Affordable Coliving Startup Raises Millions To Enter New Markets
PadSplit To Expand Into Dallas-Fort Worth and Jacksonville, Florida
By Marissa Luck CoStar News November 18, 2021 | 5:22 P.M.
A startup focused on turning underutilized real estate into affordable housing has secured $20.5 million in funding and plans to expand into Dallas and Jacksonville, Florida, and offer a new service that could potentially lure in more landlords.
While PadSplit is technically in the coliving business — a modern form of communal living in which residents get a private room in a furnished house with shared common areas — its CEO and founder has said his company is different because it is focused solely on affordable housing and addressing the nation's shortfall of affordable rental units.
PadSplit's recent round of fundraising will allow the company to launch a new turnkey property management service, enlarge its footprint in existing markets and expand into new markets, according to a PadSplit spokesperson. PadSplit, which entered the Houston market earlier this year, aims to hit 3,500 units on its platform by the end of 2021 and reach 10,000 units by the end of 2022.
PadSplit already has a large presence in its hometown of Atlanta, as well as operations in New Orleans; Tampa, Florida; Richmond, Virginia; and Indianapolis and has been working on expanding into Sun Belt markets where prices are appreciating but have not reached the eye-popping escalation of major East and West coast cities.
The group works with landlords to turn vacant housing into income-producing, coliving spaces similar to student or senior housing. The units are marketed on an Airbnb-like platform online. By turning unused space in residential properties into rental units, the company generates additional revenue for property owners while allowing residents to pay substantially less than what they would for a typical one-bedroom apartment.
The $20.5 million Series B round of financing announced earlier this month includes funding from Core Innovation Capital, Impact Engine, Citi, Mark Cuban Cos., and Cox Enterprises, among others, according to a release. This funding adds to $14.6 million in funding the startup has previously raised.
The recent influx of cash will also allow PadSplit to develop a turnkey solution for property owners for financing, construction services and on-site property management, according to the statement. Previously, PadSplit mostly relied on real estate investors that could access their own professional services, so this added turnkey option allows the company to reach more potential landlords.
“This financial support enables us to continue increasing housing supply that is more affordable and more accessible for the workers serving our communities,” PadSplit CEO and founder Atticus LeBlanc said in a statement. “We’re actively expanding geographies.” The company is targeting to have 3,000 units in the Dallas-Fort Worth area by the end of 2022 and remains interested in adding more properties throughout the region, a spokesperson told CoStar News in an email. In Jacksonville, where the startup is aiming to have 1,000 units by the end of 2022, PadSplit is focusing on properties inside the Interstate 295 loop west of the St. Johns River.
Since coming to Houston earlier this year, PadSplit has opened 169 units, with commitments from owners for another 295 units that are mostly under renovation as of early November, the spokesperson said. Another 607 units are in its pipeline in Houston, the spokesperson said.
By renting rooms individually, PadSplit keeps rents at an average of $600 per month that includes internet, utilities and access to telemedicine. Residents can save about $420 monthly compared to renting out a traditional space, according to PadSplit. They can also pay on a per-week basis, which can help people living paycheck to paycheck, LeBlanc told CoStar News. This allows individual residents to stay in good standing with landlords, even if their roommates miss a payment.
So far, the company mostly has been working with single-family rentals, but it does have multifamily units in Atlanta and the company has an interest in adding multifamily properties in other markets.
Even though the sort of coliving PadSplit offers isn’t expected to replace traditional living arrangements in the United States anytime soon, many coliving companies have been expanding to meet a surge in demand. In 2020, there were 7,820 coliving beds in the United States and 54,300 beds under development by private companies, according to a report from brokerage firm Cushman & Wakefield. Common, the largest U.S. coliving company, has taken over coliving brands including WeLive, Quarters and StarCity.
But most existing and planned coliving projects are in urban areas in the country's most expensive cities such as New York City, Miami and San Francisco, all areas with competition from multifamily developers and plenty of regulatory hurdles.
All coliving operators also have to contend with the risk of more turnover than traditional landlords because of the short-term nature of coliving leases, which average about nine months. But PadSplit argues turnover in one of its units isn’t like turnover in a traditional rental because the home still maintains other rent-paying residents during the process and common spaces are maintained.