Ollie lobby Courtesy of 3D World Renderings

Co-Living Project Developer Ollie Seeks Institutional Funds and Expansion

Ollie is working to attract institutional real estate investors to its projects.

In the next year, expect to see a lot of announcements from companies like Ollie, which manages and develops “co-living” apartments, in which renters double and triple up with roommates in share suites.

Ollie now operates two co-living apartment buildings with a total of 252 beds. The company has signed deals with developers to build another eight buildings that will include co-living apartments, including a new 40-story building in the Long Island City neighborhood of Queens, N.Y. There’s also a new building that pre-leasing 166 co-living beds that will open in Pittsburgh, Penn. this fall.

There’s more, however. Ollie is now considering proposals from developers to partner on 67 potential projects to build new co-living apartments in markets across the country.

The rush of new business is a big change for Ollie. “It took 400 meetings in three years to get to our first agreement,” says Chris Bledsoe, CEO and co-founder of Ollie. Ollie is one of several companies now creating housing explicitly designed for roommates. Unlike some co-living companies, Ollie is carefully building within the rules of its markets, and is working to attract institutional real estate investors to its projects.

“We have set up our platform to be the institutional,” says Bledsoe. “The only way to address the scale of the problem.”

The roommate revolution

The secret behind Ollie’s co-living revolution is that co-living is not really revolutionary. Roommates already live together in apartments across the country. “Co-living is extremely prevalent in the informal housing market in New York City,” says Sarah Watson, deputy director with the Citizen’s Housing Planning Council, based in New York City.

However, few developers build new apartments designed for multiple roommates.

Each two- or three-bedroom suite at Ollie’s Long Island City tower will have a shared common area with a full kitchen. The bedrooms will range in size, going up to 187 sq. ft., with each room serving dual functions as both a sleeping quarters and a living space, complete with individual air-flow controls.

Financing the deals

Banks generally don’t consider co-living when they make construction loans to planned apartment properties. That’s a hurdle that Ollie resolved to clear. The tower at 29-26 Northern Blvd. received $150 million in construction financing from AIG. That’s the largest construction loan ever granted to a New York City project incorporating co-living.

It’s legal to build co-living apartments under the current zoning rules. However, developers usually create three-bedroom apartments that are designed to be occupied by families. Banks assume that individual families will live in each unit when they decide whether to underwrite the loan.

Banks crave the certainty of a proven market when making construction loans. AIG made its loan to 29-26 Northern Blvd. in part because if the co-living apartments don’t meet their expectation of income, the floors can easily be converted to conventional three-bedroom units. “We created a floor plan that with very little repositioning could flex to a conventional layout,” says Bledsoe.

Surprises at Ollie’s properties

The apartments currently operated by Ollie have already revealed a few surprising things about the market for co-living apartments.

“There is no size of apartment too small,” says Bledsoe. The building at 166 W. 75th St. is an old single-room occupancy building on Manhattan’s Upper West Side. “The smaller the unit, the faster they leased at that building.” The tiny apartments also earned higher rents per sq. ft. compared to apartments in the surrounding market.

Ollie’s co-living residents also include more older renters than anticipated. About a third of the renters are Baby Boomers—including renters commuting to jobs or those come into town to attend cultural events. In addition, about 10 percent of Ollie’s renters are divorcees.

These renters don’t bring a lot of stuff to their small, shared apartments. The 40-storage units available for rent at Ollie’s second building are often empty. “One renter made his whole move in one cab ride,” says Bledsoe. “We are housing a demographic that has been spending money on experiences, not stuff.”

Co-living projects that push the limits of the legal

Other developers are pushing the co-living concept even further than Ollie, allowing more than three unrelated adults to live together in a co-living suite. That breaks a whole set of rules in New York City. Firms like Common, in Brooklyn, N.Y., are very clear in their marketing about their business plan, though Common’s buildings generally comply with all the city’s fire safety regulations and other rules, according to Watson.

“The city has not really responded—it is interesting. These companies are quite upfront in flouting occupancy rules,” Watson says. If city officials ever do decide to close these un-official co-living properties, companies like Common may argue in court that the occupancy rules are unconstitutional. “The New York Supreme Court has decided in some cases that occupancy rules are against the ‘due process guarantee.’”

However, in the meantime, these unofficial co-living developers operate in a legal grey area. They are illegal under rules that are rarely, if ever, enforced. For now companies like Common are unlikely to go away. But they are also unlikely to spread far beyond their existing markets without finding a firmer footing under the law.

TAGS: Investment
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