The Collective Could Be Sold As Co-Living M&A Heats Up

Co-living developer and manager The Collective has appointed bankers to review options for the company, including a potential sale, as M&A in a sector hit by the coronavirus pandemic starts to heat up. 

The company, which has existing schemes and development projects in London, the U.S. and Dublin, has appointed Credit Suisse to advise it on potential options, Bloomberg reports. 

Last week Common agreed to a deal to take over rival co-living company Starcity, which would create a company with more than 27,000 units when its development pipeline is built out. Starcity had previously taken over Ollie, another co-living company.

Options being assessed by The Collective include a full or partial sale, and there is no guarantee that a deal will happen, Bloomberg reported. It didn't report a potential sale price. 

The Collective’s management company is controlled by founder Reza Merchant, who owns between 25% and 50% of the shares in the company, according to Companies House documents. The company’s individual schemes tend to have separate equity providers and lenders. In the UK, it develops and manages on behalf of a fund that expected to raise £650M for new co-living developments alongside the fund management arm of Cushman & Wakefield. 

Deutsche Bank also financed a management buyout of The Collective's first development, a 546-room scheme in north-west London, with a £140M loan. 

That scheme opened in 2016, and in late 2019, Merchant's company opened its second London outpost in Canary Wharf in the east. At 546 rooms and 705 rooms, respectively, they are the two largest purpose-built co-living schemes in the world. 

In the U.S., it has one operational scheme, The Paper Factory in the Queens neighborhood of Long Island City, which focuses more on short stays and has 224 rooms. 

Its development pipeline comprises seven further schemes in London, one in Dublin and five in the U.S. — three in Brooklyn, one in Chicago and one in Miami. When built out, the portfolio will total 9,000 rooms and have an estimated gross development value of $3.6B, the company said.

In an interview with Bisnow in November, Merchant gave insight into how the pandemic and lockdowns have hit a sector predicated on people living in small apartments and socialising.

He said occupancy at its two operational UK sites was 83% in November, compared to occupancy in the mid-90s before the pandemic. At the bottom of the first lockdown, occupancy dropped as low as the mid-60s, he said.

 “It has been a difficult time, especially the first few months when there was a lot of uncertainty exacerbated by the fact that we were all in lockdown,” Merchant told Bisnow. “But I think the sector has shown its resilience. From when we’re born to when we die, we want connection. It’s in our nature to want to be around other people, and to be part of something bigger than ourselves. Even in a pandemic there has been demand for our spaces.” 

At the Paper Factory in Long Island City, occupancy fell to 75% in summer 2020 and stood at 55% in November. He said this compared favourably to the hotel market in London and Long Island City, where occupancy fell to around 30% to 35%.

That drop hit fee income for The Collective’s management company, but it didn't have to restructure any of its loans, Merchant said at the time.