MDes Final Project - Working File

SPRING // 2016

INFLATED NEW YORK

Masters Thesis Submission Anthony Stahl Harvard Graduate School of Design Master of Design Studies Candidate Real Estate and the Built Environment Real Estate Investment Concentration

Final Project / Thesis Submission Spring 2016 Author: Anthony Stahl Master of Design Studies Candidate, 2016 Real Estate and the Built Environment Real Estate Investment Concentration Harvard Graduate School of Design Harvard University

Thesis Advisor: Raymond Torto Lecturer in Urban Planning and Design Harvard Graduate School of Design Harvard University

All Rights Reserved Anthony Stahl 2016

“It is difficult to say what is impossible, for the dream of yesterday is the hope of today and the reality of tomorrow.”

– Robert H. Goddard

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Project Contents

Inflated New York

Project Contents

1.

Introduction and Abstract 2.

New York Narrative 3.

A New New York 4.

Market by the Numbers 5.

The Problem 6.

Current Tools 7.

Solution: Halcyon 8.

Budget + Case 9.

Halcyon Process 10. Conclusion

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Introduction The motivation for writing this paper stems from the many personal experiences I’ve had renting in New York. After 5 years of living and renting in the city, I’ve begun to wonder why any of us put up with a place where finding housing is so difficult. Even for a New Yorker making hundreds of thousands of dollars a year, the process is both archaic and a headache. These terms would be understatements for the rest of us living like mere mortals. There are a number of questions I’ve always wanted answered when it came to the cost of living in New York: how has technology, having fundamentally disrupted almost every other aspect of life, not made finding housing more

Introduction

efficient? How could a city with so much opportunity, so many jobs, and so much potential breed such a draconian and dated system of living? How were prices so unaffordable even to the highest of income? How were all of my friends living here when they obviously couldn’t afford even the cheapest one bedroom? How were all these people who stroll through the city on the daytime afford to live here, when I couldn’t working 90 hour weeks? Living in New York has never made much sense to me.

To some extent, this paper is self-serving. It may have been more meaningful to research the lowest income brackets in New York, a group that has been drastically impacted by inflated rent prices -- affordable housing is a complex issue in New York.

Likewise, the economic effect of rent control could have been another hard lining topic. But given the freedom to explore for the semester, I wanted to understand a number of general issues that have significantly shaped my New York experience, and also everyone else I have ever known in the city. I wanted to unpack why New York is so difficult to rent in for millennials like myself, and what is out there (if anything)

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that could help make the process easier. Rent pricing for the middle 80% of the pricing spectrum is shrugged off as matter-of-fact in discourse. For my generation though, a generation that is notoriously bogged down by high debt, stagnating income growth, and low individual net worth; the problem is real and can change where and how we live.

At the end of the day many of us put up with the pricing and the hassle of finding housing because we truly love New York and will do almost anything to make a life there. It is rare to find a city with such a diverse array of industries, career paths, people inventing, and practitioners challenging the way our world works. With a global reach, New York feels like the modern Rome… at least for now.

Inflated New York

More and more over the last five years I have witnessed well-qualified, high-earning friends with successful careers and job trajectories pack up their things and move to cheaper pastures. DC, San Francisco, Los Angeles, Minneapolis, Austin, and Portland all offer similar urban experiences without the cost or sacrifice. New York has never

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been more expensive. Even for those that society would deem as the most successful rent and mortgages are too high. The last five years has been the inflection point for many, people are asking themselves if it’s truly worth it.

With no end to inflation in sight, this poses a real issue for New York – a city whose future success is based on its ability to attract and retain young workers. Historically the perception of New York has always been that of opportunity, art, culture, unparalleled Project Structure

urban amenity, and the idea that anything is possible. As this vision changes though, young workers will stop flocking to the city making New York no longer the creative and economic powerhouse that it is today.

For someone who loves New York and is invested in its future, this is troubling. Even more troubling is that fact that no one is doing anything about it. This is true both in the public and private sectors. Few startups or existing companies have offered solutions to obvious issues renters face. Government has only slapped sanctions on developers and landmarked swaths of the city, making problems even worse. This project seeks to do the opposite – to identify the issues and propose a solution.

This solution is not for everyone. It applies to a middle market subset of millennials making average salaries, looking for average prices. Although it excludes the highest and lowest portions of the market, I believe it addresses a large portion of New York’s young worker population, those that are fueling New York’s creative motor, graduating from some of the best schools in the world to move to New York, contributing to

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New York’s unique sense of place, and are the future of its citizen base. Without this segment New York will cease to be the high-tech, educated, leading-gateway city it has evolved over the past 150 years to become.

Executive Summary and Project Structure This paper is divided into multiple sections that build on themselves chronologically. It begins with a narration of my experience moving to New York to familiarize the reader with an all too common New Yorker’s story, one they might not know if they have never lived in New York. This portion is necessary to try and describe the emotional toll the process takes and the level of hurdle a New New Yorker must clear in order to

Inflated New York

simply live in the city.

The second chapter, a New New York, tries to be specific about the rental market for millennials in New York. To do this required both identifying real zones millennials

were willing to rent in and pricing those places correctly. Major brokerages who report on average pricing in New York include data from all of the boroughs over all of their landmass. This greatly decreases average rental prices and is not applicable to what millennials consider ‘New York’.

For better or for worse, millennials do not move to New York with aspirations of living in far Brooklyn, the Bronx, Staten Island or Queens; and furthermore will choose not to move to New York if this is the only option. Although these areas may have been the hearts of a manufacturing era New York, digital age millennials want to be as close to Manhattan as possible.

To better understand the boundaries of what the young generation associates with ‘New York’ I interviewed 15 friends who live in New York to understand what their maxims would be regarding different lifestyle categories. This included (amongst other questions) how many blocks they would be willing to walk to a stop, amount of time they would be willing to commute, and the number of transfers they would be willing to make before they would either no longer consider that neighborhood, overextend their budgets for a closer apartment, or simply not live in the city at all. I used this, and the location of major Commercial Building Improvement Districts in New York, to form the basis for a ‘New’ map of New York.

The map generated included the majority of Manhattan, the coastline of New Jersey, Long Island City, areas in Brooklyn within a 50 minute commute, and completely excluded Staten Island and the far reaches of the Bronx, Brooklyn and Queens.

I then matched real-time pricing data from 9 different brokerages about the cost of living in these neighborhoods. Thereafter, I applied factors to better estimate the amount of apartments in each zone. This was in an effort to produce a weighted average as opposed to a general average predicated on simple land area. These factors included number of blocks, density of zone, average height of building, and percentage zoned as residential.

The result was that the average cost of renting a one bedroom in ‘New’ New York was $3,430 dollars a month. This aligns much more closely to one bedroom pricing in Manhattan and what my personal experience has been in the city. This differs greatly from a number of general reports, some of which suggest that the average price of a one bedroom rental per month is $2,500.

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After understanding where millennials were willing to rent, I wanted to understand who the ‘millennials’ were. Beyond simply demographics, this included lifestyle and macro-trends such as mobility.

Research finds that a typical millennial coming out of school and moving to New York makes a median income (full-time position) of $37,542 as compared to the New York median of $53,657 a year. This varies based on degree received, Business degrees earn Project Structure

on average $55,150, Engineering $44,860, Fine Arts $36,000, and Education $28,460.

Only 70% of millennials hold full-time ‘career’ positions, the other 30% move between temporary jobs or hold multiple part-time jobs. Young workers have been significantly impacted by labor market ‘push downs’ and as a result a large portion hold positions they are overqualified for (underemployed). This has large implications on long-term income growth and career trajectory.

The class of 2015 will also be graduating with the largest amount of student debt in history, on average around $35,000 per person. Sources reported that the average millennial aged between 18-30 has a net worth of only $10,400 (as of 2013). Despite the fact that the cost of tuition since 1994 has grown 234%, research finds that education, and more typically postsecondary education, is absolutely necessary for a millennial to secure high-paying, career positions.

When matched with research in the previous section, the outlook is bleak for millen-

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nials trying to rent in New York City. Despite almost everything working against them though, around 80% of millennials are “optimistic” about the future. The next section tries to de-generalize issues for millennial renters in NYC and specifically call-out hurdles they face in practice.

After examining the state of the rental market in New York City, and then millennials as a rental segment; the chapter the Problem distills and itemizes the inconsistencies between the two. This is a precursor to the next section which identifies what tools are on the market that make the rental process more streamlined.

Each page identifies a problem, describes it, and suggests a market tool that could fix the issue. Categories represented are: 1. Flexibility 2. Transaction Cost 3. Management Inflated New York

Communication 4. Payment 5. Timing 6. Trust and Security 7. Roommate and Community Risk 8. General Cost of Rent.

Having listed real issues millennials face, the Tools section seeks to uncover if there are any resources currently in existence for them to use. In the last ten years, technology has finally started to impact the real estate industry. That being said the tools are still rudimentary, fragmented and haven’t been fully adopted by users. Nonetheless, progress is being made and new platforms are making the rental market a more navigable place. This section reviews what is currently available – with specific emphasis on recent CoLiving concepts WeLive and Common (Competitors to Halcyon).

Tools and Startups are organized into categories and examined individually. Categories represented are: 1. Hospitality Options 2. Dorm and Common Space Options 3. Micro Units 4. Exchange or Conduit Platforms 5. Traditional Broker Models 6. Traditional Landlord Models 7. Sponsored Algorithm Platforms 8. Roommate Matching 9. Informal Channels.

After conducting this research, this project finds that the rental market in New York City needs to be completely rethought. Fundamental market inefficiencies and the lack of addressing renter’s needs have created a landscape that is agonizing to navigate. The market is informal, over-priced, quick to shift, and full of players operating according to their own incentive structures. Moreover there are few to no tools that properly address the demands of the customer and thus renters are left to simply deal with the status quo.

At this point, this project transforms to a proposal, one that could fundamentally change the way people live in urban places. Halcyon is an integrated solution engineered to meet the needs and wants of the millennial renter in New York.

Halcyon (“the Company”) creates a networked market of rental housing responsive to the mobile, highly stylistic, and income-restricted workforce renting the world’s urban places today. In addition to fully amenitized and ready-to-live in space, the company provides access to an integrated online platform where users can choose and book housing in just a few clicks based upon roommate preference, cost, amenities, location, and community. The Company’s seamless blurring of digital and physical services is designed to create a constellation of trusted rental ecosystems set to replace existing inefficient informal marketplaces. Likewise, the community driven digital services allows customers to take advantage of all of the benefits of a CoLiving community without the disadvantages of living with people they don’t know.

