As More Investors Buy Into Co-Living, Starcity Seeks New Opportunities

Starcity recently secured funding from crowdfunding platform EquityMultiple for its latest co-living location in San Francisco, signaling a shift in investor appetites for co-living, a concept many investors have shied away from.

The company has raised more than $20M in venture financing within the last 18 months from the likes of Bullpen Capital, NEA, Social Capital and Y Combinator, and has struck deals with institutional real estate partners to participate in some of Starcity’s larger properties.

Its recent partnership with EquityMultiple raised $1.8M to convert a two-unit home into a 13-bedroom co-living property at 1150 Fell St.

The investment was so popular that it was oversubscribed within two weeks, Starcity CEO and co-founder Jon Dishotsky said.

“That is a lot different than getting laughed out of people’s offices,” Dishotsky said. 

When Dishotsky first pitched the concept to lenders, they turned him away and he ended up getting funding from venture capitalists.

Given San Francisco’s high cost of living, ongoing housing crisis and rising construction costs, the co-living model is becoming increasingly popular in the Bay Area among young professionals and seniors alike. Realtex Group has proposed to build a mixed-use building with co-living and office space in South of Market. Common expanded into Oakland in 2017.

The company converts underused multifamily, hotel and office buildings into residential co-living properties. It currently owns and operates four properties in San Francisco with nine more communities under development.

Members typically have a private bedroom, private or shared bathroom and shared living spaces, such as a kitchen, sitting area and TV area. Rent includes utilities, shared supplies and home cleaning services. Members can add options like laundry or dog walking services. Starcity also provides various community events.

“The need [for housing] here is very high, particularly in the biggest expensive ... cities like San Francisco, Los Angeles and New York,” EquityMultiple CEO Charles Clinton said. “In San Francisco, you have so many young graduates move into the city for work. To be able to just step into a living situation where it is so hard to find a place made sense to investors.”

He said his company has been looking into co-living opportunities, but Starcity made the most sense. Clinton said what was attractive about Starcity was its vertically integrated model where the company finds properties and does its own construction and renovation.

EquityMultiple responds to what investors want and if this investment proves to have the kind of progress and validation Starcity has had with other properties, the firm would consider being involved in more properties in the future, Clinton said.

By having four established projects, raising capital for future communities is not as difficult as it used to be, Dishotsky said. Starcity members also are working professionals with high-quality credit looking for better housing options who are unlikely to default.

A shift in regulations and coding could open the door to additional opportunities as well. Planning departments seem to be willing to update congregate dwelling codes to comply with new styles of community, Dishotsky said.

If codes are updated, it would be valuable for developers and investors to create additional living options instead of using buildings illegally or in ways that don’t comply with zoning, he said. Right now developers have to adjust their products in ways that fit within coding and aren’t always perfect for what they want to build in scale.

Dishotsky said having a better regulatory fit could attract more investors since the entitlement risk would be diminished.

He said Starcity is starting to look into ground-up opportunities, which can pull in institutional investors to build a project at a scale that makes sense to a large investor.

Dishotsky plans to expand the Starcity model nationwide and to create different kinds of products that appeal to different people, such as offering a Victorian-style home for people who want that kind of living arrangement or a property with an urban high-rise feel.

He said Starcity also wants to widen who can invest in these types of communities to make this successful for not just residents, but investors as well.

“There is no limit on how much we can grow … as long as we’re working well with local communities building sustainable communities,” Dishotsky said. “The sky is really the limit.”