Taking Aim at the Co-Living Market
Chris Bledsoe, co-founder of the shared living startup, on why developers are beating a path to his door and how the company’s model could transform the housing sector in the U.S. and beyond.
It’s been a busy year for Chris Bledsoe, who along with his brother Andrew founded micro-housing and co-living startup Ollie in 2011. Last year, the firm reached a milestone with the opening of ALTA by Ollie, in Queens, N.Y., touted as North America’s largest ground-up co-living project. Now the Manhattan-based company is contemplating more than a hundred new projects as developers seek to replicate the success of the new property.
Located ALTA by Ollie offers fully furnished micro-suites with hotel-style services, comprising 422 beds within Alta LIC, a 43-story tower built by Simon Baron Development and Quadrum Global in Queens’ burgeoning Long Island City neighborhood. MHN recently caught up with Bledsoe to tour the venue and talk about why Ollie’s business model is generating so much buzz.
What’s the status of the Long Island City project?
We’re still in the initial lease-up period. We haven’t been open a year yet, but we’ve been really happy with the absorption. Two thirds of the building is conventional units, and the lower third, floors 2 through 16, is Ollie. Unintentionally, it’s created a really nice case study for us. We’ve been adjusting pricing up or down to hit a leasing pace that’s on par with the conventional units, and that price is a 44 percent premium on a dollar per square foot basis, versus the conventional apartments. That premium is translating into a 30 percent net operating income per square foot premium. But the building’s residents, whether (they live in the conventional portion of the property or on) the Ollie floors, share the same amenity spaces in the building. It’s a really controlled environment, then, for the case study.
The developer is thinking, “(I’m) enjoying a 30 percent profit per square foot premium,” while the New York Post is writing about this being the best deal in NYC. So that was the goal, that’s why this is disruptive–because from the consumer perspective it’s a better mousetrap, and from the developer’s perspective it’s a better mousetrap.
How does Ollie differentiate itself from its competitive set?
We’re serving two masters: consumer and owner-developer. The point of differentiation for the consumer is Ollie’s focus on large-scale, institutional-grade assets, which means that we’re able to embed a fuller offering into the experience, because we have economies of scale and a single location.
An example of that would be our live-in community managers, who are organizing a full calendar of events, and our residents are getting full access to those events without having to pay additional fees. The ability to embed a community manager—which adds a salary to the equation—would be fairly difficult if we didn’t have so many beds to allocate that cost among. Or the rates that we get on the WiFi, or the cable, or the furniture that we’re purchasing.
All of those things, because we’re buying them at scale, allow us to get better rates and then pass that through to the consumer. We’re very focused on freeing up our residents’ time and their money, so they’re paying less and they’re getting a more all-inclusive lifestyle as a result. Larger scale means better price points.
Also, we’re coming into projects that have been designed from the start for this style of living, which allows us to get the density right. We’re not then left asking the consumer to pay for square footage that they don’t value or use.
How many properties does Ollie actually own?
Ollie’s model is asset-light. We are not the owner or the developer of the projects; we’re partnering with the owners and developers. So we don’t own any of them, and our point of differentiation—why an owner or developer would want to partner with Ollie—is because, particularly if they’re larger-scale developers, those institutional-grade assets call for institutional-grade operators. And there aren’t too many operators in co-living who have the track record that we’ve developed with these larger-scale assets.
It’s a more conservative set of capital. So Ollie is very intentional about how we set the asset up from the start. That might mean things like our in-house architecture and design team creates a second set of layouts that show how our layouts can very readily convert back to conventional layouts in a downside scenario where Ollie goes away. That way the underwriters—the lenders looking at providing a construction loan on the project—don’t even need to believe in Ollie’s business model; they don’t even need to know what co-living is, because they have this downside scenario, which allows for the conversion of the asset to something that looks a lot more familiar to them.
Tell us about your projects in the pipeline.
We have three projects that are open, representing a little over 650 beds, and we’ve got five more projects that are signed up at different stages of development in Denver, Miami, Boston, an additional project in Manhattan, and Los Angeles. Those are coming online over the next 18 to 24 months. And in addition to those, we have 113 projects in the pipeline that we’re negotiating or evaluating. We started the year with a little over 50. Which is why we’re also excited about what’s happening right now. We see the tailwinds taking hold for co-living and how transformative we think this will be for the housing sector at large
About 80 percent of our pipeline ends up being new construction. It’s hard to densify existing assets for a number of reasons.
How many units are you planning in total?