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This section goes on to explore Halcyon’s: 1. Business Overview 2. Market Opportunity 3. Strengths 4. Strategies 5. Sustainable Competitive Advantages 6. Downturn Resilience 7. Summary 8. Elevator Pitch The following chapter Budget and Case Study puts the Halcyon model to the test, taking an apartment in the East Village (342 East 15th Street) and walking through all the costs of running the Halcyon model. It then measures returns to understand the profProject Structure

itability of the model. What is found is that Halcyon is an extremely profitable model.

342 East 15th Street, Apartment 6B rents for $4,400 a month or $1,000 per room and currently lists on informal markets (Craigslist). It is a sixth floor walkup, with basic bathroom and kitchen finishes. Halcyon assumes that after fully furnishing and amentitizing the apartment, the Company could realize a rent of $1,400 per room per month. This is substantially less than renting a studio or one bedroom in ‘New’ New York.

Initial capital costs are $4,372 dollars and Halcyon annual profit after all costs and services (asset and corporate) equals $6,790 in the first year; this represents a 159.41% return on Halcyon’s original investment for this single apartment.

This solution portion of this project ends with a look into the process of developing the brand of Halcyon (in the Process chapter), and what a pitch deck would look like

Inflated New York

Project Contents

for raising capital (in the Pitch Deck chapter).

Finally this project wraps with a conclusion and a glimpse into the possible future of New York City, one where technology is used to make markets more efficient and renter’s lives just a little easier.

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Academic Abstract Efficient markets are dead in New York City real estate. Speculation soars, there is little regulation, and power is held in the hands of just a few. The result is a market where rigging is commonplace, purchase and sale is shrouded in secrecy, and pricing is not tied to real value.

Unlike most alternative asset marketplaces, the economic effects of this broken system impact New Yorkers on a day to day basis – most poignantly in their cost of living.

Rent growth has drastically outpaced inflation stretching renter’s budgets to the point where many spend well more than 50% of their income on rent. Even young, highly

Abstract

educated, qualified professionals making multiples of the national salary average squeeze 2-3 people in tiny apartments – well into their late thirties – due to inflated rent prices. The purpose of this paper is to understand why.

Many analysts suggest that lack of supply is the issue. I argue in my thesis that the problem is exceedingly more multidimensional, consisting of a number of variables that magnify rent inflation systematically. This paper contends that shifts in demand profiles, lack of market-measuring tools, contrived regulatory programs, and the absence of adaptation in the marketplace have led to a highly inefficient housing landscape laden with fundamental issues.

Specifically focusing on mid-market millennial renter patterns, this paper seeks to expose why housing is so difficult to afford and why there are so few tools to identify reasonable alternatives of living. The goal is to quantify and understand variables

Inflated New York

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creating the inefficiency in order to better develop solutions in the future. The silver lining is that these issues create opportunity for the keen-eyed investor. This study concludes with a potential solution, one that could radically change how we live in urban places.

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Introduction For those who have not lived in New York, the extreme realities of the rental process are hard to truly grasp. Only after having moved to the city and being blindsided by its unique intensity and dysfunctionality can you appreciate the urgent need for change. This section provides a firsthand account of the thought processes that take place when embarking on a shift to the city. It is important in that it exhibits many of the hidden costs that a potential renter must incur before traditional such as first month’s rent commence.

This includes the cost of looking for an apartment and the costs of closing the deal. These costs are not represented in popular market reporting but create subsimilar upfront costs are associated with ownership, in New York it is simply to rent even at the lowest price points. This section provides a glimpse into the typical experience of a young professional moving to

Inflated New York

New York Narrative

the city.

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stantial barriers to entry nonetheless. In many places

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Narrative The Job As my last few months of my undergraduate studies came to a close I couldn’t be more excited. The world was new, impending, unlimited – and I was ready to take it all on, idling like a car on the line. I had spent the last years of my life being formed by fire – incredulous hours, brutal critique, intense competition, and marathon length projects. I was soon to graduate from the top ranked undergraduate architecture program in the world with a host of world-class internships, international competition wins, and academically lauded personal projects under my belt. I had completed a graduate-level additional focus in Real Estate Development, was selected as one of 20 researchers globally to contribute to Terreform One’s 2010 Terrefarm, and had exhibNarrative

iting work in galleries around the nation. By the end of my five years at a Calpoly I had heaped up a stack of complex projects - many of which won best in show awards and were published in books found on shelves in the MOMA and Strand in New York.

This was mid-2011.

Even though the financial crisis had pummeled markets just years before, by mid-2011 American business was starting to show a heartbeat once again. Beaten and bruised industries pulled themselves to their feet as the economic machine began to cough steam and chug forward once again. Although getting hired was rumored to still be tricky, companies were staffing intermittently as commissions and projects skittered through the door. Given my background and project specializations, I felt confident I would be able to find a great job.

New York Narrative

I waited until after graduation to start applying, the thesis project and book I was writing during my 5th year took up 25 hours a day in the last months before I walked.

The moment I stepped off the plane in DC after leaving California, I began to formulate a list of prospective offices. It didn’t take me long to develop a list of 15 firms or so, by this time I had also polished off my CV and portfolio in a holistic vestige I was truly proud of – I couldn’t imagine anyone graduating from an undergraduate program with a similarly diversified experience.

Four months and 97 applications later, I still had no job.

Out of almost a hundred applications, I had received a grand total of 14 emails acknowledging I existed, and 4 in-person interviews that had led nowhere. The taxing Inflated New York

waiting period between sending the first email and initial response from the firm had forced me to develop a system of calling back offices two weeks after applying like it was clock-work. But even then I was met with radio silence.

On the fifth month I caught a break. I heard from a firm I had applied to fourth months earlier, a position had finally opened up in their small, elite New York Office. The firm

was named Foster + Partners and was led by the world renowned starchitect Lord Norman Foster of London. It was one of the most sought after offices to work for in the world, and in the city I wanted to be in the most. I was ecstatic and interviewed a week later in their gorgeous Hearst Tower offices, located at the base of Central Park in Columbus Circle.

A week after the interview I was offered a job.

Reading the email I couldn’t wait to get to their salary offer – after 5 months of living in my parents basement, I was ready to earn a living and be on my own. Also, I figured working at one of the most esteemed creative offices this century wouldn’t be so shabby, and might put me in a favorable financial position for once.

I scrolled down and arrived at it: $38,000 US a year. Not bad I guess, in and around the national average for college graduates - although it came with no signing bonus, no annual bonus, and no dental or vision. I calculated that after taxes I would see about $27,000 of that a year. If I was to use the 30% rule (30% of your salary should be spent on rent), it meant that I should be spending $675 dollars a month for housing. This was going to be tough.

Despite my pleas, F+P would not budge on salary. It was a ‘take it or leave it’ situation they declared. I took it. I figured that after 6 months of working hard I could secure an increase, and until then I could figure out housing on the fly. It was worth it for the opportunity – a typical saying for my generation at the time – and so the adventure began.

The Apartment After 5 long months I had finally landed a job, and the only thing stopping me from changing the world was finding that perfect place to live in New York. I imaged a loftlike apartment in one of New York’s many warehouse districts. Maybe near a park, the river, or galleries. I was even open to going to Brooklyn, I heard it was on the up and up. I was in for a surprise.

I quickly realized that getting the job was the easiest part.

Like most students finishing undergraduate school at the time, I was cash strapped.

My middle class parents had paid for my schooling (which I can’t thank them enough for) but were unable to shell out more money given my three younger siblings were all attending college at the same time. I was on my own -- but still understandably in a better position than the majority of millennials who now had student loan servicers

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knocking at their door.

As I jumped into the process, if you could call it that, I quickly realized there were going to be a number of challenges I was going to face. The first of which was geography.

I was based in Virginia which meant that there was no way for me to truly know the apartments I could potentially be living in. Moreover, to meet the people that I would be living with (in very close quarters) was going to be difficult as well. It was necessary though, I had no way to tell if what I was looking at was what I was going to get and if the people that were described were not going to murder me in my sleep.

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I would have to plan for visits to the city, assuming I could afford it. And even that was an unknown. I started to calculate how much it would cost to travel to New York, set up appointments, see apartments, and stay overnight for 3-4 days (the time I estimated I would need to see 4-5 apartments at a time). Roundtrip travel: $200; Hotel for 3 nights: $600; Food during trip: $120; Subway card: $30; Total: $950 for 4 days and 3 nights – with no guarantee of this being the only trip.

This was going to be too much for someone who had virtually no savings or ‘dry powder’.

Plan B. What about a broker? I don’t need to be there for that option right? Despite this being a typical solution for someone who is geographically and time disadvantaged, it included even more costs when I started to add it up. To simply find a broker I could trust I would have to make a trip to New York. I would then have to wait for New York Narrative

him or her to find listings, set up appointments, and then make the same trip to see the apartments that I would’ve had to without the broker. Only this time, I would be tacking on an extra 1 month or 15% fee for broker services, with the same risk of not finding an apartment on the trip. It looked like I was on my own.

Craigslist Still to this day, finding apartments is very much a make contact online and meet in person process. There is still no one-trusted-source to be able to view and vet rooms or apartments – the closest was at the time, and still is, Craigslist. Craigslist though is peer to peer and unregulated thus making it highly susceptible to fraud and fake postings/descriptions. People live with this though given a lack of other tools and resourc-

Inflated New York

es. It was difficult for me to judge if the pictures of the apartments were forthright and if the roommates were who they said they were. Because of this, I felt uncomfortable sending personal information off to the unknown – social security, bank account information, work and credit history – the like. But with no other options, this was the only choice I had.

Having now settled to use Craigslist from afar, I jumped into the “looking for room/ shared” section. Within minutes I was able to tell that renting my own apartment in New York was well beyond my ‘American-average’ starting salary. I was at first relieved by the amount of postings, albeit overwhelmed by the informal formatting and organization. It became more overwhelming as I dug deeper. Postings popped up on the minute, and disappeared just as fast. Each had vastly different titles, many of which had conflicting prices and sporadic “$$%%!!” characters sprinkled amongst the all-caps words. Listings were being posted so fast it was difficult to know what I had looked at already and what I hadn’t. Many apartments had multiple postings, with the same images.

After a few days of usage though, I became accustomed to the draconian system. I was able to identify a number of apartment rooms that looked somewhat livable for my price-point. So I jumped onto my Gmail and sent emails, giddy to have finally found something. Radio Silence.

It was as if I was jettisoning my request into deep space. Who knew where it was going, who it was going to, and how quickly it would get there. It felt like the final frontier.

