Change in lifestyle driving coliving

The Collective, Old Oak
The Collective, Old Oak

Coliving and coworking were seeing growth in investments as people changed the ways in which they lived their lives.

The Collective coliving brand was the latest to secure a new financing package, which it planned to spend on global expansion.

Harry Harris, director at development, planning and architecture consultancy SUSD, the team behind The Curtain in Shoreditch, told us: “People are travelling and living and working differently to how they were 10 years ago, let alone 30 or 40 years ago and so much more agilely. There’s an expectation that the owners will provide events and some form of engagement. An owner of a building has to be sophisticated enough to provide all these facilities.

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“People want more of an engagement in a location. People want to feel as if they are part of something. Everyone likes to go somewhere where they are recognised and to make that successful they too have to participate.

“People place such an importance on their work and what they’re doing. The WeWork principal was genius - if the execution was less so - it embraced the fact that people are proud of their work and that they want to collaborate. You go to a Selina and expect to work there, live there, collaborate with the people there.

“The larger institutional landlords and investors pay lip service to the idea of localism and community, but you cannot possibly escape it. It’s all about attracting talent and if you’re letting space to some big employer, then you have to think about how to attract talent. It’s about which sort of community you are creating and engaging in.

“Still, the traditional money men want to look at what’s been tried and tested, but private equity and the institutions are more forward thinking. They can see where there might be value.”

Last month saw coliving brand The Collective agree a new £140m financing package from Deutsche Bank and GCP Asset Backed Income Fund.

The group said it would use the fund to focus on the UK, Germany, Ireland and the US as it continued to expand globally.

The Collective currently has over 9,000 units operating or under development across the globe, and a pipeline of sites with the potential for 20,000 further units under consideration as it works towards a goal of having a 100,000 unit global portfolio over the next five to 10 years.

Jai Madhvani, CFO, The Collective, said: “Building on our 10-year track record of creating, delivering and operating coliving spaces across London and, more recently, in the U.S. and Germany, this loan allows us to further accelerate our expansion plans internationally. Securing such a significant discretionary financing package from a renowned global institution as Deutsche Bank, and the renewed commitment from the team at Gravis Capital, are also a further indication of the increasing acceptance of coliving as an institutional asset class and of The Collective’s model and track record in the sector.

“The issues of urbanisation, inadequate and constrained housing supply, changing consumer behaviour and increased loneliness amongst urban populations that underpin our business are global in nature. We believe The Collective’s coliving model can help tackle these issues and make a meaningful contribution to society and the communities in which we operate while at the same time delivering sustainable long term returns to our investors. We have a strong pipeline of potential sites that we are considering, primarily in the UK, Ireland, US and Germany and look forward to putting this capital to work.”

The Collective’s new four-year group level financing package comprised a £120m term loan and a £20m revolving tranche with commitments of £87m from Deutsche Bank and the immediate recommitment of £53m from GCP Asset Backed Income Fund following repayment of its previous term loan to The Collective as part of the transaction.

Following the agreement with Deutsche Bank, The Collective will have raised over £1bn of investment, increasing its capital available for new acquisitions and delivery of its current development pipeline. Last year saw DTZ Investors and The Collective launch a fund looking to raise £650m to invest in the sector, to acquire, or forward-fund, between six and 10 coliving assets in London, with a target gross asset value of GBP1bn over the 10-year life of the fund.

Global funding in the coliving space has increased by more than 210% annually since 2015, totalling more than USD3.2bn, according to JLL.

DTZ Investors’ CEO, Chris Cooper, said: “This fund will bring forward a strong social agenda through: the buildings and places we create; the manner in which we engage with our communities and; the way in which we foster wellbeing for members.

“Coliving is an ideal response to the needs of London’s rented housing market, building on the principles of quality, convenience and community. Modern London life is a conundrum: urban living and technology have managed to create a society that is constantly connected yet alone. People and communities are being pushed apart, contributing to significant loneliness and mental health issues.”

Reza Merchant, CEO & founder, The Collective, said: “The launch of this fund marks this sector’s arrival as an institutional asset class.”

 

Insight: Coliving used to mean using the living room in a rented property as a bedroom and trying not to let your temper get the better of you when baked beans mysteriously went missing. The latest coliving offerings are unrecognisable as such, with state-of-the art facilities, daily yoga and mixed-media art classes..

A study from JLL found that tenants were willing to pay a premium for the convenience of flexible lease terms, furnished units, housekeeping, fitness centres and coworking spaces, all one place and for one price. This meant that floorplates were increasingly dense – bedrooms could be as small as 100 square feet. Ideally tenants were between the ages of 25 and 50 and earned $40,000 to $90,000 a year.

Coliving is not for everyone. One prominent accountant had considered building their own coliving property which they could offer potential employees as a lure in the face of what is accepted as a housing crisis in major cities. After focus grouping the strategy they decided against it when potential residents objected that the mix of large public areas and small private ones meant there was nowhere they could truly relax and slob about. They were always on show.

This, of course, could be seen as a bonus for some and the market is still small enough that demand has yet to become an issue. For hotels with staffing issues, such products are a solution - PPHE offers central London housing. For investors, small units which have shared facilities are more economically viable than many small flats with many small kitchens and many small bathrooms. And in these times of isolation, people are demanding a community. Provide this and the returns will be liberal.

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