The Innovators: Common Founder And CEO Brad Hargreaves
In this series, Bisnow highlights people and companies pushing the commercial real estate industry forward in myriad ways. Click here to read Q&As with all the innovators Bisnow has interviewed so far.
Common and its founder and CEO, Brad Hargreaves, have been getting news coverage since the company’s founding in 2015 as one of co-living’s earliest success stories. Now, the company seems like it might be one of co-living’s last survivors.
Co-living, a form of multifamily wherein residents live in college dorm-style suites that share common spaces, gained notoriety in the back half of the last decade as a way of defraying the costs of living in urban cores without compromising on amenities. But the communal atmosphere, first touted as a way of fostering connection, lost its appeal virtually overnight with the fear that came from the coronavirus outbreak.
But Common has made it through. When Hargreaves spoke with Bisnow on Tuesday, Common was on the eve of announcing its acquisition of the main business line of Starcity, a competitor based on the West Coast but with locations as far-flung as Barcelona, Spain. Combined with its own growth, Common’s acquisition of Starcity makes 30 cities where it has locations either in operation or development.
One of Common’s key adaptations was expanding beyond co-living into an all-purpose third-party management company for multifamily developments. In addition to managing traditional apartments in the same buildings as co-living units, Common has two other products: Noah for workforce housing and Mily, formerly Kin, for family-oriented properties. The company also is awaiting the completion of several developments created for its Remote Work Hub concept in locations as diverse as New Orleans and Ogden, Utah.
As ambitious as Hargreaves’ plans for Common are — and aiming to have more units under management than Greystar is plenty ambitious — he is not impatient enough for growth to accept master lease agreements. Those long-term liabilities with only short-term revenue streams caused swift downfalls for co-living and coworking operators alike during the pandemic.
Master leasing wasn’t central to Starcity’s business, but it had taken on some before seeking a buyout from Common.
“We, as a rule, don't take on master lease liabilities,” Hargreaves said. “So those deals will need to be restructured. And we are making management offers to their partners on those master leases. So that's very early days.”
Starcity had also purchased some land and undertaken some development projects, neither of which fit Common’s business model, so those elements were left out of the deal. To remain disciplined while expanding into new business lines has kept Common from sharing the same fate as Quarters and HubHaus, and led to Hargreaves being named a Bisnow Innovator.
Bisnow: When and how was the decision made to expand beyond the core concept of co-living as we understand it?
Hargreaves: Well, it was very organic and it happened over a period of time. It was really the output of our exercise of asking, how do we get more scale under development? How do we do 200-, 300-, 400-unit buildings? Because when we started, a lot of what we did was very small, 20 units, 30 units, 40 units at a time, and that's fine for those projects, but we looked at our goals, which are really focused on solving the housing crisis and providing better, more affordable options. And we said we're not going to get there anytime soon doing a 20-bed brownstone at a time; we need to scale.
And so once we started working with more institutional, larger-scale owners and developers, we realized that the right way to do this was to think about co-living not so much as a stand-alone product, but as a unit type within a larger multifamily development. We could get 100 co-living units built if we were doing it alongside 200 conventional units in a 300-unit project.
We actually were seeing better performance in the studios and the one-bedroom units, then we had Covid and that totally changed our viewpoint. We see a lot of opportunities to innovate on the technology and the operations side to provide both a better rental experience and to increase return for owners. So now, [property management] is the primary focus and co-living is one of the legs of that stool.
Bisnow: When you're talking about scale, it goes beyond just bigger buildings, because that growth was in concert with expansion to other cities. So what was the biggest functional difference between taking on bigger projects to opening up in a new market?
Hargreaves: Fundamentally, it was driven by a change in the clients we serve. The real estate partners we worked with when we started were very local groups that worked in a given city, or even in a given neighborhood. As we've grown, we've added more clients that are looking across cities. So, you know, they bring us projects and say, “Hey, work with me on my next two deals.”