After emailing close to 15 listings, I finally started to receive one liners back. And after feverously emailing back and forth to “get to know” each other, I was able to set up my first apartment viewing. “Can you come tonight? I get off work at 7:00pm.” “How about tomorrow at lunch or during the evening?” The turnaround was incredibly fast, I responded to all asking if we could wait until the weekend or until the next week, the earliest time I could make a trip to the city to see it in person.

There was little success. The rental market in New York moved so fast that no lessor was willing to wait a few days for me to get to the city and meet in person – thereby bypassing other potential roommates just because I asked. They didn’t know or trust me just as much as I didn’t know or trust them. If I wasn’t there within 48 hours, the room in the apartment was gone. I resolved that I would book day trips to see apartments given my location in DC -- Find an apartment in the evening, book a bus for the next morning, see the apartment in the evening, and ride a late night bus back home.

It wasn’t pretty, but it was what I had to do.

I was then confronted with my next issue. Upfront cost.

At first I was searching for 1-year leases, but this came with a host of upfront costs I had not expected. The first of which were sunk, and included basic background checks to prove you were capable of being on the lease. Each landlord or lease controller required me to get a credit check, usually for a cost of $100 or so. Although this seems reasonable, when you are interviewing for 5 different apartments, it adds up quick.

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I had to choose my apartments wisely. Each interviewer was courting 5-6 different potential roommates and therefore I had less than a 20% chance of ‘realizing’ my investment.

I thought about what I would need next. Once passing the credit check, for a 1 year lease landlords would require first and last month’s rent, plus a deposit, all upfront.

Without a broker involved, this meant that I would need to sign a check over for $3,300 upfront at my $1,100 a month price point (slightly inflated from the $675 original estimation to account for the realities of life). With a broker the cost was $4,400 cash. Let’s take a moment remember this was for a small room in a very low-end apartment, and I had just finished college. I was yet to start my job and as such had no Narrative

income, all this cost was to simple start a job. In Virginia, I could buy a used car all cash for $4,400!

I ended up where I started, again it was too much for me.

How was anyone expected to move to New York when it costed so much upfront?

Was I supposed to already be there? Was I supposed to have no job so I could be completely flexible for showings? Not to mention I didn’t know the city and had no idea if these apartments were in the neighborhoods I wanted to live in for the long-term. I knew that walking one street too far in New York could mean trouble. It was a series of questions that plagued me for weeks.

The Room in the Apartment

New York Narrative

My only option was to sublet short term. Then I could find a long term apartment after starting a job and getting to know the city. Given my cost constraints, I would need to find a 1-2 month sublet; anything longer than that required background checks, credit checks, first/last/deposits, and extensive interviewing. A 1-month sublet I could afford to pay upfront (1st + security deposit) and it would give me a week or two to find a new place, one that I could stay in for a year or more. Or so I thought.

When I started at Foster + Partners I was like most New Yorkers my age that I knew.

My life consisted of sleeping and working, with the occasional weeknight of excessive drinking at a new NYC hotspot. Weekends were reserved for working and so were most late nights during the week. We were all underpaid (with the exception of my finance friends), overworked, and clawing to get by. I was the lowest of the low in

Inflated New York

corporate New York, a fact that my bosses did not hesitate to let me know. I worked on average 13 hours a day with typically 2-3 of my nights a week being chained to my desk beyond 12pm. I worked every weekend, typically both Saturday and Sunday for at least a few hours. I was doing work that I liked so I was happy, but my bosses were relentlessly overbearing and my production was expected to be high – when I was at work, work was the only thing I was expected to be doing. This, combined with doe-

eyed need to make a good impression (and not be fired as I was constantly reminded), meant that searching for my long term New York apartment was near impossible. It didn’t help that I was making drastically less than I needed to survive in such an expensive city.

Because of my ever-present lack of finances, I could still not afford to use a broker and needed to resort to Craigslist. Although this time more familiar with the chaos process, I still needed to find time to identify postings, email back and forth throughout the day, set up walk-throughs, and physically be there to interview. With hovering managers ready to “crucify me” as I once was told, and work weeks that regularly extended beyond 90 hours; this was going to be difficult. Likewise I had still not built up enough money to pay the 3X fee upfront for a long-term lease.

I ended up living in 4 different apartments in the next 6 months. All short-term sublets.

Each month I needed to perform the same clandestine search during work hours: secretly using personal email to communicate, staging doctor’s appointments to see apartments in the evening, using all that I had saved to pay the upfront costs, and moving in the middle of the night as to not disrupt my work schedule. Although I could commiserate because all of my friends were doing similar things, 6 months of this felt like years.

Over the next three years at Foster + Partners I slowly began to make more money.

Given the line out the door of people willing to work for free, it was an uphill battle.

This was typical in creative industries – architecture, graphic, marketing, fashion, music, art – much of the workforce that kept the allure of New York City alive. After two years I was making $58,000 dollars a year, $6,000 dollars more than the median household income in the United States in 2014 and about $10,000 more than many of my architect and designer friends in the city and elsewhere.

Although I could now afford to be in a year lease I was still living in a 7 floor walkup in the East Village, with three other roommates, in a room literally no larger than my bed (with no closet), with a shared space of about 80 square feet. My clothing hung above my bed, I got dressed in the living room, and I swept away cockroaches that enjoyed the heat of our small radiator. I was 26. 40% of my net income was being spent on rent. When was I going to be able to afford something better? At what point was I going to be able to live the life I saw in movies, magazines, and on TV. I didn’t need a penthouse, just an apartment in a neighborhood where the homeless weren’t sleeping on my doorstep. Possibly a cute restaurant on the corner as oppose to a bodega.

I pieced together over the years that a typical partner at Foster + Partners at the average age of 40 was able to command a gross salary of around $125,000 per year. I envi-

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sioned my future would include my own apartment if I were able to make this much.

The math said something different.

At the 30% thumb mark (after taxes) a New Yorker making $125,000 a year could spend $2,100 a month on an apartment. I looked to online brokerages to see what that could get – nothing anywhere close to Manhattan, unless you wanted a roommate. $2,100 could get you one-bedroom (in a two-bedroom apartment) on 39th and 3rd: a run-of-the-mill apartment in a commodity neighborhood and building. What would it take to rent in the neighborhoods I see in the movies: the West Village, SoHo TriBeCa, the Upper East Side? I dug further. On average, a one-bedroom on the periphery of these neighborhoods were going for $4,200-$4,500 a month. I calculated what I Narrative

would need to be able to afford this.

I would need a gross income of $252,000 per year.

I couldn’t believe it. Does everyone making less than $250,000 a year have to shack up, live in a shoebox, or live an hour commute away? It didn’t seem probable. But as any good character in a movie will tell you, improbable is not impossible. It turns out that for many this is the case, and in my mind this was a problem.

Postamble My story unfortunately is not a unique one. As this project will show, the problem of affordability in New York is multidimensional; melding issues of inflated cost of living, with stagnating incomes, lack of technology, and outdated requisition procedures. Few

Inflated New York

New York Narrative

studies have tried to unpack the variables into isolation as this project will do. Hopefully this project’s solution will make it such that next generations New Yorkers aren’t calling some version of this story their own.

26

1.

Introdution

2.

Chapter Structure

3.

Geography

4.

Re-Drawing the Map - Methodology

5.

Building Improvement Districts

6.

Mapping Assumptions

7.

BID Base Map

8.

Renter Assumption Overlay

9.

Pricing and Defining Neighborhoods

10.

Zoning and Depth Assumptions

Inflated New York

A New New York

11. Results 12.

General Pricing Trends

13.

What this Means for New York

A New New York

Contents

28

Introduction The current generation’s New York is not the same New York as it was for our parents and grandparents. One of the city’s great appeals is its ability to evolve quickly, feeling novel after even just a decade. In the early 1900’s, New York was experiencing an industrial boom. Geographic nodes of the city were growing denser and taller with the advent of steel high rise construction and the expansion of insurance, banking, real estate, shipping and manufacturing industries within the city. It was not uncommon for a worker to be employed by a single company for his whole career, and to live in the then suburbs of Brooklyn, Queens, Long Island or New Jersey and commute into the city on a daily basis. Traffic was less congested, the city was less built up, and working life was more regimented in terms of career path and opportunity. In today’s Introduction

entrepreneurial world, where it is not atypical for a company worth billions of dollars to be staffed by only 50 people, the landscape is much different – socially, physically, and sensibly.

The younger generation now populating and driving our economic and urban centers no longer view New York as a commuter center as our parents did in the 1960’s and 1970’s. They no longer stay north of 50th Street as New Yorkers did in the 1980’s when Manhattan was still strife with crime, drugs and decrepitude; and no longer think places like the West Village and Harlem are only for artists and bohemians. Mayors like Rudy Giuliani and Michael Bloomberg commenced a New York Renaissance, cleaning up much of the city and ending the “Bad ol’ Days”. Using technology and policy thier administrations fought crime and drugs, spurred economic and physical development through rezoning and incentive programs, and evoked social change through tax programs and smart reallocation of funding. Brooklyn is now a booming economic center in the city – a brand name so powerful for its unique flair and grassroots businesses A New New York

that foreigners as far away as Japan exclaim, “that’s so Brooklyn!” to describe friends, outfits and lifestyles.

To many in older generations, the evolution is an unwelcome change. Places they once knew have evolved to become something totally different; the quaint and specific colonized with new demographics, new businesses, new storefronts, and new buildings. The unpopularity of change though doesn’t stop it from being a fact – cities are not museums and as such adjust overtime just like everything else. With the new generation moving to New York being so different from those in the past -- in terms of lifestyle, aspirations, employment, social interaction, and how they are enabled by technology (which has never existed before) -- it is important to explore what the

Inflated New York

“new” New York actually is – the New York of this generation.

30

Chapter Structure This study will more closely align pricing and boundaries to what the young generations associate with ‘New York’. For better or for worse, millennials do not move to New York with aspirations of living in far Bronx, Staten Island or Queens; this is simply a fact. Although these areas may have been the hearts of a manufacturing era New York, in the digital age they may as well be in another city. Millennials want to be as close to Manhattan as possible, close to the urban and social amenities that come along with the density and eccentricity of the borough.

its boroughs in their whole, thus lowering real prices in neighborhoods that are most desired by younger generations. The data below was collected to understand the effective rates of renting in the ‘New’ New York – the New York of the young generation and millennials.

A New New York

Chapter Structure

Many market studies average pricing for living in New York as an aggregate of all of

The State of Affairs

Inflated New York

this was a recent map posted on Facebook when graduating students asked where to live in New York. Despite rosy pricing outlooks produced by leading brokerages, real renters know the realities of pricing in New York..

