World's first major co-living fund seeks US$825m in pledges

[LONDON] Real estate investment manager DTZ Investors and co-living developer the Collective have started the world's first fund to buy and build communal housing in London, betting lonely renters and sky-high house prices will make the niche sector mainstream.

The venture is seeking 650 million pounds (S$1.129 billion) in commitments and plans to invest in six to 10 projects in London, according to a statement Monday. The fund has 70 million pounds of seed capital and its managers aim to build a portfolio valued at about 1 billion pounds over its 10-year life, with returns of 8 per cent to 10 per cent.

"We definitely expect a first-mover advantage," Chris Cooper, chief executive officer of DTZ Investors, said in an interview. The fund manager invested in UK student-housing landlord Unite Group Plc in 2005, a time when purpose-built apartments for students were in their infancy. That bet has paid off handsomely.

Co-living developments provide small bedrooms or apartments with large common areas, selling customers on a sense of community and access to a wide range of amenities. The handful of brands emerging in the UK and US typically target young professionals who are priced out of buying their own homes.

The fund's first investment is a 222-room building in London's Harrow section that's due to be completed in 2021. As well as funding new projects, the venture, called COLIV, will buy existing properties that have been operated by the Collective during its four-year investment period.

Tiny Rooms

The Collective currently has about 1,650 rooms and is in the process of developing 8,000 more in the UK, Ireland, Germany and the US, according to CEO Reza Merchant. The average age of its customers is 33 and the average yearly salary of tenants at its property in London's Old Oak is about 34,000 pounds, he said.

Critics of co-living point to the relatively high rents charged for rooms that are much smaller than normal studios or one-bedroom apartments. Rates at the Collective's Old Oak, in the West London Willesden Junction district, start at 1,083 pounds a month for a room designed for one person when rented on a 12-month contract, according to its website.

"We are very focused on the quality of the space we design, and by sharing, you get access to so much more," Mr Merchant said. The company runs events designed to combat loneliness and bring people together, while its buildings have amenities ranging from cinemas, libraries, spas and, in the case of the Collective's Canary Wharf site, a rooftop swimming pool.

"Financial return is a very important objective," he said, "but for us as a business, we want to have a positive social impact."

BLOOMBERG