications, proving the renter demand for coliving in Los Angeles. Today, they announced a seven-home, $100 million expansion in Southern California with Proper Development, making the duo the largest coliving operator and developer in Southern California. Over the next few years the partnership will bring more than 600 beds to Los Angeles alone, leading Common’s overall 1,500+ bed expansion in California.
If you develop or own real estate in Los Angeles and want to know more information, please email Amalia Paliobeis, Director of Southern California Real Estate.