32

Geography New York as defined by its city limits and jurisdictions consists of five Burroughs: Manhattan, The Bronx, Brooklyn, Queens, and Staten Island. These boroughs are so large that each constitute their own county in the state of New York and together cover a total land area of 303 square miles (5). Together, these boroughs and their residents make New York the most densely populated city in the United States with an estimated formal population of 8,491,079 according to a 2015 U.S. Census Bureau study (3).

This though does not include people informally living in New York City who are either working for a limited period time or have simply not registered themselves as New York State residents. This includes young workers who in many cases maintain a permanent residence at a family member’s home as they jump from school to school or

Geography

job to job. New York’s real population may well be much higher than 8.5 million.

As can be seen in the table below, Brooklyn and Queens account for the majority of land area in New York at around 59% of all of the land area combined (5). Their boundaries stretch far East from the center of Manhattan. Brooklyn’s East-West dimension spans approximately 12 miles and Queens spans 15 miles.

All Burroughs but Staten Island are accessible from the subway – New York’s underground and over ground rail transportation system. Manhattan has the densest system of railways, with stops approximately every five blocks in all directions. As you move

A New New York

further out into the boroughs, away from Manhattan, the stops are more sporadic and distanced. Although this make the travel time from the far boroughs quicker into Manhattan (where the commercial centers of the city reside), it makes commuting locally to the stop itself longer. This is especially true when residents of New York must walk outside during inclimate weather during the summer and winter. Staten Island, despite its huge land area at 58 square miles, is only accessible by public transportation through a water ferry which connects its north-eastern most tip with the most southern tip of Manhattan (5). This commute in a single direction takes on average of 30 minutes, although this does not include commuting to the Staten Island Ferry stop itself in St. George which is only accessible by bus or car.

When talking about New York, many studies and reports fail to mention the New

Inflated New York

Jersey coastline that lies west of Manhattan which is becoming a major residential sub-market of New York itself. Neighborhoods like Hoboken, Newport and Downtown are more accessible to Manhattan than Staten Island is. Commuters can travel by PATH Train (underground subway), ferry, or by car. Because of its proximity and modern amenities, these neighborhoods are becoming more popular for young renters and millennials than are the far reaches of Brooklyn, the Bronx, Staten Island, Manhattan and Queens.

Bronx

att an

Passaic

Ma

nh

Hudson Essex

Queens Brooklyn

Nassau

Union Staten Island

Generally speaking, the majority of commercial space

segment either want to be closer to the city center

registered and zoned in New York City lies on Man-

(now that it has been cleaned up) or make a trip every

hattan between Central Park South and Downtown

morning to arrive there to work. This is true on both

Manhattan. Because of this, for the last hundred years

the New Jersey and New York sides of the dividing

this zone has been either commuted to for work, or

line. Manhattan is universally perceived as the center

highly desired to live in due to ease of commuting to

of the New York Tri-State Region due to its economic

one’s workplace. It is no surprise then that this gener-

power, political power, geographic location, accessibil-

ation is similar. Although there are millions of people

ity, infrastructure, and industry.

that populate the far reaches of each borough, a large

34

Re-Drawing the Map - Methodology This section develops a new boundary of New York as defined by millennials. Through polling 15 young New Yorkers between the ages of 22-30 I was able to systematically map the zone in which Millennials were willing to live. Although not scientific in its method; by identifying places of work, and distances millennials were willing to be from these commercial nodes, a map of what “New York� is to millennials was generated. Each respondent was asked what they were able to endure before the hardship of living in this zone would cause them to either stretch their budget to live in a different part of the city (and burden themselves further financially), or to move to a different city altogether. Once this map was generated, a more accurate pricing index could be created. Taking into account zoning, density and average height of building; Methodology

a rigorous estimation of effective cost of renting for a millennial was generated. This then gave better insight into why millennials in New York must resort to shared housing and bunking up.

Identifying places of work To a millennial moving to New York and earning an average salary, New York is a collection of very specific neighborhoods from which they can commute to work, can afford to live, and have the amenities (or proximity to amenities) that make the city so unique. Through social media and entertainment outlets, the younger generation are exposed to a specific kind of New York and are therefore aspirational in the way they want to live in it. In the last year secondary and tertiary cities in the United States (Austin TX, Savannah GA, Minneapolis MN) have quickly developed similar social and cultural amenities to New York, making it easier for young people to choose to move from New York altogether if they cannot live the life they thought was possible and aspired to live to. Tenets of this aspirational life include less commuting, less walking

A New New York

distance to subways, and less transfers on the subways for example. Although this group may be forced to live in a neighborhood without great cultural and retail amenities, few will live both without the amenities and without access to a place that does.

There is a formula for neighborhoods that work in New York. Although certain variables such as commute time and neighborhood amenities have been stretched over the last five years as rental prices have skyrocketed, there is a limit. Through personal experience and interviews for this study, it is obvious that New York is on the precipice; that there is a direct correlation between price, quality of life and willingness to move. Most respondents were on that precipice. Many had endured the trade-offs that are characteristic of New York and were considering moves to cities elsewhere.

Inflated New York

To be able to generate this new map though, it was first necessary to define a starting point – where people worked.

36 A New New York

Meatpacking District, Manhattan 34th Street Partnership, Manhattan

Methodology

BIDs

The first step in defining what this paper calls the, “New New York” was to define the regions of the city where younger generations commute to work on a daily basis. It was generally observed that due to zoning and industry preference for millennials that far reaches of Queens (South Jamaica, Queens Village, Whitestone), Brooklyn (Fort Tilden, Canarsie, Ozone Park, Flatlands), and the Bronx (Mt. Vernon, Mamaroneck, New Rochelle) were not millennial employment centers and were left out of this study.

Staten Island was also left of off this study for similar reasons. In many cases, the more established Manhattan residential brokerage companies do not even list apartments in these areas.

New York in recent years has experienced a renaissance in commercial development

Inflated New York

and rezoning. Although there are a number of neighborhoods that are synonymous with office buildings such as Midtown and Downtown, neighborhoods such as Hudson Square, SoHo, and Park Avenue South have evolved to service the city’s Tech, Advertising, Media and Information (TAMI) sectors due to the unique office product and mixed use urban environment they can offer.

Brooklyn Tech Triangle, Brooklyn

The most efficient way to identify major centers

New York’s network of BIDs is the most extensive in

of commercial space throughout the boroughs is

the nation and are ample markers for where commer-

through their city-regulated, public-private-partner-

cial development and space is within all of the five

ship groups called Building Improvement Districts

boroughs – commercial neighborhoods, or those this

(BIDs). BIDs were created to foster communication

a depth of mixed use programs, are always steered

and partnership between property and business own-

and managed by a BID board (7). Although there has

ers and the city in order for all parties to steer the

been sporadic growth of commercial real estate out-

neighborhood in a positive direction (6). It provides a

side of the city-defined BIDs, these areas still lack the

vehicle for the neighborhood and local regulators to

commercial inventory that make them viable large

raise money for improvements, and for leaders in the

scale work-live centers in the city.

private space to make collective contributions to the maintenance, development and promotion of their commercial district. These partnerships have been key in catalyzing revitalization in New York neighborhoods and to generate economic development (6).

38

Plan for LIC BIDs like the Long Island City Partnership map detailed plans for physical development throughout their neighborhood.

Through partnerships with private developers and government authorities, BID boards can enact change extremely

Methodology

quickly.

LINCOLN SQUARE BUSINESS IMPROVEMENT DISTRICT WEST 73 ST

WEST 73 ST

,

Fidelity Investments

12 -3

M10

2025

4

M7

215

25

AMSTERD AM AVEN UE >

New York Look Tani Noidue Poco Barcibo Enoteca Ma Buono Andanada Westside Restaurant

20

Magnolia Bakery

< WEST 69 ST

LOFT OPTYX by gruen Himalayan Crafts BCBG Max Azria Leicht Kitchens Innovation Luggage

Dan Tempura House Trevi Nails Luce Restaurant and Enoteca Nanoosh

Il Violino

Pottery Sunflower Deli 67 French Foot Lincoln Sq Barn Cleaners Wok City Lights Veterinary Hospital Old John’s Lincoln Ter. Cleaners Luncheonette Grand Toulaine Millennium Amsterdam Hardware Gourmet The Zara International Haircutters Fontainebleau Phillips Garage Furry Paws Nails & Spa Club Raymour & Flanigan

,w 1 Greenmarket -

,w

RICHARD TUCKER PARK

American Table Café and Bar

Lincoln Ristorante

M7

19 00

The Prasada

61

AY W AD O

Lincoln Plaza

45 27

> AVENUE

Trump International Hotel and Tower Nougatine Jean Georges

M11

M11

Best Buy 1880 Broadway (212) 246-9734

Coach 10 Columbus Circle (212) 581-4115

Bolton’s 181 Amsterdam Avenue (212) 362-7396

Cole Haan 10 Columbus Circle (212) 823-9420

Bose 10 Columbus Circle (212) 823-9314

Crabtree & Evelyn 10 Columbus Circle (212) 823-9584

BOSS Hugo Boss 10 Columbus Circle (212) 485-1900

D. Fiori 10 Columbus Circle (212) 823-9444

Brooks Brothers 1934 Broadway

Davidoff of Geneva 10 Columbus Circle

Gap/Gap Kids/Baby Gap 1988 Broadway (212) 721-5304 Godiva Chocolatier 10 Columbus Circle (212) 823-9462 Gracious Home 1992 Broadway (212) 231-7800 H&M/H&M Man 10 Columbus Circle (212) 757-0295 Himalayan Crafts 2007 Broadway

,

The Residences at Mandarin Oriental, NY

,

,w Jazz at Lincoln Center/ Dizzy’s Club Coca-Cola

TIME WA R N E R CENTER

To Midtown, Greenwich Village & Downtown M20 CENTRAL M5 M7 PARK

COLUMBUS CIRCLE

B A -D C -1 -

(10 Columbus Circle)

240

, M10

Time Warner Headquarters Entrance (1 Time Warner Center)

One Central Park Condominiums

(25ColumbusCircle)

,w

WEST 58 ST > Hudson Hotel Hudson Common & Tequila Park The Library Bar Skytop Terrace

The Juilliard Store 144 West 66th Street (212) 799-5000 ext. 237 Kiehl’s 154 Columbus Avenue (212) 799-3438 L.K. Bennett 10 Columbus Circle (212) 309-7559 L’Occitane en Provence 10 Columbus Circle (212) 333-4880 Leicht Kitchens by My Home My Planet 2003 Broadway

