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Common Taking Over Thousands Of Units From Other Co-Living Operators

A Common co-living unit in D.C.'s Columbia Heights neighborhood.

The co-living market struggled last year as the coronavirus pandemic pushed people toward more spacious homes, with at least one operator going bankrupt, so the largest co-living operator is using it as an opportunity to grow. 

Over the last 12 months, Common has taken over more than 2,000 units from other property managers, and it plans to take over at least 1,500 more units the next year, Common Senior Managing Director of Real Estate Amalia Paliobeis told Bisnow

These units are a mix of traditional apartments and co-living bedrooms, which Common defines as individual units even if they share common areas with other bedrooms. Of the units it took over in the last 12 months, 1,668 were traditional apartments and 473 were co-living bedrooms. 

Paliobeis said the company has 5,000 units under management now, with about half of those traditional apartments and half co-living bedrooms, and it is quickly scaling up to an expected 8,000 units by the end of June. 

"We’re continuing to grow exponentially, and we have [a] team that’s ready and working with a lot of different owners to take over traditional assets and also co-living assets," she said. "Were still seeing the aftermath of some of these co-living competitors that have gone under, and we’re still getting those inbound."

The company announced Friday it took over 99 units totaling 239 bedrooms in D.C.'s Union Market neighborhood from one-time co-living competitor Quarters, which filed for Chapter 7 bankruptcy in January. The building at 320 Florida Ave. NE features 318 total units. 

W5 Group, an investor in Quarters, bought a majority stake in the building when the co-living operator signed on in September 2019, and it selected Common this month to manage the units following the bankruptcy. The deal with Common is structured as a management agreement, rather than a master lease as Quarters had structured its deal. 

The Highline at Union Market apartment building, where Quarters signed on for its first D.C. space.

Paliobeis said the management agreement model, a strategy Common had employed before the pandemic, is the reason it is able to grow today while its competitors shrink.

Landlords before the pandemic had favored master leases because it pushed the risk onto the co-living operator, she said, and Common lost out on some deals because it hadn't wanted to do a master lease. But the pandemic exposed the volatility of that model for operators. 

"A few years ago, we made the big decision to really stop offering master leases," she said. "Our CFO at the time was not super happy about the amount of liability on our books."

"We basically said we're not going to grow as fast as some of our competitors who are saying, 'I'm going to give you this amount of money every year and you don't worry about it,'" she added. "That is obviously really risky when something like a pandemic comes around and rents drop in a lot of these cities, and that's why we were able to withstand it, because a majority of our open homes are management agreements."

This dynamic mirrors what has happened in the coworking industry. WeWork, which had grown quickly with lease deals, has scaled back its portfolio over the last year while competitor Industrious, which pivoted to management agreements before the pandemic, is growing and looking to take over spaces. 

"We said 'it's not going to be as profitable of a business, but it's going to be more sustainable and more scalable, because we won't have all this liability on our books,'" Paliobeis said. "That's what you're seeing with some coworking operators like Industrious, they said that as well. It was a little bit the opposite of what some VC-backed companies do is to grow at all costs. We decided to grow profitably instead."

The Union Market-area building in D.C. was one example where Common had lost out on the initial deal to Quarters because it had offered a management agreement, Paliobeis said.

"This is something that has always been on our watch, it's a flagship asset in the D.C. area," she said. "Once we got the opportunity, we reached out and heard a few of the Quarters buildings were undergoing bankruptcy, we checked in and they gave us the opportunity to bid on it, provide a management proposal, and luckily we were chosen."

Going forward, Paliobeis said Common is continuing to grow with management agreements. She also said it is taking over from some traditional apartment managers, and about half of its new units will be standard apartments rather than co-living units. 

The traditional apartment managers Common has taken over units from include Lincoln Property Co., from which Common took over a 268-unit Chicago building, and Gates Hudson, from which it took over a building in Woodbridge, Virginia. 

The company's top growth markets are D.C., Los Angeles and New York, and it is looking at new markets such as Phoenix, Salt Lake City and Atlanta, Paliobeis said. While the pandemic has hurt occupancy for apartments and co-living units, she said Common's metrics are starting to improve. 

"We have over 90% occupancy in our co-living units now, and we're starting to see an uptick, now that vaccines are open to everybody," she said. "We're now even seeing people that have moved away ready to come back."