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  • Fabio De Gaspari

Is repurposing the next trend on Co-living?

Updated: Jun 28

In the industry some debate and articles are popping up about lodging/hospitality or mixed-use repositioning towards residential concepts, often co-living setups.

Below a few lists of interesting pieces on this:

https://www.theinvestor.jll/news/hong-kong/alternatives/why-investors-are-getting-creative-in-hong-kongs-co-living-market/

https://www.spx-agency.com/repurpose-hotel-assets-into-shared-living-experience/

I've seen also some design material of architecture studies drawing reconversion plan. Obviously there are some limits and deep study needs to address NOI margins net of PPI, capex and opex. But if residential cap rates are applied the deal is appealing.

Location in urban areas is fundamental, also if some ideas are growing in coastal area. Look at this: https://www.hosteltur.com/136677_hoteles-viejos-de-playa-de-palma-y-calvia-podran-convertirse-en-viviendas.html in our Mallorca!

It's really difficult to value if changing destination use could be a solution: the basic reason is to target changing demands and customers but a case by case valuation is necessary.

Tax structures, zoning, property taxes, financial models, regulation, lender supports,etc have to be considered to change the use of a distressed hotels in a co-living concept. I guess that the lines between serviced apartments and aparthotels could be simpler to cross.

The basic concept is to move from short stays to mid-long term operation, so only co-living operator more residential oriented could be adapt.

Let's not forget that aside from some independents and family based structures, the hotel industry divides in propco and opco, so a detailed analysis of contractual agreements, covenants etc. has to be considered.

Trying to do some calculus and scenario analysis, i've figured a particular type of hotels that could improve drastically NOI: the holiday properties in coastal areas but near enough to city centers, not resort (expensive in terms of amenities) and in 3-4 stars categories maximum, below 100 rooms (typically independent or family owned).

The conversion in residential will obviously reduce the ADR other than implying some initial capex but could largely benefit in terms of flattening and extending the seasonality: most, if not all of these hotels, work only on 6/7 months period while moving to year long period (normal for co-living concept) could balance and improves, netting strongly reduced operational costs, the RevPar.

At the same time less booking costs and some lean F&B could add in terms of revenues.

There are some experiments in the industry, with some co-living players putting the eyes on something. On the other side i'm still wondering why hospitality players (at least the big ones) are so slow to enter in residential. I guess that for many of them is a completely new mindset and hotels, benefitting strongly in recent years by growing touristic flows and investments, have at least been "distracted".

See for example in Barcelona what this brand is doing: https://praktikcoliving.com/es

Instead starting from scratch some nice hybridization concepts are running: https://room2.com/ https://livezoku.com/ https://www.thestudenthotel.com/

But it's not only the hospitality industry to knock at the doors of co-living, look below at student housing:

https://www.dublininquirer.com/2020/06/24/as-covid-19-travel-restrictions-continue-some-worry-about-a-large-surplus-of-student-accommodation?utm_source=All+Things+Coliving+Master+List&utm_campaign=a86c1327fa-All_Things_Coliving_Master1_COPY_01&utm_medium=email&utm_term=0_fcd5d88404-a86c1327fa-158287630&mc_cid=a86c1327fa&mc_eid=b6c6fe08a3

Reading some consideration in this article i notice a miscomprehension in terms of co-living offering, perceived principally short term stay instead than being an alternative residential solution.

PBSA started way before than co-living and in some countries and cities there had been some excess inflows into development with growing pipelines. Impact of Covid19 and growing digitalization in learning could add to some indirect consequences of economic recession. Student accommodation is supposed to be counter cyclical; people use the crisis to improve their skillset. Obviously the question is where they will study: nearby or far from home. Studying is a correct reaction but to do it far from home is a luxury in recession, reason why a lot of students could opt for nearby universities, increasing pendolarism and emptying beds. Reason why i'm more bearish on student housing than co-living at this stage.




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