It's been less about expanding to any given city and more about building the muscle memory, and the capability to quickly go into a new city, and that means we have a transition team ready to go and drop into a new market. It's a property manager, a leasing specialist and a maintenance technician, so we can be ready on day one when we need to take over a new property. That team goes from city to city, takes over a new property and then hires the team on the ground in that city.
Bisnow: When you think about Common's overall mission of trying to make a difference in the affordable housing crisis, and you’ve started to hit a new level in terms of scale, what sort of progress report would you give Common for fulfilling that mission?
Hargreaves: I think one thing we've been able to do really well is to work with owners broadly and get them to really focus on the customer experience and to think about housing not as a financial product, but as a consumer product. And from there we really dive into ways we can innovate on layouts, on operations or on programming that will align really closely with what tenants want and what prospective tenants are looking for. And obviously, affordability is a really important part of that.
It's one of the reasons we started Common at the beginning, and one of the reasons we've expanded into workforce housing with Noah: We believe there's a real need for affordability. I would love to see more owners building ground-up workforce housing, as opposed to just buying and taking over existing workforce housing.
Bisnow: I get the feeling you're not alone in that.
Hargreaves: Yeah, it's tough with construction costs today, but we're really hoping that as we hone the operations and really build out our platform, that it will enable more owners to build ground-up workforce housing.
Bisnow: Being on the operations and management side, blessedly, you don't have to worry about things like finding a steel supplier, I imagine. But how has the supply chain crisis touched how you operate?
Hargreaves: It's obviously been challenging in some ways, and anything that puts pressure on our partners also puts pressure on us; we're in this together. On the other hand, it's gotten a lot of owners to think hard about operations and how they can operate these properties in a more innovative way that allows them to get any kind of incremental value. I'll give you an example.
We use an inside-sales model for leads that come in, so if somebody applies to live at a Common building, rather than going to an on-site leasing agent, that lead actually goes to a central call center, where we're able to walk them through a virtual tour or schedule an on-site tour. So that lead is usually getting a call within 10 or 15 minutes, which yields a much higher conversion rate.
Bisnow: I imagine that’s because people haven't forgotten about inquiring, because they had just done it.
Hargreaves: It's remarkable how quickly people can forget what they just did on the internet. So that's a really strong value proposition for our owners and helps save them money, both on their marketing budget in leading to faster lease-up. So the fact that we're innovating in those areas, when owners are feeling pressure around the margins, is a positive thing for our growth.
Bisnow: What was it like watching competitors in the co-living space take such a beating from Covid? Especially as one that, without counting your chickens, looks to have made it through?
Hargreaves: We were just focusing on our own business through Covid, so I would say we weren't probably paying that close attention to what was going on for those first months of the pandemic.
But I think there was also a feeling of validation, of vindication perhaps, for sticking with the management agreement structure and not taking a master lease. We lost deals to competitors who were willing to do a master lease, and it was in some ways vindicating for a lot of those deals to come back around to us.
We've taken on a number of assets through this year from other operators, small and large, that did have master leases and didn't survive particularly long. And I would add that Starcity, like Common, was actually pretty good about not taking on master lease obligations, so they had relatively few of those.
Bisnow: Then let's get into Starcity. Can you walk me through how the merger came together?
Hargreaves: Well, about three weeks ago, we got a call from [Starcity co-founder and CEO] John Dishotsky, and he said, "Do you want to buy our management assets?" And it happened very quickly. Within a couple of days, we got access to their data. We put together an offer, negotiated the offer over a weekend, and late last week we signed the term sheet to acquire those assets.
Bisnow: In evaluating the potential for that deal, were there thresholds that they needed to meet for you to feel comfortable acquiring them? Or in general, parts of the business that when you looked at them, you thought, “OK, we can work with that”?
