As Rental Prices in San Francisco Remain Sky-High, Starcity Works to Mainstream Coliving Options

Starcity, San Francisco, Starcity Tenderloin
Image Courtesy of Starcity

By Meghan Hall

As most in the Bay Area are acutely aware, living in San Francisco is not cheap. To make matters more complicated, many developers and landlords have pursued luxury multifamily product in recent years in an effort to make their projects financially viable. The result has been that many residents, often those outside of the tech industry but generally considered middle income, are priced out. In an effort to save money, coliving has become increasingly popular, and startups like San Francisco-based Starcity are leading the charge in popularizing its rise.

Starcity, co-founded in 2016 by Jon Dishotsky and Mo Sakrani, has already raised $40 million in venture capital in the course of its short lifetime, and has used that money to create 500 beds. An additional 2,000 units, according to Dishotsky, are already in the pipeline.

“The overwhelming, pervasive issue that I found over that decade was that there wasn’t a form of housing that would significantly come at a price advantage to high-end luxury,” explained Dishotsky, who worked as a commercial broker for ten years before founding Starcity. “So, the majority of people I knew…were making it work through Craigslist subleases or shared houses or putting most of their income towards rent. It just felt like there needed to be a better product out there…I was frustrated with the headlines talking about this huge housing affordability crisis, but it didn’t seem like there were any products being proposed other than just policy.”

The start-up’s first project was a six-bed conversion in San Francisco’s South of Market district. The response to the project was overwhelming: For just six beds, Starcity received more than one thousand applications.

“This is such a huge problem, and our long-term goal is really to give people who are the backbone economy workers—that’s teachers, nurses, baristas, bartenders, cops, firemen—the hope that they  can afford to live in some of the best cities in the country,” added Dishotsky. 

Starcity’s most recent delivery in the Bay Area is Starcity Tenderloin, a 52-unit adaptive reuse project located at 229 Ellis Street. Starcity originally acquired the property in 2018 for $12.175 million, or about $702 per square foot, according to public property documents. The roughly 17,000 square foot building was originally constructed in 1910 and had since been used for an array of purposes, including as a Turkish bath before it was vacated and shuttered.

“When we acquired it, it was really just urban decay,” said Dishotsky. “It was completely vacant on the inside, really run down, but it is in the heart of downtown San Francisco. To me, it is sort of shocking in this kind of housing affordability crisis that we still have buildings not used for housing.”

Starcity received entitlements and broke ground within the same year, gearing up to deliver the property to market this year. On each floor, up to 12 residents will share a 1,500 square foot chef style kitchen, dining and media room. Each unit comes furnished and residents have the option of a private en-suite restroom or sharing a bathroom with two housemates. Units are roughly 220 square feet in size, stated Dishotsky. Amenities include a large rooftop deck, a speakeasy-inspired basement movie theater and game space, as well as bike parking. The main entry of the building is slated to be an additional gathering space complete with event programming.

The design and layout continued to build off of lessons learned from the numerous other properties that Starcity has worked on in San Francisco and Los Angeles. Most of Starcity’s earlier locations involved converting previous hotels or multifamily buildings that had sat vacant, as opposed to adaptive reuse projects like Starcity Tenderloin or ground-up development.

However, because Starcity is both owns and operates its communities, the organization is planning to pursue more conversions and ground-up projects moving forward. For now, Starcity is looking to develop between 50 to 300 units on its properties and hopes to expand beyond its current markets in the future. Having the entire team—real estate development and investor relations, hospitality and property management, and the firm’s tech team—under one roof has been paramount.

“I think there’s this really beautiful vertical integration that occurs, where the information on the front lines that we get from our operations staff makes it into new developments that we do. The data that we slice and dice for how members are experiencing their community we use to inform our operations,” said Dishotsky. “If you’re just an operator, in many cases you have to take whatever the developer wants to build for you.”

Dishotsky is optimistic about the future, even though many in the industry are expressing concerns about the impacts of COVID-19 in the coming months. According to Starcity, the organization had 94 percent occupancy across its portfolio, and in April they collected 92 percent of rents. And, despite some residents moving out, there are plenty looking to move in. In an effort to keep residents safe, Starcity has eliminated gatherings, increased cleaning protocols and has maintained 

“You can really just plug into us, drop your bags and move in…we’re a very natural place for people to seek in times of distress.” 

Starcity typically aims to keep its rents about 30 to 40 percent lower than the cost of a studio apartment in the city. And, even with economic uncertainty in the future, Starcity is confident in the stability of its properties in the future.

“Coliving is really becoming an institutional asset class,” said Dishotsky. “Five years ago, it went from taking a chance to today, where major asset managers and investors are really considering coliving as part of their future strategy. It is very similar to what happened with student housing, senior care or data centers, where the asset class had to go through an evolution and a maturing. As folks look at how this market will evolve over the coming years, we’re bullish on it, and I think an economic downturn is good proving grounds for whether or not an asset class can be resilient.”

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