The world as we know it continues to change – the biggest being a shift from ownership to a sharing economy.  Now it seems that the sharing economy has begun to bleed into the multi-family housing market with renters now looking at the idea of hostel style homes.

In a very creative way, renters have re-discovered the solution for the many problems plaguing the multi-family market in larger U.S. cities.  A solution for finding affordable housing in high dollar markets while creating a strong social network for residents.  Communal Living!

Communal living is nothing new.  In fact, up until the last century communal living was the societal norm.  Today, the concept is being brought back in a new way which investors are using to capitalize in high dollar markets where square footage is often hard to come by.

For those of you still a bit uncertain as to the exact definition of communal living, it is best to envision a communal living facility as a hybrid version of a college dormitory equipped with the amenities required for a post-grad lifestyle.

Fully furnished these units are small ranging from 300 to 400 sq. ft. for what is considered “individual space”.  Each unit has the ability to host a bed, small kitchenette, and bathroom.  However, some of these prototypes will have multiple “Sleeping quarters” with a small communal space shared between 3-4 renters.  All other amenities including a full sized kitchen, media areas, laundry rooms, etc. exist only in communal spaces which are shared and often times cared for by the tenants.

Just to clarify, communal living spaces are not micro-units.  They are both considered to be SRO’s (Single Resident Occupancy Units), however, these properties are not simply designed as rental units but a space where renters can connect in ways unattainable in traditional apartment buildings.

With this intention, there is a great deal of commitment by management to cause tenants to interact socially across the building.  Communal dinners, BYOB happy hours, classes, game nights, etc.  these are all examples of the nudge which managerial staff members have to provide in order to promote the success of these prototypes.  Within these communal settings managers have to create the sociality which we tend to leave behind after graduation.

Now before you try to convert an apartment complex for the purpose of establishing a communal living space, let’s establish that this concept is in its infancy.  Although gaining popularity these dorm like settings have a certain requirement from the market within which they are established.

Currently the communal living brands which have had success only exist in larger cities either located directly in or adjacent to the urban core.  Why is this? Because, they can provide a lower rent for prime locations with the cost of personal space.

These spaces will also require the area to have a very strong job market.  If there is a consistent stream of persons (especially young persons) relocating to the area for employment opportunities, the option of a move in ready space at a lower cost is more ideal.

As an example, we look at WeLive.  Their first community takes up the majority of a lower Manhattan office tower in New York, New York located directly on Wall Street.  For a shared WeLive apartment rent is below $2,000.00 per month.  When compared to a traditional one bedroom apartment in the same area, rent on average is over $3,500.00 per month.

In a high demand area with a fresh work force moving in every summer, this affordability for a younger more robust demographic is the driving force for a cash flowing rent roll and an even larger return on investment.

Although WeLive has only developed one other location, in the DC metropolitan area, there are many other companies looking to expand this communal prototype to some of the most expensive markets in the U.S. including San Francisco, Boston, San Jose, Chicago and Miami.  These future expansions will undoubtedly disrupt the multi-unit housing market both positively and negatively.

As the intended uses for commercial assets continue to evolve, commercial real estate investors need to evolve as well.  Converting assets at the beginning of a new trend before disruption is felt by the market can put any investor on the fast track to success.