Hargreaves: One thing they've been able to do well is build some very strong relationships with some great developers and investors, and the manifestation of that is their management agreements and their pipeline. Even though we are taking the majority of their team, I don't look at it as an "acqui-hire" or an [intellectual property] purchase. It's really about relationships, and it's about their work with these real estate owners and developers.
Bisnow: And the acquisition of Starcity means that Common is going to have a presence in Europe for the first time, right?
Hargreaves: Yeah, I would say that with or without this acquisition, we intended to expand to Europe. We actually intended to expand there last summer, but for obvious reasons, we decided not to do that. So we are going to have boots on the ground in Europe this month.
Bisnow: Is there a road map for how much you grow from here, and/or how fast?
Hargreaves: Since the beginning, we've always been focused on 25,000 units under management as being the point that gets us to some exciting scale for tenant partnerships, the idea that people can move seamlessly between rooms in our portfolio. For that, Common gets much more interesting and more fun, and we can get real value out of that. The other data point we’re looking at is that Greystar manages 880,000 units, and I don't know why, in the fullness of time, we can't be bigger.
Bisnow: The last time I talked to you was for the Remote Work Hubs, when you announced which companies and cities you selected. As an economy and society, we were in a much different place in terms of thinking about the future, about what changes the pandemic wrought and which of them might be permanent.
Now that people are beginning to anticipate going back to the office in a concrete way, rather than as a giant unknown, has that changed what you think about the potential in remote work?
Hargreaves: No, it really hasn't changed. The statistic that got me really excited about the Remote Work Hub idea is that prior to Covid, only 2% of the workforce were permanently remote — a tiny, tiny number. So even if you believe that 90% of workers are going to go back to the office either full time or hybrid, that still leaves 10% that can work from anywhere, which is a fivefold increase in the number of permanently remote workers. So we still believe in the trend long-term and are excited to build these spaces.
Bisnow: And as data continues to come in regarding people movement — obviously, the first round had a very varied group, from New Orleans to fairly rural North Carolina — has your sense of where people who work remotely might want to be or might already be changed at all?
Hargreaves: Well, I think our belief in a variety of types of spaces is the same as it's ever been. We didn't want it to be a monoculture. Each location, your New Orleans, Ogden, Utah, Rocky Mount [in North Carolina], they're all very different, they're going to be at different price points and different value propositions. So I'm still a believer in that, and one thesis I'm excited to dive more into is the bedroom community, the exurb: Are there opportunities to create better remote workspaces there? There are a few things we're looking at, but nothing to talk about now.
Bisnow: Since you were interviewed by Bisnow all the way back when you were still on your Series A funding round, how do you think of yourself as different from who you were five years ago or three years ago?
Hargreaves: Obviously, there have been some pretty fundamental changes in our business in terms of expanding beyond co-living and thinking about management as a whole. But I think the biggest difference from Series A to now is that we know who we are as a business, we know what we do and what we don't do.
For a while, we debated whether to invest in real estate, to do single-family homes, all that stuff. At this point, not to say that we can't expand what we do, but we have a pretty clear sense of what our role is, how we add value, how the business model works and, perhaps most importantly, the levers to grow it.
Bisnow: That was a great answer for Common the company. Now, for Brad Hargreaves the person, same question.
Hargreaves: Oh, God. You know, I've really come to understand that if you're feeling really good about how you're doing, it's never really that good. And if you're really down about how things are going, it's never actually that bad.
Bisnow: And as the company grew from a startup in name and attitude to something more mature, did your relationship with the business change? Do you find yourself more involved on a day-to-day basis, wearing more hats or fewer hats as your staff grows?
Hargreaves: Obviously a big part of growing a business and taking it to scale is hiring people you trust and empowering them to do good work. I look at my job as CEO as really three things. One is making sure there's cash in the bank. Two is making sure we have the right people in the right seats at an executive level. And three is making sure everyone understands where we're going, and is aligned on that mission. Those are my three jobs. And if I do those things well, we'll be successful.