The additional numbers: a little over $10 billion of total project capitalization and … around 30,000 beds. Those seem like crazy big numbers, and they are crazy big numbers compared to where we are today. The wild thing is that it’s not even a drop in the bucket compared to the addressable market. When we look at the demand studies, we’re getting to roughly 18 million beds that we think is the potential addressable market for this strategy. And that’s just in the U.S. There are multiple markets throughout the world whose dynamic is quite similar: The demographic shifts, the wage inflation not keeping pace with rent inflation—the underlying factors are very similar in a lot of markets outside the U.S., as well. The numbers easily get into the trillions.
What other overseas markets are you looking at?
In Europe, it’s markets like London and Paris, but (also) markets like Frankfurt or Edinburgh, Lisbon, Madrid. It’s a pretty wide range of markets where this strategy makes a lot of sense. And in fact, co-housing—as it’s been termed in Europe—actually has its roots, a lot of people would say, in some of the Scandinavian markets. North America, and the U.S. in particular, has even greater expectations socially for personal space and for privacy. So North America, in a lot of ways, is the exact wrong market to start a co-living business in.
The 113 projects that are in the pipeline are spread across something like 25 different markets. We’ve only had the bandwidth so far to be reactive to deals coming into us. If we had the bandwidth to be proactive, we could probably be more targeted about the sites. But for now, the model seems to work best for us to have a developer reach out who’s got a site under control. That’s the big piece—that they already have a site under control before they come to us.
So developers come to you?
Yes. The 113 projects that I mentioned are predominantly inbound opportunities that have come to Ollie.
What’s the demographic breakdown of Ollie residents?
There’s more of a barbell that exists. On one end of the barbell is pretty much who you’d expect. It’s a Millennial consumer, and soon to be Generation Z, 22- to 35-year-old renter. On the other end of the barbell is a baby boomer, an empty nester, (which accounts) for about 20, 25 percent of the inbound inquiries into our website. And then in the middle, it tends to get a little bit thinner, but it doesn’t disappear altogether. It’s more specific psychographic groups, like long-distance commuters or recent divorcees. That’s who constitutes most of the middle.
There’s been talk about the trend of urbanization reversing itself, the revival of the suburbs. Maybe the era of urban renting has peaked. How would this affect demand for your product?
The reason we’re starting to see some shifts from the urban to the suburban locations with families, I think, is a function of price. It’s become too expensive to raise a family in most of these cities. And unless there’s an answer provided that can help make family living more affordable in these cities—and I think Ollie has a role to play in this … the trend will continue.
But I do think we can apply the same space-saving techniques, where 300 square feet at Ollie gives you all the functionality you would normally expect to have in a space twice as large. And that’s because we use things like transforming furniture, where a bed becomes a sofa, or a desk becomes a dining table, or a coffee table pops up and becomes a TV tray. These design tricks applied to a family-style unit that has that family consumer in mind will help save that cohort the kind of money that is necessary in order for them to stay urban.
So you’re looking at also targeting family residents?
I think there’s an opportunity to target families. The way that we’ve thought about Ollie is really more as an operating system. The building’s the hardware, Ollie as a company is the operating system, and then within the operating system we have apps. And the apps are basically the competencies that we’ve developed in house. So that’s architecture and design competency. That’s events and community programming competency. That’s hospitality services competency.
With just a few tweaks of what I consider the content library that’s running on those apps, you can see how, in addition to housekeeping services being run out of the hospitality group, we can also add babysitting services. Or you can see how out of the community event competency, we can add picnics in the park, not just happy hours. And then on the architecture side, we can create floor plans that are somewhat less densified and better designed for family-style living, versus what we’ve currently got in the pipeline.
Are some developers trying to compete with you in this space?
It’s funny because my brother and I, from 2011 to 2014, had to take 400 pitch meetings with developers before we would get our first yes. Those who were unsure about it said, “Well, thanks, but we’d like to be your second building.” And those who really loved it, a couple of them said: “Thanks, and we’re going to do this without you.”
But now when we go out and deliver the pitch, there’s a few things that have happened. One is we’ve developed our offering to a point where it’s difficult for a developer to invest the kind of money that they would need to invest into the technology, to just spread the cost of that technology over a couple of buildings. Whereas we can spread it over 113 buildings, or however many, because we have the ability to scale nationally on the back of partnerships with other developers.
Additionally, with our track record, the lenders are now telling the developers, “Yes, we’ll lend for a co-living use, but you have to go with a proven operator like Ollie.” So actually some deals are coming to us because of lender referrals.
And then thirdly, we’re not signing leases, so it’s not like coworking. Under coworking, a lease is getting signed. And then the coworking operator is capturing all the upside. In our case, we’re driven by management agreements, which are fashioned after hotel management agreements, so the owner of the asset—not Ollie—is capturing the majority of the economic upside that’s getting created. By signing Ollie up, they are the biggest economic beneficiary. And our fees are pretty reasonable.