By Meghan Hall
The future of urban housing and high-density residential development has come under the magnifying glass this year as the current pandemic put pressure on multifamily fundamentals in core markets. 2020 has proved a pivotal one for the nascent co-living industry, which had just begun to see wider acceptance and industry adoption at the end of the last market cycle. Despite the challenges of 2020, co-living startup Starcity has acquired Ollie, another industry player, accelerating its growth as a global company.
“We were very aligned on strategy, and we were very aligned on culture. It just felt like a really good fit,” explained Starcity Co-Founder and CEO Jon Dishotsky. “A lot of the pieces of the puzzle fell into place.”
Starcity was founded by Dishotsky, Jesse Suarez, Josh Lehman and Mo Sakrani in 2016—its mission to provide a form of housing that came at a price advantage to high-end luxury units hitting the market. At the time, Dishotsky and the Starcity team were watching those close to them—even tech workers and those classified as middle income—barely scrape by in the city of San Francisco due to skyrocketing housing prices. Dishotsky and Sakrani began looking for a way to begin addressing the affordability crisis in expensive core cities, and settled upon co-living as a way to give everyday people a chance to experience San Francisco.
When the start-up’s first six-bed conversion opened in the South of Market district, Starcity received more than 1,000 applications, and the firm knew it was onto something. From there, the company has grown rapidly.
“Basically, we were really frustrated with the cost of living,” said Dishotsky. “It didn’t seem like there were a lot of solutions out there. Since  it’s been pretty feverish growth between the West coast and parts of Western Europe.”
At the beginning of the year, Starcity had 500 units in operation across San Francisco, Oakland and Los Angeles, with an additional committed development pipeline of 2,000 units. With the acquisition of Ollie, Starcity will operate 1,500 units globally and add an additional 1,000 units to its development and operations pipeline.
According to Dishotsky, there were a number of reasons why Starcity and Ollie decided to pursue a merger and acquisition. Chief among those reasons was a shared mission to serve the modern workforce and make typically expensive cities accessible. Additionally, while Starcity’s assets were primarily located on the West Coast, Ollie had already entered into East Coast markets, with assets in cities like Boston and New York, expanding its portfolio. Ollie had also built software that was on Starcity’s roadmap but had not yet tackled, including roommate matching and provisions and a community engagement platform.
“I had always admired the Ollie brand,” said Dishotsky. “They had built a really strong presence on the East Coast, the projects that they had built were institutional in caliber, Class A, but also they cared a lot about the same things. They were kindred spirits there.”
Dishotsky continued, adding, “They’re really customer first; they really cared about changing residents’ experience, and were not okay with the status quo of how housing works. It felt like a really solid, natural fit.”
Starcity’s acquisition of Ollie closed last week. Dishotsky declined to comment on the terms of the deal. However, with the transaction now complete, the company is focusing on expansion plans in other growing cities from Seattle to Miami to Madrid.
The acquisition comes at a pivotal moment for the co-living industry, one that could prove to accelerate its growth or cause co-living to flounder in the face of new challenges. During the second quarter, occupancy in Starcity’s portfolio dropped into the 80-percent range, comparable to many co-living assets across the country, as residents sought to be closer to family, deal with new financial hardships, or escape cities themselves.
“At the end of the day, Q2 was a very difficult quarter for any business,” acknowledged Dishotsky. “Like any company, we were grappling with the changes COVID-19 presented.”
In response, Starcity rolled out a number of changes to its operations to increase the safety of its residents, from tripling cleaning protocols to moving tours and community events to virtual platforms. Over the course of the pandemic, Starcity did maintain collections, and the company is now seeing occupancy levels comparable to the beginning of 2020, pre-COVID-19. DIshotsky estimates that markets like Oakland have occupancy in the high 90-percent range; San Francisco and New York are in the low 90-percent range. And, in another positive metric: While at the bottom of the pandemic Starcity received about 1,000 inquiries per quarter, the firm is seeing now more than 10,000 inquiries over the same time period. Prior to coronavirus, Starcity was seeing roughly 3,000 inquiries per quarter.
Looking ahead, Dishotsky is confident that the co-living industry has strengthened its roots and will only grow.
“Five years ago, we’d get laughed out of the office. But now we have onboarded best-in-class investors, large private equity funds, partners like Greystar,” said Dishotsky. “There’s really widespread adoption that this is an asset class that will be around for the long-haul.”
Co-living units are typically priced 20 to 30 percent below new luxury or micro-units, and provide a number of amenities that aging Class B or C assets are not able to provide, despite their price discounts.
“So long as you provide deep levels of affordability compared to what’s existing in the market, and a community that’s authentic, as well as all of the services and the operations that support that, it’s really compelling for the residents,” said Dishotsky. “It’s a coming of age moment for the industry.”