[Editor’s note: Originally published on One Room at a Time.]
As many of you know, the co-living industry has seen its fair share of challenges and failures in recent years. Companies like Common, Quarters, Starcity, and Ollie have all shut down, leaving residents displaced, staff unemployed, and investors losing millions. Through all this turmoil, PadSplit has not only survived but thrived, raising less capital than any of these companies and producing more units than all of them combined.
I’ve gotten several questions recently about why we have survived in a space where others have not. I obviously don’t have all the context to answer these questions with respect to other companies, but I always start by saying that this business is more brutal and unforgiving than most. So many circumstances are due to purely luck and timing, and I have tremendous respect for my peers in the space regardless of the business outcome. I won’t pretend that I am smarter or more capable than any of them, but for the sake of context for anyone studying this industry, I’ll take a stab at why we may have succeeded thus far where others have not.
Focusing on an Underserved Market
From day one, PadSplit’s mission has been to provide affordable housing solutions for the workforce population – nurses, teachers, construction workers, and others who are vital to keeping our communities running. These hard-working individuals often get overlooked and priced out of decent housing options.
While other co-living companies chased after affluent millennials in high-cost urban centers, we recognized the massive housing need for frontline workers across urban typologies. Specifically, we recognized that as single-family homes have steadily increased in square footage since 1950 during the same period when family sizes have declined, there was a latent and inefficient housing supply that could be better utilized to create more affordable housing options. PadSplit units typically rent for $600-800 per month on average, inclusive of utilities, far less than others in co-living.
This focus on serving a neglected yet essential segment of the housing market has allowed us to find success where others could not. We’re fulfilling a real need for a market that quite often cannot qualify to access the traditional housing market, either for rent or for sale.
An Asset-Light, Sustainable Business Model
Many of the co-living companies that failed appeared to take on too much financial risk and overhead through excessive leasing of properties or expensive build-outs. By contrast, we’ve taken an asset-light approach by aligning incentives with property owners. At our core, we believe that the people who are closest to the problems are generally the best equipped to solve them.
Renting by the room is and always has been a more profitable business than renting entire houses or apartments. But it’s also a lot more work. PadSplit was created to provide the services and technology that most housing providers either cannot provide on their own or simply don’t want to deal with.
Rather than taking all the risk and most of the reward like most co-living companies were originally designed to do, we focused on a few specialized services, passing through the bulk of the financial benefit to owners and building out an ecosystem of adjacent service providers to make their lives as easy as possible. This allows housing providers, who know their markets better than we do, to have the tools and incentives to create the best homes for their communities.
There are plenty of property maintenance and management companies that can fix toilets, repair roofs, or keep the grass mowed. However, there aren’t any that can generate 200k sets of eyeballs per month on your property, qualify and move residents into your property in under 48 hours, set them up on a customized billing cycle, or deal with calls about roommate disputes.
Our asset-light, “enlarge the pie” approach has allowed us to rapidly scale across multiple states with a fairly lean team and limited capital requirements, although it has absolutely required a tremendous amount of grit, patience, and a mission-oriented team willing to disrupt an intransigent industry fraught with both regulatory and human risk. But our experiential learnings have also been profound, and create a significant moat around the business.
A Resilient Team and Company Culture
Of course, a successful business is about more than just numbers and models – it’s about the people behind it. I have no doubt our mission to “solve the affordable housing crisis while leveraging housing as a vehicle for financial empowerment” has played an enormous role in our ability to attract and retain outstanding talent. I’m incredibly privileged to work alongside some amazing people who likely wouldn’t be here if they weren’t confident we’re changing lives for the better. Seeing and hearing the intensely personal stories of transformation through housing is inspiring to us all.
These impacts certainly make it easier to weather the many storms we’ve already endured.
We lost our Series A funding at the 11th hour on 4/1/20 due to Covid fears which led to most of us working for free or discounted pay for the next 5 months. We’ve seen negative press articles, dozens of legal attacks, and every possible human interaction you can imagine across more than 30,000 stays. I’m still fighting multiple citations against me personally as CEO from jurisdictions that evidently put a higher priority on their exclusionary zoning ordinances than the ability of their workforce to access housing in their communities. Through it all, our team has remained resilient, resourceful, and committed to our residents and property owner partners. We genuinely care about the impact we’re having; we show it; and we try to prove it every single day.
This strong culture has helped us attract top talent who buy into our vision. It’s also fostered an environment of constant innovation as we find new ways to enhance our resident experience and operating efficiency.
Looking Ahead to the Future
While we’re certainly proud of PadSplit’s accomplishments so far, we’re even more excited about what’s still to come. The affordable housing crisis affecting so many communities across the nation shows no signs of letting up. If anything, the demand for our flexible, cost-effective shared housing solutions will only continue growing.
We have major expansion plans in the pipeline, with new markets we’ll be entering and new products we’ll be rolling out. We’re also investing heavily in technology to streamline operations and provide even better service to our residents and partners. For what it’s worth, I do hope other co-living companies enter the market, even if they are directly competitive with us and focus on lower-income individuals like we do. Because we are a social impact-focused company, I absolutely believe we need more smart people in this space to attack the many issues and rise all tides.
Whatever happens, we’ll be staying true to our core mission and values. PadSplit is more than just a company – we’re a movement to make housing more affordable, accessible, and dignified for all. We’ll keep pushing forward and finding innovative ways to have a positive impact – one room at a time.