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Why San Jose Could Catch New York City In Co-Living Development

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A rendering of Starcity Bassett

Two of the country’s most housing-starved cities are welcoming one of commercial real estate’s most innovative housing concepts as a solution to the housing crisis.

New York City’s market for co-living is as established as any in the U.S., with more than 1,100 existing co-living units and over 1,600 more in the pipeline, according to a conservative estimate provided to Bisnow by brokerage Cushman & Wakefield. It is conservative because the number of deals and their sizes is growing rapidly, with the city now working to quicken the pace.

Unlike San Francisco, Los Angeles and other major municipalities where co-living developers are pursuing projects, San Jose's revamped housing code has hung out the "welcome" sign for developers. Silicon Valley's necessity and market conditions also make it more likely than many other regions to welcome thousands of new co-living units in the next decade.

Now co-living developments in San Jose can proceed with greater density, fewer parking spaces (just 0.25 per unit) and with multiple bedrooms per kitchen space (among other advantages), compared to co-living projects in other cities, which traditionally are subject to requirements under conventional multifamily or group housing uses.

“Co-living is a good fit for downtown San Jose,” Chris Burton, San Jose’s deputy director for the city's office of economic development, told Bisnow. “We’re close to transit, accepting of and welcoming density, and we have major employers that are either located or looking to locate in the immediate vicinity.”

Just blocks away from 199 Bassett St., where Starcity’s tower will rise, Google’s massive transit-oriented village will take shape around San Jose’s multimodal Diridon Station, which itself will eventually offer a new BART station and much-needed connectivity to the rest of the Bay Area.

Google alone has purchased over $300M of property in preparation for its plans. San Francisco-based developer Jay Paul Co. has committed almost $700M, according to San Jose Spotlight. And local developer Urban Community is reportedly on its way to spending billions. The millions of square feet of office space that will rise in San Jose in the coming decade also means the city’s need for housing solutions will only grow more dire.

To developers, co-living makes sense. KT Urban, a prominent and longtime residential developer in San Jose, sold 199 Bassett St. to Starcity last year and is staying on in an advisory role as the startup prepares to break ground. KT Urban partner Shawn Milligan cited work done for the firm by real estate consultant The Concord Group, which counted approximately 78,000 potential renters in the San Jose MSA for co-living-type projects.

“When we were looking at the Starcity project, for example, with 800 beds, we were pretty encouraged by the fact that we were only going to have to capture about 1% of that market in order to fully lease the building,” Milligan told Bisnow.

In February, KT Urban was reportedly considering turning its own plans for a 290-unit residential project into a co-living tower of up to 850 bedrooms, the Silicon Valley Business Journal reported. Milligan said the firm has fielded interest from a number of co-living groups and nontraditional multifamily operators and that it also has its eyes on other co-living opportunities in San Jose.

“We think [co-living] is going to be a very viable solution to the housing shortage,” he said.

Some of the early results of the nation’s largest co-living developments have been promising, especially in San Jose, where as many as 2,500 homes are approved but stalled by soaring construction costs. Hoping to ease the bottleneck, the City Council has set a goal of 25,000 new homes between 2018 and 2023 and 120,000 by 2040.

In addition, developers of existing San Francisco and Oakland co-living projects could channel future Bay Area development to San Jose. The New York-based company Common, which has the largest co-living footprint in the U.S. and operates developments in both S.F. and Oakland, has already announced a $100M expansion to Los Angeles and reportedly responded to the ShareNYC RFEI. 

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