S.F. coliving startup Starcity is acquired by New York rival
Starcity, the San Francisco startup that helped pioneer a model of techcentric, urban coliving but struggled to execute its ambitious development plans during the pandemic, is being acquired by Common, a rival New Yorkbased firm.
While the combined company will take over Starcity’s portfolio of open properties, the deal does not include its development pipeline, which includes two major approved but unbuilt towers — a 270unit coliving highrise at 457 Minna in San Francisco and a 790unit project in downtown San Jose.
Those projects will be sold off to other developers. Common designs and manages coliving and traditional apartment communities but does not develop or own property.
“Since founding Common in 2015, the coliving landscape certainly looks different, but the need to create a better kind of housing for the modern renter has not,” said Common CEO Brad Hargreaves. “While the sector consolidates, we’re committed to acquiring the management agreements of these formerly Starcity properties, keeping the resident experience positive and growing our brand by becoming the most innovative operator in residential.”
Billed as communities of “warm, inviting homes filled
with friendly faces you’ll love getting to know,” Starcity operated about a dozen properties in the Bay Area, seven in Los Angeles, three in Barcelona and one in New York. Their techheavy coliving suites, which range from 130 to 220 square feet, come furnished with a bed and mattress, nightstand, lamp and a rug. Residents gather for meals in a communal kitchen and can get together for cultural events and go on outings. Rents in the Bay Area portfolio range from $1,325 to $2,500.
Starcity CEO Jon Dishotsky said that he and his partners “set out to make it super easy and more affordable for people to move to cities, and we did that.”
But while its existing portfolio had a high occupancy rate, Starcity faced mounting financial issues as capital markets for groundup development projects dried up during the pandemic, according to court records. In May 2020 the company was sued by KT Urban, the Cupertino developer that sold Starcity a downtown San Jose project site, over allegations of fraud and breach of contract. Last month Starcity was sued by its architect C2K Architecture, which alleged it was owed $1.5 million, according to the San Jose Business Journal.
Court records show that property owner BNN LLC sued Starcity in December alleging that the coliving developer owed five months in back rent — about $181,000. After a workout agreement fell through, Starcity now owes BNN $277,990, according to an April 7 court filing.
Completion of transaction with Common is subject to “customary consents by Starcity’s creditors and shareholders as well as approval of Starcity’s real estate partners,” according to the news release.
Common said the deal solidifies its position as “the recognized coliving leader after a year of sector consolidation.” Common has about 6,400 units under management and a total of more than 26,000 units signed and under development. Last summer Common raised a $50 million Series D funding round.
Hargreaves said that coliving was hit hard in the early days of the pandemic, with occupancy rate plummeting from above 95% to less than 80%. Especially hardhit were New York and San Francisco. Occupancy portfoliowide is now back to 95%, although San Francisco continues to be weak.
“The middle of last year was very tough,” he said. “It’s impacted different cities in different ways. Our New York portfolio recovered more quickly, as did Chicago, and D.C. San Francisco has been a laggard. It’s been particularly slow to recover.”
Dishotsky said the acquisition by Common would provide a soft landing for the residents, investors and Starcity employees.” He said the San Jose development site is being marketed for sale and that other sites would likely also be put on the block. He will be joining the Common management team.
“We have a handful of buyers looking at the entire portfolio,” he said.
Dishotsky said trying to manage coliving communities while also pursuing groundup development was “extraordinary complicated.”
“Building two businesses at once was not tenable,” he said. “We took some very big swings — those are the risks you take in starting a business. Some of those bets paid off and some of them didn’t.”