Sushi Damo

Six Columbus Hotel Blue Ribbon Sushi Bar & Grill Hearst Tower

Maurice Jewelers WEST 57 ST 10 Columbus Circle (212) 823-9393 The Metropolitan Opera Shop 30 Lincoln Center Plaza (212) 580-4090 Microsoft 10 Columbus Circle (855) 270-6581 Moleskine 10 Columbus Circle (212) 956-3027 Montmartre 10 Columbus Circle (212) 823-9821

Papyrus 10 Columbus Circle (212) 956-1202 Planet Kids 191-193 Amsterdam Avenue (212) 362-3931 Pottery Barn 1965 Broadway (212) 579-8477 Rayburn Musical Instruments 44 West 62nd Street (212) 541-6236 Raymour & Flanigan 1961 Broadway (646) 556-9390

, Museum of Arts & Design Robert The Store at MAD

SOUTH

Marea FedEx Office

Columbus Circle Wines Maison Kayser Grom BR Gelato Argo OA Tea

UE

To Greenwich Village

Mandarin Oriental New York MoBar/Lobby Lounge Asiate

M10 M20 M104

The Flame Restaurant Whym

Landmarc L’Occitane en Provence Lucky Brand Jeans MASA Maurice Jewelers Microsoft Moleskine Montmartre Morgenthal Frederics New York Running Company O&CO. On Tap at Whole FoodsMarket Papyrus Per Se Porter House New York Satya Jewelry Sephora Solstice Stone Rose Lounge Stuart Weitzman Swarovski Thomas Pink Tourneau True Religion Tumi Whole Body Whole Foods Market Williams-Sonoma Williams-Sonoma Home Wolford

< EIGHTH AVEN

WEST 58 ST >

< NINTH AVENUE

UE >

Roosevelt Hospital Center

A|X Armani Exchange The Art of Shaving Aveda A Voce BAR MASA Bebe Bose BOSS Hugo Boss Bouchon Bakery C. Wonder Caché Center Bar Coach Cole Haan Crabtree & Evelyn Creative Juice D. Fiori Davidoff of Geneva Eileen Fisher Equinox Fitness Club FACE Stockholm First Republic Bank Godiva Chocolatier H&M H&M Man J. Crew J. Crew Crewcuts J. Crew Men’s Shop J.W. Cooper Jamba Juice L.K. Bennett

M10 M20

AMSTER DAM

WEST 61 ST >

4

M10

104

1000

M7

0M

M2

NY Inst. of Technology Sapphire Indian Cuisine Salon SCK Sabon Arthur Murray Dance Center Alta Physical Therapy & Personal Training Tasti D-Lite Lincoln Square BID Office Starbucks Gabriel’s Bar and Restaurant American Apparel Jacadi

Arsenal West

The Shops at Columbus Circle & the Restaurant & Bar Collection

Church of St Paul the Apostle

Emergency Room

TENTH AVEN

Chase Bank

M5

Columbus Circle Post Office

IT’SUGAR

M10

Alan’s Market Place The Regent

15 Central Park West

West Elm

11

Professional Children’s School

he Lincoln Square Business Improvement RETAIL Crosstown District is a not-for-profit, tax-exempt orgaM31 nization M57 A|X Armani Exchange that was formed in 1996 by proper- WEST 57 ST 10 Columbus Circle ty owners, businesses and others with a stake in (212) 956-9301 this Upper West Side community. Our mission is to make Lincoln Square cleaner, safer, and more American Apparel beautiful, and to undertake various improvement 1841 Broadway (on 60th St) projects. We focus our efforts on supplemental (212) 265-3386 sanitation and security services; the beautificaAmerican Folk Art Museum & Shop tion of public spaces, malls, and parks; and the 125 Columbus Avenue promotion and marketing of the area’s diverse (212) 265-1040 business and cultural offerings.

Apple Store UWS We act as a catalyst working with business, com1981 Broadway munity and city partners to promote positive (212) 209-3400 change in Lincoln Square. Our programs, publicaThe Art of Shaving tions and initiatives, including Winter’s Eve—NYC’s 10 Columbus Circle largest holiday festival—showcase the rich and

M7

24

The Beaumont

< WEST 60 ST

< WEST 59 ST

T

NYIT Auditorium

American Bible Society MOBIA

The Sofia

80

Fordham University Bookstore

M5

Lowenstein Academic Building

Best Buy

The Allegro

Melissa’s Gourmet Deli

College Board

18

< COLUMBUS AVENUE

Rayburn Towers Musical Instruments

FORDHAM UNIVERSITY

McMahon Residential Hall

WEST

TD Bank

Fordham Law School

WEST 61 ST

CENTRAL PARK

West Side YMCA Ethical The Smith Park Gourmet to Go Culture Laurel Market School Citibank 5 M10 M10 < WEST 63 ST P. J. Starbucks Bank of America Clarke’s Jaros Berger Pharmacy Breadsoul Café Empire Hotel 1-Hour Duane Reade Lincoln Café Rooftop Lounge & Lobby Bar 30 Lincoln Cleaners The Ed’s Chowder House Lincoln Plaza News Plaza Century David Rubenstein Atrium/Box Office New York Look Plaza Cleaners ’wichcraft Rosa Lincoln Plaza Cinemas AAA The Harmony Mexicano New York Look Harmony NYSC TD Ameritrade Cleaners 61

John Jay College of Criminal Justice CUNY John Jay College of Criminal Justice CUNY

Society for Ethical Culture

The Emporium, Ltd Kim’s Classic Nail & Spa Kay Cleaners II

Lincoln Plaza

ASCAP

< WEST 62 ST

WEST 62 ST (under construction)

Olympic Flame Diner

C E N T R A L P A R K

WEST 64 ST >

BR

DAMROSCH PA R K

The Alfred

Inflated New York

104

4 M10

0M

M2

M7

most recent advertisement.

M66 M72

Picholine

Atlantic Grill

49

Épicerie Boulud Boulud Sud Bar Boulud Café Fiorello One

DANTE PARK

M72

To East Side

Atlantic Grill

Brown Harris Stevens

lululemon athletica

M5

David H. Koch Theater

M66

WEST 65 ST >

Le Pain Quotidien

Holy Trinity Lutheran Church

Grand Tier

M5

Schwartz Gallery Met

Guggenheim Bandshell

M66

Jewish Guild for the Blind

Bed Bath & Beyond

,

LINCOLN CENTER FOR THE PERFORMING ARTS

Metropolitan Opera

Tavern on the Green (Opening soon)

M20 M66

< WEST 66 ST

43

Brooks Brothers

Arpeggio

77

Salon 66 Congregation 2 Lincoln Square Habonim The Walt Disney Company American Folk Art Museum & Shop Drisha Institute Church of Jesus Christ Shun Lee West and for Jewish Education of Latter-day Saints Shun Lee Café YogaWorks

30

Espresso Bar

ABC

Europan Bakery Café

M66

Avery Fisher Hall

Grand Tier Restaurant

a group of typical activists. These are snapAmsterdam Houses

150

M11

122

Alice Tully Hall

Elinor Bunin Munroe Film Center

Vivian Beaumont & Mitzi E. Newhouse Theaters NY Public Library for the Performing Arts

WEST 64 ST >

shots from the Downtown Partnership’s

Tisch WNET Studios at Lincoln Center

The Juilliard School

The Walt Disney Company

WABC-TV Studio

M66

19

Fiorello H. Lincoln Sq LaGuardia HS Neighborhood of Music & Art Center and the Performing Arts

The Juilliard Store Good Shepherd-Faith Presbyterian Church School of American Ballet Walter Reade Theater

MAC

72

M66

WEST 65 ST >

Samuel B. & David Rose Bldg NYPL Riverside Branch

19

FDNY:Engine 40/ Ladder 35 Martin Luther King, Jr. Educational Campus

< WEST 67 ST

Square

Century 21

The Leopard at des Artistes

WABC-TV

Nick & Toni’s Café Banana Starbucks One Republic Lincoln Kiehl’s

155

First Church of Christ, Scientist

Stephen Wise Free Synagogue

Macaulay Honors College CUNY

M20

Apple Store UWS

65

meetings – acting more as a company than

< WEST 66 ST

Joanne Trattoria

Park Millennium

19

hood through the year, and holds board

Aire

M66

© Copyright 2013, Lincoln Square Business Improvement District Design: Peter Joseph, New York Cover Illustration: Dave Calver/Cover Design: Linda Florio

La Boite en Bois

Ansonia Post Office UGG Australia Burberry Brit Chase Bank Baby Gap Reebok Sports Club/NY Gracious Paul Labrecque West Home 101

AMC Loews Lincoln Sq Theater/IMAX Gap Gap Kids

,

M10 M72

AY DW OA BR

Bel Canto

Excellent Cleaners Kaufman Center/ Merkin Concert Hall 129

Tower West Dry Cleaners

Bomboloni Jalapeño

Francesco Pizzeria & Restaurant

WEST 68 ST >

TD Bank Tower 67

Christ and St Stephen’s Church

The Copley

00

The Dorchester

Garage Information Hospital Public restroom CitiBike Share Station Subway entrance Accessible entrance -A B Subway station and lines - (see 1 other side for subway map) -C D M20 Bus routes; arrows indicate direction of service

Telepan

M11

Urgent Care Planet Kids Millennium Salon Chateau Drug Bolton’s Dorchester Cleaners NY Kids Club Y & S Salon Blossom Du Jour

20

keeps detailed financial records, tracks

4

Citibank

M10

residents to their neighborhood. Each BID

WEST 70 ST > Chase Bank

Capezio Capital One Bank

Grand Millennium

< COLUMBUS AVENUE

M5

West End Synagogue Lincoln Square Synagogue

HSBC Bank Mayson 2 Cleaners Duane Reade

BC --

Lincoln Square Business Improvement District boundary Street address Major apartment building

M7

Café Luxembourg

Loi

ments to attract visitors, businesses and

gross product produced by the neighbor-

,

WEST

many produce commercials and advertise-

WEST 70 ST >

< WEST 71 ST

Lincoln Square BID business categories Retail Food Culture, etc.

