Real Estate

Finding Robust Returns In New York's Co-Living Real Estate Sector

Tom Burroughes Group Editor 29 July 2024

Finding Robust Returns In New York's Co-Living Real Estate Sector

Shortages of affordable housing – such as properties used by students – can create opportunities for those seeking robust returns. Recent moves by New York to hike new housing permits highlight what is at stake. A firm operating in the sector – with family office investors – talks to this news service.

A real estate management firm specializing in furnished co-living spaces concentrates on what young people want in the New York area. And the strategy, says Outpost Club, is working out just fine. 

The business model – founded in 2016 – is a platform for student housing in New York City and Philadelphia. It is a sector with a lot of demand and a supply constraint. Shortages of affordable housing for young people in big metropolises are well known.

Outpost Club’s chief executive – and the organization’s co-founder – is Sergii Starostin. (Chief operating officer is Alex Prykhodko.)

The business has an annual revenue of $25 million, with co-living spaces in New York with one million square feet under management, 40 properties, and 97 per cent historical occupancy.

“Fundamentally, the market is on our side: more people are looking for affordability than there are rich ones and there is a limited supply of property,” Starostin told Family Wealth Report in a call. In New York, a third of all rental property is treated as “affordable” – ie, under rent control, with the rest operating in a free market, he continued. “In our properties, about 10 per cent of them are `stabilized’.”

People are looking for robust property markets to invest in, and New York is one of them, he said. Family offices invest in properties that Outpost Group manages; some are long-term investors.

Starostin spoke at a time when, after the post-Covid rate hikes and falls in occupancy rates for offices as a result of home working, the real estate investment market in the US has had to adjust. New York is facing a harsh housing crisis. The vacancy rate is usually somewhere around 5 per cent to 8 per cent; it has fallen to 1.4 per cent even as the city added more than 50,000 homes over the past two years, according to city data. 

In April 2024, New York governor Kathy Hochul negotiated a housing deal. If fully enacted, the deal will raise NYC’s permits for new housing. A recent report (Manhattan Institute) quoted the NYC Department of City Planning saying that in 2023, just 16,359 units obtained permits, the lowest number since 2016, when 15,744 units were permitted. Both years followed a large spike in permits in 2022 and 2015, respectively, as a tax-incentive program for new housing expired.

New York is far from unique, of course. The world over, the shortage of affordable housing is often a major political hot issue.

On a different part of the US real estate market, this news service recently spoke to Hamilton Point Investments about its approach, and why it smiles on multi-family properties as a source of returns. 

The numbers 
Starostin said Outpost Club’s business model outperformed the traditional leasing model in 2023. For example, the average monthly rental revenue per unit (pricing) of $9,800 was about 31 per cent higher than the estimated rent under the traditional leasing model. Units chalked up an occupancy rate of 98.3 per cent, and net operating income (NOI) was about 25 per cent higher despite higher operating costs, he said. 

Renters are willing to pay a higher monthly rent to avoid avoid spending money and time on furniture, utilities set up, and finding roommates, Starostin said; they also want flexible leasing terms. From the landlord’s side of the street, they invest in furniture and low voltage equipment, but realize more than 20 per cent higher NOI. 

 

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes