With America’s major cities dealing with a shortage of affordable housing and steadily climbing rents, a slew of companies have entered the “co-living” space in recent years. Taking cues from the “co-working” phenomenon exemplified by WeWork, they’ve looked to build community-oriented living arrangements and shared living spaces, at prices that are more affordable for urban millennial renters.
New York-based Common, which launched in its home town in 2015, claims to be the largest co-living operator in the U.S., with 700 beds in 25 properties across six cities. And it’s now plotting its largest expansion yet, Fortune has learned. Common is teaming up with real estate developers in Philadelphia, Atlanta, Pittsburgh and San Diego on $300 million worth of new properties in those cities over the next three years. The projects will more than quadruple Common’s current footprint—adding more than 2,200 beds for rent across the four new markets.
Common’s current portfolio focuses on high-priced coastal housing markets, including New York, San Francisco/Oakland, Seattle, and Washington, D.C. But the expansion speaks to the broader demand for the concept, Brad Hargreaves, Common’s founder and CEO, tells Fortune. “A lot of the value propositions—the convenience, the shared communities, the amenities we offer—appeal to people beyond just expensive coastal hubs,” he says.
Tenants in a typical co-living arrangement each have their own lease, covering their bedroom and shared spaces in a group suite. In Common’s case, those bedrooms and suites are fully furnished, and the cost of cleaning and maintaining the shared spaces and providing kitchen and bathroom supplies (not to mention utilities and Wi-Fi) is bundled into the rent. Common is able to keep rents lower, Hargreaves says, in part “by densifying these buildings,” putting more units within the same spatial footprint than you’d find in a typical apartment property.
A hotel-style business model
The company’s expansion will involve partnerships with developers who will build and hold most of the equity in the new projects, while Common will serve as “primarily a property management brand and operator,” according to Hargreaves. (He describes the arrangement as “very similar to how the hospitality industry works,” whereby major flags like Marriott and Hilton seldom own the buildings in which they operate.)
Common’s largest plans lay in Philadelphia, where it is planning around 1,000 new beds via $100 million worth of new developments. Common is partnering on those projects with local developers like Elk Street Management, which is at work on a five-story, 72-bed building in the Fishtown neighborhood that is expected to open early next year.
“The story in Fishtown is similar to other cities: we keep seeing rents increase and increase, and it’s gotten to the point where rent growth is outstripping income growth,” says Elk Street principal Paul Horos. Newly constructed one-bedroom apartments in the neighborhood typically start at $1,500 per month, Horos says; the new Fishtown building, known as Common Frankford, will start at $995 a month for a bedroom in a co-living suite featuring shared bathrooms and living areas. (The property, like other Common buildings, will also feature some studio and one-bedroom apartments for rent.)
As both Hargreaves and Horos put it, the co-living model seeks to refine what’s long been a way of life for people living in cities. “What we noticed in the early days is that there aren’t a lot of homes built with roommates in mind, yet a huge chunk of inventory in urban centers were being taken up by people with roommates,” says Hargreaves, who notes that one-quarter of households in New York City are “roommate households.”
And then there are more intrinsic, human considerations, Hargreaves says: “Seventy percent of our members are moving to these cities for the first time.” Common provides co-living tenants with a community app that “connects people based on shared interests.” (It also allows residents to move between co-living buildings in different cities without having to break their lease.)
Beyond Philadelphia, the company is pursuing a $75 million expansion in Atlanta that will bring about 600 beds; another $75 million worth of projects in Pittsburgh that will add more than 300 beds; and $60 million worth of investments in San Diego that will produce another 300 beds.
“All of these cities have scale…they have transit, and they have a really vibrant cultural scene,” Hargreaves says of Common’s selection of its new markets. Those are all important considerations for the company’s tenant base, who have a median age of 30 and a median income of $70,000 per year but can still find city rents to be out of reach.
Common is operating in an increasingly crowded field, with WeWork’s WeLive venture already established in New York and Washington, D.C., and Berlin-based Quarters recently announcing an ambitious U.S. expansion of its own. But Common—which received early funding from Dan Levitan and Howard Schultz’s venture capital firm Maveron, and which closed a $40 million Series C led by Silicon Valley firm Norwest Venture Partners in late 2017—is confident in its ability to differentiate itself from the competition.
“Everyone has a different take on [co-living]; for us, it’s very design-focused, and we really want this to be a home,” says Hargreaves, noting that the majority of Common’s tenants are on 12-month leases. “We try to avoid a more ‘student housing’ look and feel.”
The company is receiving more than 2,500 new applications from prospective renters each week, Hargreaves says. “We’re gonna continue growing,” he adds. “These aren’t the last cities we’re going to announce.”