A look into Co-Living development

 

Following my past post, I thought it would be interesting to look into co-living development. 

Co-living startups, like Starcity, own and develop most of their properties, while other brands like Bungalow signs long-term master lease. Common, a NYC-based brand, chooses to be a third-party manager to help owners design, market, lease, and manage their residential properties for co-living renters. Its target demographic is mostly people in their early 30’s with a medium income of $70,000. Currently its branded properties spread across 11 cities in the US, and in NYC alone it serves 12 neighborhoods.

One of Common’s first properties in NYC is located in Harlem, a neighborhood in Upper Manhattan.  The property is in a mid-block lot on a narrow street in the R7-2 zoning district.  FAR: 3.44.  It was built in the 1910's with a footprint of 20-ft by 46-ft on a 20-ft by 100-ft lot.  An original 5-story SRO with 13-unit was converted into a 2-family dwelling with 21 bedrooms.  As part of the conversion, the developer added a 6th story and extended the structure for 12-ft.  Final floor plate is 20-ft by 58-ft.  Gross floor area: 8,071 SF (6,871 SF above grade and 1,200 SF basement).

The first unit occupies 1st/2nd/3rd floors with an interior staircase. 1st floor has a common kitchen facing the street and 2 bedrooms facing the backyard. 2nd and 3rd floor each has 4 bedrooms, 2 facing the street and 2 facing the backyard. The second unit occupies 4th/5th/6th floors with similar configuration (with the exception that the 4th floor has 3 bedrooms). 

Amenities include a private elevator to the second unit, resident lounge and laundry room in the basement, outdoor garden in the backyard, and a roof deck with Manhattan view. 

Based on historical rents searchable on the web, the average price for a bedroom at pre-pandemic level was $1,850/month, which is roughly $83/SF/year. That’s 15-25% higher than similar studios in the area on a PSF basis. Due to the pandemic, its rent has reduced roughly 10% (the least expensive bedroom went from $1,640 in 2019 to $1,500 currently). 

Here is a development summary using available data from DOB, DOF, HPD and my own estimate (based on my multifamily development and construction experience).

Gross Floor Area (including basement)

8,071 SF

Acquisition

$1.85M

Hard Cost ($300 PSF)

$2.42M

Soft Cost ($30 PSF)

$0.24M

Closing and Financing Cost ($70 PSF)

$0.56M

Total Project Cost

$5.08M

Rentable SF

5,638 SF

Rents

$74.7/SF/yr (June 2020)

Annual Rental Income

$421,159

NOI (5% vacancy and 25% operating expenses)

$300,000

Development Yield (NOI/Project Cost)

5.9%


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