Services

CENTRAL PARK

so active in creating economic growth that

Key

Grandaisy Bakery

Trader Joe’s

< WEST 71 ST

M72

WEST 72 ST

M5

A New New York

The Dakota

To Upper West Side and Harlem

M10 M72

Neighborhood BIDs and Partnerships are

M11

,w M72

WEST 72 ST

M7 M11

Downtown is What’s Up

Crosstown Swarovski M31 M10 M57 10 Columbus Circle (212) 823-9890 Tani 2020 Broadway (212) 873-4361 Thomas Pink 10 Columbus Circle (212) 823-9650 Tourneau 10 Columbus Circle (212) 823-9425 True Religion 10 Columbus Circle (212) 209-5970 Tumi

DW AY

>

Hudson Square Connection BID, Manhattan

Times Square Partnership, Manhattan

NoHo (North Houston) Partnership, Manhattan

40

The figure to the right lists all of the BIDs in New York City as listed on the municipal website (6). The larger neighborhoods are instantly recognizable as commercial centers, but many of the BIDs represent the high-growth commercial zones in the city catering mid-size companies millennials and younger generations are actively working in. This list represents the key commercial centers in the city, ranging in in industries: tech, finance, creative, insurance, law, real estate, entertainment, service, media etc.

These zones represent the most highly sought after places to work and have the largest concentration of commercial space by square footage (7).

We can use these districts to create networked map the major commercial nodes in Methodology

New York City. BID’s boundaries are typically defined through a mix of geography and local legislative and civic boundaries (6). For example, the Downtown Alliance falls roughly along the Community Board 1 borderline – Tribeca, Seaport/Civic Center, Financial District, Battery Park City (8). This Community board is chaired by Catherine McVay Hughes, who resides over precincts 1, 5, 7; and who also sits on the Board of Directors of the BID (8). On each BID’s board sits major land owners, tenant representatives, and political representatives who work together – this partnership is a sign of sustained long term growth in the neighborhood and an indicator that it is an appropriate baseline to draw from.

It is important to distinguish the BID from the Community Board District. Community Boards are although similar to BID designations can also include other potential uses such as residential or manufacturing. CB6 may include Stuyvesant Town, Tudor City, Turtle Bay, Peter Cooper Village, Murray Hill, Gramercy Park, Kips Bay, and Sutton Place -- a huge geographic zone in the city -- but these neighborhoods are largely residential and therefore the CB jurisdiction does not contain a BID’s and are less useful in A New New York

the endeavor to identify where people work (4).

Likewise some CB’s include multiple BID zones. CB3 includes neighborhoods: Tompkins Square, East Village, Lower East Side, Chinatown, and Two Bridges; but also BID’s “Support China Town BID” and “Lower East Side Alliance”. Tompkins Square, East Village, and Two Bridges are largely residential and ground level commercial retail and thus is less densely populated with millennials working (4).

Given that BID’s are chaired by both public and private players, they represent in jurisdiction where growth is happening and where coalitions would like growth to evolve

Inflated New York

to.

HUDSON STR

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STRE HALL WHITE

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MANHATTAN COMMUNITY BOARD #1 MAP

ELLIS ISLAND

LIBERTY ISLAND

GOVERNORS ISLAND 0

Source: NYC DCP, BYTES of the Big Apple

0.25

0.5 Miles

N

Arielle Goldberg & Diana Switaj; October 2012

42 Methodology

Figure 1

Figure 2

Need Figure 3

Inflated New York

A New New York

Figure 3

The results of scaling back this list to better target

After identifying major commercial centers

millennials are above. Figure one lists the Manhattan

that millennials will be working in and com-

BID’s that constitute the majority of the commercial

muting to, modes of transportation to these

space in the borough. Although there are other BID’s,

places were identified. This included the sub-

they were too small to substantially move the needle

way as the main method of commute in addi-

(6).

tion to walking.

Figure two lists outer-borough BID’s that are sizable

For this study, the method of using a cab or

enough and attractive enough for millennials to

Uber as transportation to and from work every

consider in this report (6). More importantly, these

day was excluded. Given traffic at peak hours

commercial zones will see substantial growth both

and assuming a 15-20 block commute (just far

economically and physically as businesses and people

enough to not walk), the cost of using a cab

move to the outer borough due to costs and em-

mornings and evenings would be $40 a day,

ployee lifestyle. This will spur both jobs and extreme

$200 a week, $10,400 a year, $16,774 a year in

residential growth which should be factored into this

pre-tax salary measure. For this to fall within

study.

the rule of thumb 5% allocation of one’s salary, a millennial would have to be making $335,480

Figure three is the list of New Jersey based commer-

a year which does not fall within the target

cial zones that were important to include on this list.

profile of this project purview.

The matrix above analyses which BID is accessible by

commercial zones in the city. The same study was

what trains in Manhattan. It comes as no surprise that

done for the major commercial centers that are out-

due to New York’s large land area, millennials choice

side of Manhattan, but have the proper proximity.

of neighborhood and apartment are highly influenced

Metrotech BID, North Flatbush BID, and Brooklyn Tech

by accessibility via the train. Although young renters,

Triangle all had near 70% of the Manhattan’s Train

along with the majority of all other New York resi-

lines as well, poising these neighborhoods for growth

dents, may aspire to live in the neighborhood of their

on the scale of any of the Manhattan Commercial

workplace, these commercial centers can be highly

BID’s (6). In New Jersey, major commercial zones in-

unaffordable and thus force New York to commute.

cluded Exchange Place, Newport, and Hoboken.

In the past commuting by car was a major method of transportation to and from the city. Due to the rise of

After identifying the work centers in the “New New

commuting taxes, the cost of parking, and extreme

York”, one can generate a map of commuter neigh-

congestion on the roads; the subway has become the

borhoods based on a set of assumptions that include

primary means of transportation in the city.

accessibility, transfer amounts, cost, time, distance and amenity as boundaries.

This study found that Union Square and Downtown have access to over 70% of train lines in Manhattan.

Not surprisingly, these are also some of the densest

44

Mapping Assumptions These maxims were generated through phone interviews with 15 target profile millennials. Respondents aged in range from 23 – 30 and varied in whether they had or had not lived in New York before. All have lived in urban places before and were familiar with the process of commuting on a subway and living without a car. Over the course of the 5-10 minute conversation I asked what their experience was living and renting in New York (or otherwise) and a series of more specific questions to generate a lexicon and series of controls to systematically generate the millennial map of New York.

The categories generated by the questions are below. Each includes what the average sentiment was regarding the inquiry and the mapping rule I created as a response.

Blocks to walk to station: Interviewees varied in their response to how many blocks they were willing to walk to get to a subway station. In many cases the distance was Mapping

less for women due to safety issues at night depending on the neighborhood, and work attire if they were required to wear heels to work. For both men and women the weather had a large influence on the distance. You are exposed to the elements at all times when walking to a subway station and New York has notoriously cold winters and hot summers. The average block distance between the group came out to 5 blocks The equivilent of walk-

in either direction. Given the extreme heat in the summer and the blistering cold in

ing 5 EW NYC blocks is

the winter, most interviewees felt that any distance farther would add a tangible hard-

to traverse the entire

ship to their commute to the point where they would begin to look for other housing.

length of Boston.

This hardship was enough to make a millennial pay more money for an apartment – more than is fiscally responsible – and over time can lead someone to move to a new city if the commute becomes too difficult. For reference: 5 Blocks wide in Manhattan – 4,600 feet. 5 Blocks NS Manhattan – 1,400 feet.

Amount of stops along a line: There were no specific responses for preference of

A New New York

stops on a train line, interviewees referencing that some trains were faster and some simply had less stops. The largest factor regarding commuting though was the length of the commute itself. If the commute was longer than 60 minutes on a train in one direction, the hardship was enough to opt to pay more for a closer apartment. If there were no apartments available, many respondents cited that they may look for work in another city. Likewise, if there were multiple transfers along the commute, the timing along the lines became a much more important factor due to the effort and time needed to walk through stations and wait for secondary and tertiary trains.

Number of transfers: The greatest number of transfers on the subway a respondent was willing to make as a New York commuter was two. Interviewees referenced the

Inflated New York

extreme heat in the subways during the summer and the uncertainty of the trains themselves. Also discussed was the chaos in subway stations in the morning and the overcrowding on the trains. When there were no transfers, people were willing to cram into a train car and put up with it until they arrived at their final destination. The thought of fighting crowds off and back onto multiple trains every morning and afternoon -- three separate times each direction -- was enough for respondents to look

for new housing or simply move from the city. The cost/benefit would not pencil out, especially since three transfers infers that they would be living far from the center of the city.

Safety: Safety was, not surprisingly, an extremely relevant factor to millennials. A large

Renter Evaluation Chain:

component of this decision was the perception of safety, which of course is subjective

1. Location

and based on qualitative measures such as rumor and reputation. Despite heavy gen-

2. Safety

trification of Harlem and the Bronx in recent years for example, due to lingering bad

3. Blocks to Station

reputation and a slightly higher crime average than other boroughs, millennials have

4. Transfer Amount

been slow to migrate to these zones. When asked about these places, interviewees

5. Amenities

responded that they would be very hesitant to move to Harlem, far North Manhattan,

6. Commutability

the Bronx, Queens and far Brooklyn given reputation for safety. My response as a mapping mechanism was to include neighborhoods up to 60 minutes of commuting.

If the line was in a neighborhood that has not been gentrified as much as say Manhattan, I scaled the stops back to places that are familiar to millennials moving to the city.

Although this is highly discretionary, it follows the same selection logic a discerning renter evaluating potential places to live would use.

Amenities: Amenities were important when considering a place to live, but not primary in their decision making. In a place like New York where access to amenities can be just a subway stop away, general distance from a place with amenities was more important that having retail and cultural amenities at their doorstep. This rule worked both ways. A millennial would be able to sacrifice travel time and commutability if the neighborhood had substantial social, cultural, and entertainment amenities within walking distance. An example of this phenomenon would be many of the far Brooklyn neighborhoods along the L line that have seen substantial rental demand in the last five years. Despite substantial travel time (~35-45 Minutes), the unique and attractive urban amenities of East Williamsburg, Greenpoint, Bushwick, and Prospect Heights has attracted renters who are willing to make the trip and in many cases pay more than neighborhoods in Manhattan. When a neighborhood lacked amenities, the opposite phenomenon took place. Long Island City is a growing neighborhood just minutes away from one of New Yorkâ&#x20AC;&#x2122;s largest BID zones and is full of housing stock at affordable prices. Surprisingly though, respondents cited the lack of urban and social amenities and declared that they would rather live somewhere else if they were able â&#x20AC;&#x201C; even if the commute was longer. What this translated to in the creation of the map was that neighborhoods further away from BID centers, and deeper in some of the larger boroughs, were eliminated as probable places for young professionals and millennials moving to the city to live.

46

BID Base Map The base map is the aggregate of BIDs researched. Individual street perimeters were derived from each of the individual BIDâ&#x20AC;&#x2122;s websites. It is instantly apparent that the majority of the BIDs in the city run down the length of Manhattan Island, following Broadway as it cuts through the grid structure of the plan. Large BIDs also exist on the Western Coastline of the East River, facing Manhattan. These BIDs all have transportation in common and many have more connecting subway lines than major stations in

Mapping

Manhattan.

