Declining apartment rental prices in large cities have not deterred some investors from betting on a market comeback after the pandemic. They are selective with the start-ups they back.
Some real estate start-ups have had trouble attracting new capital and needed to shut down. Others, like Common, still have access to capital despite near term business shortfalls.
Common raised $50 million of new funding this month for expansion, bringing its total funding to $110 million, according to The Wall Street Journal. The latest funding round was led by the Swedish investment firm Kinnevik AB. It also included Common’s existing investors, Norwest Venture Partners, 8VC, and Maveron.
Two key reasons for Common’s staying power: the company has diversified into the apartment rental management business since its founding as a co-living start-up, and the majority of its business is under a revenue-sharing model.
Common, founded in New York in 2015, started out as a co-living company, taking over apartment buildings and renting out furnished rooms in shared apartments to young professionals. In recent years it has gradually expanded into more traditional rental-apartment management, and co-living now accounts for only about half of its business.
[Common Chief Executive Brad ]Hargreave said 80% of the units that the company manages are signed under some form of revenue-sharing arrangement. That means Common doesn’t automatically run losses when demand falls, as has been the case with some co-working firms.The Wall Street Journal
Common has 3,500 units under management, up from 1,500 units at the end of 2019. According to the company, it expects to have over 6,000 units under management by the end of 2020. Of the current over 17,500 units under development, one-third are traditional rentals and two-thirds are co-living.
Investors increasingly see companies like Common not only as a player in the niche co-living sector but leverage their technology platforms to disrupt the rental property management space.
“Rental expense represents the biggest share of spend for most millennials. Yet, the tenant experience is typically unreliable and inconsistent, and the housing market has seen limited innovation over decades,” said Kinnevik CEO Georgi Ganev. “We believe Common’s vertically integrated offering is a superior proposition for renters.”
Akhil Chainwala, an investment manager at Kinnevik, tells The WSJ, “Whether landlords strike gold with rising rents matters less to Common because they need a good rental manager either way.
photo credit: Common