What do YOU think? 🤔🧠 #VeryVeryCurious
💡 𝐅𝐨𝐨𝐝 𝐟𝐨𝐫 𝐓𝐡𝐨𝐮𝐠𝐡𝐭: 𝐖𝐡𝐲 𝐂𝐨𝐦𝐦𝐨𝐧'𝐬 𝐞𝐱𝐩𝐚𝐧𝐬𝐢𝐨𝐧 𝐬𝐭𝐮𝐦𝐛𝐥𝐞 𝐜𝐚𝐧 𝐛𝐞 𝐚 𝐥𝐞𝐬𝐬𝐨𝐧 𝐟𝐨𝐫 "𝐲𝐨𝐮𝐧𝐠" 𝐡𝐨𝐬𝐩𝐢𝐭𝐚𝐥𝐢𝐭𝐲 𝐨𝐩𝐞𝐫𝐚𝐭𝐨𝐫𝐬 Although it has been a while I only found the time to structure my thoughts this week. On June 3rd, 2024 one of North America's largest co-living operators, Common, filed for hashtag #bankruptcy 💔 . With over 5,200 units under its belt, this event may seem sudden, but in my opinion, some warning signs have been there all along… 👉 𝐆𝐫𝐨𝐰𝐭𝐡: 𝐀 𝐃𝐨𝐮𝐛𝐥𝐞-𝐄𝐝𝐠𝐞𝐝 𝐒𝐰𝐨𝐫𝐝 Major venture capitalists poured over $110 million 💰 into Common, driving high expectations for rapid expansion. Fueled by these investments, Common acquired struggling co-living companies during the pandemic. However, it seems they overlooked a critical aspect: growth is only valuable if 𝑙𝑜𝑛𝑔-𝑡𝑒𝑟𝑚 𝑝𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦 is achievable within the portfolio. Growth alone will not do it, as lease contracts themselves do not benefit from fixed cost degression. Common even highlighted that lease contracts indeed were a key factor for insolvency. From this it can be assumed that expansion at Common was fueled by paying overrent to secure growth. In recent years escalating competition has led to soaring rents for co-living and serviced apartment operators. This raises a crucial question we ponder daily at our Expansion Team: Can these properties actually deliver a constant (!) property level margin with such ambitious rents? If not - don't sign the contract! 👉 𝐐𝐮𝐚𝐥𝐢𝐭𝐲: 𝐓𝐡𝐞 𝐅𝐨𝐫𝐠𝐨𝐭𝐭𝐞𝐧 𝐂𝐨𝐫𝐧𝐞𝐫𝐬𝐭𝐨𝐧𝐞 Two years ago, reports surfaced about quality issues and poor communication at Common properties. These problems underscore one of the biggest challenges in scaling a hospitality company - consistent quality. We must remember that the overall quality of our products profoundly affects our guest's well-being. Therefore, It is important not to neglect product quality, just for the sake of growth. In our opinion the best way to assure quality: staff on site! 👉 𝐌𝐚𝐫𝐤𝐞𝐭: 𝐖𝐞 𝐚𝐥𝐥 𝐥𝐨𝐨𝐬𝐞... Incidents such as Commons insolvency have the potential to impact the entire sector of innovative hospitality concepts. Many companies in this space are striving to present the sector as sustainable and appealing to investors and developers. And they do indeed have solid business models to back up their claims. A bankruptcy of a young operator will have a significantly negative effects on those robust players as well as the whole sector. 👉 𝐓𝐚𝐤𝐞 𝐀𝐰𝐚𝐲: 𝐓𝐫𝐚𝐧𝐬𝐩𝐚𝐫𝐞𝐧𝐜𝐲 𝐢𝐬 𝐤𝐞𝐲 There is only one solution to make sure you bet on the right horse 🐎 when selecting a hospitality operator. Get to know the brand and the business model. Have a deep look into their financial capabilities. And most importantly try to understand whether the asset is actually suitable for the respective operator. Looking forward to your thoughts 🧠 !