Subway lines connecting to

Inflated New York

A New New York

outer borough BIDs

New York Commercial Centers By stringing together BID designations in the city, a map can be created of the heart of the city. The zone in red is where the majority of the wealth is created in New York, and where its residents must commute to on a daily basis.

48

Renter Assumption Overlay After identifying major BID districts in the city, respondent maxims were charted onto the map, creating the boundary for â&#x20AC;&#x153;Newâ&#x20AC;? New York. Each stop along the major lines was identified and a 5 block radius was drawn around it, representing the farthest walking distance a respondent was willing to make. This was done systematically on every line leaving Manhattan until that of the distance respondents were willing to

A New New York

Mapping

commute to. This was a 60 minute commute one way.

The resulting map is much smaller than the total land area of New York as was predicted, and represents an area that is much more expensive than greater New York

Inflated New York

to rent in. This zone correlates closely to areas of high growth as fueled by private development in the city â&#x20AC;&#x201C; especially in the neighborhoods of Downtown Brooklyn and Long Island City. Both seem to be extremely accessible and viable living places for the younger generation. Although the map of New York looks small on paper (or Google Earth), in reality it is a huge place that takes time to traverse, this map gives more scale to city such that it is not generalized as is usually done.

New York Commuter Zones After mapping according to interview responses, the map to the right represents the extents of the zones millennials are willing to live in. As was expected, the perceived â&#x20AC;&#x153;New Yorkâ&#x20AC;? is much smaller than the total extents of its massive boroughs.

50 Mapping A New New York

Brooklyn: This map makes it clear why Brooklyn has been the go-to place for millennials to move. Much of it is extremely accessible through multiple lines, unlike zones like Long Island City. The densest coloration represents those places where stop radii over-

Inflated New York

lap. Not coincidentally, these are the zones with the most development as of late. That being said, Brooklyn is an extremely large area, with regular train stops. Therefore the 60 minute commute time limits this map to the extents of Prospect Park and Greenwood. Beyond this area is also known to still have crime and drug problems, and as such was not a place respondents were willing to commute all the way out to. Brooklyn has been transforming to inject retail and cultural destinations into its urban fabric, thus making it a good alternative to Manhattan â&#x20AC;&#x201C; although not necessarily cheaper.

Queens and the Bronx: The majority of Manhattan is included in the map due to the density of the subway system on the lower island. On the North side of the island though the stops are less sporadic due to the red and green lines being the only thoroughfares in the area, running on express lanes which stop every 20-25 blocks on average. The length of time to commute to the closest BID restricts the map to Hudson Heights, beyond that would be over an hour one way. Lines into the Bronx stop short because of the danger of living in the area. Although it is currently being gentrified, the perception of danger is still real. All respondents were highly skeptical of living in the area â&#x20AC;&#x201C; and would choose another apartment or city if they could.

52

Pricing and Defining Neighborhoods The next division of the map was based on broker defined neighborhoods throughout the city. This was the best way to source data about individual zones and aggregate pricing to understand what the effective rate of renting for a single millennial would be within the New New York boundaries.

Residential neighborhoods are typically defined by urban features and major roads that define pe-ripheries. This is different than commercial zones which are boundaried due to zoning and land use law. Thus commercial BID zones and their residential counterparts typically vary slightly despite their being associated with the same titles.

Figure one and two to the right shows how one leading residen-tial brokerage in the city breaks up each of the zones throughout New York City.

Residential neighborhoods are typically defined for sales purposes by its urban feaPricing

tures as oppose to zoning and land use law which is typical for commercial zones.

Thus commercial BID zones and their residential counterparts typically vary slightly despite their being associated with the same titles. Figure one shows how one leading residential brokerage in the city breaks up each of the zones throughout New York City (Compass.com).

Although brokers map neighborhoods well, capturing cohesive and thorough data on

A New New York

rental properties throughout the entire New York region is difficult. This is because Note

of the way information is controlled in the real estate community. On the rental side,

It is important to

transactions are not public and thus do not have to be registered on a lease by lease

note that some of the

basis. Likewise secondary markets of subletting are typically peer to peer and thus

neighborhoods that

income is rarely made public beyond owners filing for tax purposes. The renting of

were identified in

units are typically handled through brokerages, which compete for listings and are

this project were not

disinclined to share information between each other. To accurately understand what

represented in major

rental rates are at any given moment, one has to aggregate data from different bro-

brokerages’ maps

kerages and average, or use one of the few online platforms that perform this task

due to their remote

through algorithms. It is impossible to know though if you are getting a complete mar-

nature. This adds a

ket outlook because sources for information are limited and controlled – being sold by

level of confidence in

companies for fees – and it is difficult to tell what platform is pulling information from

this study, despite the

where, and who is being paid to post what. The market is opaque for the most part.

rudimental nature of

Likewise brokerages in many cases will have ‘exclusives’ with only a number of listings

the mapping process.

and therefore will elect to not exhibit other listings they are not associated with (in

This study’s map

the spirit of competition). Thus to piece together total market snapshots at different

pushes the bound-

levels is almost impossible.

Inflated New York

aries even further, allowing for a margin

The only logical way to accurately average information across brokerages was to col-

of safety.

lect data about average pricing from each and macro-aggregate for an overall figure.

Figure 1 Brokerages uniquely divide the city into named zones that make real estate easier to sell. Once unattractive neighborhoods were notoriously rebranded with names like TriBeCa and SoHo, a trend which has caught in cities around the world. Figure 1 is an example of a broker neighborhood map

by Compass â&#x20AC;&#x201C; neighborhood territories differ per brokerage.

Figure 2 Core Real Estate (NYC) Figure 2 is an example of how brokerages brand neighborhoods to sell.

54

Zoning and Depth Factors Why apply factors?

The study surveys the average price of a one bedroom in a neighborhood. Not sur-

Many studies use

prisingly, prices in some neighborhoods are wildly more expensive than others. To

plan areas only as a

simply average all these prices together for an overall average cost per borough is not

means to estimate

appropriate, it needs to be weighted in relation to the amount of apartments each

average prices across

neighborhood has. For example, NoMad has the highest average monthly cost for a

all neighborhoods.

one bedroom, but only has approximately 24 blocks in its district. Moreover, only part

This disregards zoning,

of the Nomad District is zoned for residential.

Pricing

density, and amount of supply. These factors

In order to obtain a more exact, but still rough, estimate of a blended average per

help to add weight

apartment cost of living in each neighborhood; first the average rent price for a one

to those zones that

bedroom in each neighborhood was found through averaging 9 different brokerages

contain more inventory

and rental data collection sources. Data was available to account for the amount of

and more residential

rental buildings in each neighborhood, but this data could still be flawed because in

use â&#x20AC;&#x201C; thus producing a

many cases people who own apartments will rent on the secondary market. Other ser-

more accurate average

vices try to measure based on current listings which can help but has obvious issues as

pricing.

well.

Then the approximate block count was found for each district. There was an option to seek out the exact amount of blocks in different districts through community board information, but broker defined zones are unfortunately different than that of the city, and transform more often, thus in order for the scaling to be consistent with average price information each district had to be counted manually.

Because some districts are denser than others, it was also necessary to understand how many layers of apartments were in each district. The East Village has an average building height of 7 floors for example. This is in stark contrast to midtown where the

A New New York

average residential building is 39 floors tall. Having general estimates for each neighborhood allows for the appropriate factor to be applies to the calculation, this better assessing the relationship of density of one neighborhood to the next.

The last variable was to find an approximate percentage of the given neighborhood zoned for residential. This factor is then applied to the final equation to produce a rough proportional count of residential units neighborhood from neighborhood (4).

Because the base number being manipulated from each district is an average (and not

Inflated New York

a specific amount of apartments) the numbers are relational to each other.

Percentage Zoned Resi A factor was applied to the calculation that took into account the percentage of the neighborhood being zoned for residential (4).

Building Average Height A factor was applied to the calculation that took into account the average height of a residential building in the neighborhood.

Manhattan

56 Pricing A New New York

Manhattan

Manhattan Result After accounting for factors such as zoning and density the effective rate of renting in Manhattan was proven to be much higher than typical brokerages suggest. As demonstrated in the data above, the average 1-bedroom in Manhattan rents for $4,035 a month, or the equivalent of $48,420 a year. In order to afford this (at the 30% of income rule of thumb) a millennial would need to make $161,400 annually after taxes, or $237,352 before taxes. This is an extremely large salary, one that few millennials make in New York. Likewise, this amount is unattainable in a number of industries

Inflated New York

millennials are employed in (before the partnership or ownership level). The largest market in terms of rental stock is The Upper East Side having accounted for nearly 20% of the total amount of residential in the city. The Theatre District is the smallest in regards to stock. The most expensive neighborhood on average is NoMad (Northern Madison Square Park), and the least expensive is Inwood which lies on the furthest northern boundary of New New York.

The New New York As is clear in the map to the right, there are only small swaths of the city that millennials are comfortable living in. Beyond these zones millennials will either burden themselves further by spending more in rent, or simply move to another city.

What this means for millennials is that many are completely priced out of Manhattan – and moreover, are priced out of ever living in a one bedroom in the borough.

Therefore millennials must find roommates to bunk up with if they want to live in Manhattan, that is until they command a $237,352 annual salary or can find a good deal on a secondary market. This fact is disheartening for most who then ask themselves, “what’s the point?” If there is no hope for ever living in ‘the city’, why waste time and money now?

New Jersey

Brooklyn

58 Pricing A New New York

Brooklyn

New Jersey

Brooklyn and New Jersey Result Although Brooklyn is substantial cheaper than Manhattan, the average cost of a 1-bedroom is still prohibitively expensive for most. The average cost of a 1-bedroom was found to be $2,495 a month, or $29,940 a year. In order to afford this (at the 30% of income rule of thumb) a millennial would need to make $99,800 annually after taxes, or $146,764 before taxes. This may be attainable for a 3rd year finance worker, but most other industries in New York City a millennial cannot hope to make this until they are 10 or so years into their careers. This completely prices out recent graduates

Inflated New York

and those in the arts, creative, or educational fields. Brooklyn has become a haven for those fleeing the extreme price inflation of Manhattan. It seems that they will have to go even further if they hope to find affordable housing on primary markets.

New Jersey is the last frontier and contains much cheaper housing than the New York Boroughs. In order to afford a one bedroom here, millennials would need to make $132,823 on average before taxes. Many people have started to sacrifice their commuting times to be able to pay less in places like Hoboken.

