From the outside, one of the more exciting experiments in New York real estate looks like any other Crown Heights townhouse: brick walls, gridiron fence, a small stoop and bay windows climbing four stories. Sitting right next to the neighborhood’s gentrification faultline, Franklin Avenue, it shares a block with a newly opened organic food store and looks out on a homeless shelter.
Monday morning, this inconspicuous building opened as Brooklyn’s only commercial co-living space – in effect a dorm for grownups where young professionals and students can rent a fully furnished room on a month-to-month basis. Common, a startup backed by $7.35 million in venture funding, and its landlord and partner Quantierra, are hoping 1162 Pacific Street will prove co-living on a small scale can be a viable business.
There are doubts, in part because a similar model has failed in the past. In 2013 another startup, Campus, began renting apartments in Manhattan and San Francisco and turned them into mini dorms. In June, it shuttered, unable to pay its bills. To some, this seemed to prove that the impending dormification of Manhattan was a pipe dream – at least beyond the giant scale of WeWork’s WeLive project.
But Brad Hargreaves, CEO and co-founder of Common, believes he has learned from Campus’ failure. “Campus did not fail for lack of demand; they were able to build a strong community and a passionate customer base,” he told The Real Deal, “but they were saddled with expensive leases for individual units in pricey neighborhoods. We are striving to avoid those mistakes.”
1162 Pacific Street has 19 bedrooms in four full-floor apartments, renting for $1,800 to $1,950 per month. Common is paying an annual base rent of around $220,000 (or $30 per square foot) for the building. If it rents out all rooms year-round, it will generate around $430,000. The difference, after operating costs, offers plenty of wiggle room in case some rooms stay empty.
Campus, in contrast, had much slimmer margins. It offered rooms in Midtown for $1,900 and in the Upper East Side for $1,480 – hardly huge markups for two expensive neighborhoods.
And while Campus rented apartments, Common is looking to rent entire buildings, allowing it to turn unrentable space into common areas. At 1162 Pacific, for example, the basement serves as a lounge with a large dining table.
Common is also building partnerships with companies and educational institutions, looking to tap into the giant markets for student and corporate housing. For example, the company partnered with computer programming schools Fullstack Academy and General Assembly, Hargreaves said. The firms will refer out-of-town students to Common.
But Common’s business model also has its own challenges. Its margins may be bigger than Campus’, but at an average of $1,900 per month on a room, 1162 Pacific Street is asking Midtown prices in Crown Heights.
Common justifies the markup by pointing to the value of flexibility – leases can be canceled on 30-day notice – and not having to worry about furniture, utility costs or maintenance. The apartments at 1162 Pacific feature weekly cleaning, flat-screen TVs, NEST thermostats, Restoration Hardware furniture and even soap and shampoo.
Of the building’s 19 rooms, 17 have tenants, and Hargreaves claimed he received 300 applications.
The firm is already on the hunt for its next properties with the help of Quantierra. Founded this year by former Real Capital Analytics executive Ben Thypin, the investment and advisory firm focuses heavily on data and hired well-known blogger Stephen Smith (of Market Urbanism fame). Quantierra paid $4 million for 1162 Pacific Street. The Common deal will net a 5.5-percent base cap rate as well as a 25 percent share of the building’s profits. “We’d been in the small multifamily business before, and while it’s an attractive submarket, management is always an issue,” Thypin said. “Our lease with Common provides us with a solid return without the hassles of day-to-day management.”
Hargreaves hopes that other landlords will see the same appeal in leasing to Common. “Our goal is to get to at least a dozen buildings in this neighborhood,” he said. “That’s what we see as our critical mass.”