Needed Salary to Afford a 1-Bedroom in New New York: After tax: $137,200 After tax: $201,764

New New York Average After collecting average rent information for Manhattan, Brooklyn (including Queens and the Bronx), and New Jersey neighborhoods millennials are willing to live in, a final weighted average was calculated. This is the most important number in that it truly represents what it costs to rent in the New New York. This study found that the combined average for a 1-bedroom was $3,430 a month, or $41,160 a year. To afford this millennials would need to command salaries of $137,200 after taxes and $201,764 before taxes. This prices out the majority of millennials. Given inflation projections and trends of rapidly growing rent prices, this indicates that a dwindling number of millennials will be able to move to New York City and live how they want to. Therefore, New York will see a substantial decrease of young people flocking to its borders in the next ten years.

60

General Pricing Trends 2015 was a record year for New York City residential real estate. Despite a crash that shook world financial markets having rebounded only four years ago, Manhattan and its adjacent neighborhoods have never seen value inflation at this scale or speed (17).

2015 saw the most expensive townhouse in Brooklyn ever sold, the most expensive hotel building ever sold, the largest amount paid for a single office building, the largest single-building real estate deal ever in NY, the highest rent ever inked for office space, the most expensive apartment ever sold in NYC, the most expensive real estate lease ever in NYC, and the average price of a Manhattan apartment hitting a record high (19,20). By all accounts, New York is more expensive than ever – this fact being true by almost every real estate metric possible.

According to a Street Easy study measuring the state of New York City Rent AffordabiliTrends

ty in 2016, there is a widening gap between what New Yorkers can afford and the prices of market rentals they are likely to find (23). Street Easy estimates that the typical New York City household is expected to spend nearly 2/3 of its annual income on market-rate rent this year (23). According to Harvard’s Joint Center for Housing Studies’ (JCHS) definition of “rent burden”, this means that in New York 65.2% of renters will be substantially burdened in 2016 (22). This problem is even worse in high demand neighborhoods of Manhattan and Brooklyn.

Despite the fact that there are a number of residential developments recently finished Despite the large number of residential developments currently being finished and in the pipeline for New York, experts attribute to problem to income growth not keeping up with market pricing and inflation (20). This is an echo of the problem plaguing the rest of the United States; the JCHS estimated in 2013 over 11.2 million renter households in America, or one in four, were severely burdened by rents that took up over

Inflated New York

A New New York

half their incomes (22) and that this trend was set to only amplify with record level of cost burdens, the shrinking of the middle class, the lagging income trends, increas-

When Your City Became Unaffordable The percentage of income that the typical young worker aged 22-34 paid in rent. (Bloomberg)

ing debt amongst Americans as well as year over year growth in rent pricing. JCHS also estimates that homeownership is at the lowest levels in the United States than it has been since 1967 (22) and that renter households will increase nationwide to around 6 million (22).

In New York renters have more significant cost burden challenges. Two-thirds of renters in the city earn $30,000–45,000, and just under half of those earning $45,000–75,000 had disproportionately high housing costs (10). Rent Jungle estimates that 90% of New Yorkers believe that the high cost of housing is a serious problem as shown in the infographic below (38).

In some neighborhoods the pricing issue is so large that market rents are literally more than the average resident’s income. For example, StreetEasy estimated in a

What Young Workers are Paying in Rent

recent report that in Manhattanville (on the Upper West

Median rent as a percentage of median income for

Side) the median rent-to-income ratio is 119.5%, mean-

young workers in major renter cities. (Bloomberg)

ing that the average rent in the neighborhood is well beyond total annual income in that same neighborhood (47).

The Problem is only Growing “As the city’s least affordable borough, Brooklyn renters will face an even greater burden this year. Between 2015 and 2016, the median rent-to-income ratio in Brooklyn increased by 3.5 points, led by Seagate (9.4 points), Williamsburg (1.9 points), Bushwick (1.9 points) and Red Hook (1.8 points). (47)” Many sources cite low income growth as leading factor for this phenomenon. Median household income is expected to be $56,244 in 2016 (47), yet the median asking rent for all of the boroughs is expected to grow by 10.1% to $3,054 (47). If this same metric is applied to the real cost of renting for young generations in the New New York, average monthly rents would rise from $3,430 to $3,773 a month, or the equivalent of $45,276 a year (Data in next chapter).

What concerns New Yorkers Most?

(StreetEasy)

62

What does this mean for New York Millennials?

This problem is prevalent among millennials and is expected to worsen as they age.

“Having entered the labor market during and following the Great Recession, those in the millennial generation have received lower wages and experienced higher rates of unemployment and underemployment than their older counterparts at this point in their lives.” (JCHS 4) Millennials and the younger generations have less wealth accumulated and higher amounts of debt given the rising cost of school – thus most likely delaying homeownership and forming new households later into life.

The way that this has manifested itself in New York is the prevalence of informal living situations – or more plainly put, the doubling up of renters into single rooms, multiTrends

tenant rooms, single room occupancies, or coliving models of living. The U.S. Census Bureau considers the definition of a severely crowded one in which houses 1.5 people per room (JCHS 4), defining a room as any space within a house (dining room, kitchen).

By this measure almost 10% of New York City households are “crowded” as compared

A New New York

to 3% of American households nationwide (JCHS 4).

Crowding Rate in NYC Borroughs

Inflated New York

(StreetEasy)

This problem is especially prevalent among low income earners whose salaries do not grow nearly at the rate of general or rent inflation; thus boroughs such as the Bronx, Queens and Brooklyn have been hit hardest by income-to-rent burden and the phenomenon of needing to double up rooms in apartments (47). In the New New York, crowding is less substantial at 5.4% of all households but given projections of the New York Household needing to spend 65% of its income on rent in the next year, will most likely rise and renters will have to evolve to cope (47).

Increase in Crowding (Data from StreetEasy)

The typical way to cope with the price of renting in New York is live with multiple roommates later into life. The younger generations are known to especially bunk up due to limited access to capital, high debt, as well as the want to live in the New New York. StreetEasy found in a 2015 study that neighborhoods that had the highest median rent-to-income ratio had the highest rates of crowding, â&#x20AC;&#x153;suggesting a close correlation between rent burden and the need to double or triple up on roommates.â&#x20AC;?

(47) 90% of the area identified in the New New York map can be considered to be in the 1st quartile of median rent-to-income categories (47).

64

What does this mean for the future of New York?

This study illuminates the fact that the direction New York is heading is resoundingly not a good one. A city with an increasingly rent-burdened population risks becoming less competitive in the global economy as those in search of opportunity explore other places to grow. This is especially true of the world’s young, entrepreneurial talent. The “Big Apple” has long attracted the best and the brightest, its eccentricity and density being a magnet for those seeking to be inspired. In the past though, there have always been places to live for the young, poor, and hungry. Whether it was the West Village in the 1950’s and 1960’s, SoHo in the 1970’s, or Dumbo Heights in the 1990’s; these places have always been geographically close enough to the central business districts of Manhattan that despite their bohemian nature and cheap cost, they were still part Trends

of the ‘The City’. The rapidly inflating cost of living near BIDs today though are making this not the case. Today’s ‘SoHo’ is on the verge of not being perceived as part of the city at all.

As was found in this research, the price of renting in New York is much higher than brokerages would have you believe. What this means is that in order for a New Yorker to find their own space, they must commute and hour or more each morning and afternoon to be able to get to their workplace. Not surprisingly, young workers will only go so far. The dream of New York for millennials is specific; fueled by decades of cameos by the city in movies and sitcoms, and more recently Instagram and Pinterest.

Even the inspired millennials that move to the city with grand aspirations of living a certain way, are finding that even a shoebox is unattainable – and that what they imagined to be New York is no longer feasible. As perception changes, so will New

A New New York

York’s viability as an creative, economic and cultural center – all of which depend on fresh, young, dynamic minds to help it evolve with the times.

Perception is important for a city. “If a mother travels to a city with her daughter or son and tour schools and feels unsafe, they are very unlikely to send their child to school there, or encourage them when they want to make a big move to the city.”

(Scott Rechler, 2015). The same logic is true or cost of living. If the perception becomes that in New York you cannot afford to be creative, to seek opportunity, to save,

Inflated New York

to raise a family, or simply to live; millennials will quickly find alternatives.

66

Contents 1.

Who are the Young, New York Renters?

2.

Young Workers, Millenials

3.

Jobs

5.

Financial Footing, Debt, Compensation

6.

Implications

Millennial Market

Inflated New York

Millennial Market

4. Income

68

Who are Young, New York Renters?

This section identifies who “millennials” are in New York City in an effort to better understand the renting challenges this segment of the market faces. The younger generation is fundamentally different than those that have preceded them. Evolutions in technology, cultural values, the advent of globalization and connectivity has completely shifted the way younger people consume, live, and work.

The younger generation’s decisions are increasingly being driven by convenience, value, and experience. They prefer access over ownership, employing services like Uber and Spotify as oppose to buying music or purchasing cars. They value urban amenities and real-world opportunities to connect with peers and are more mobile in their lives – the world has become a smaller place. These macro trends have major implications Millennials

on how millennials and generation Z will rent in New York City, and more importantly how rental trends will evolve according to their hopes and aspirations.

The following research identifies the income, education, demographic and employment profile of a typical New York millennial. It also explores average New York resident demographic information in the effort to have a complete picture of who is rent-

Inflated New York

Millennial Market

ing the average apartment in New York City.

70

Millennials - a General Overview The term Millennial has been defined and redefined numerously over the last decade.

It is conventionally accepted that a millennial is someone who was born between the year 1980 and 2000; roughly speaking between the ages of 18-35 in 2016 (53). Also known as Generation Y, millennials have grown up in the midst of one of the greatest technological revolutions in human history. Similar to the foundational metamorphosis that happened upon the discovery of steel, electricity, or the automobile; the internet’s impact has changed the way this generation consumes information, works, is connected, socializes, lives, and generally defines itself.

A thesis could be written on the topic of the millennial alone. That being said, it is important to this thesis review to define what has shifted in this generation in terms Millennials

of lifestyle that specifically correlates to rental trends in New York City. “Millennial” though, as a population segment, is too large of a group to generalize about. Past writers have made the mistake and been criticized for overly emphasizing traits that primarily describe, “white, affluent teenagers who accomplish great things as they grow up in the suburbs, who confront anxiety when applying to super-selective colleges, and who multitask with ease as their helicopter parents hover reassuringly above them” (63). This overlooks the diverse socio-economic portions of this age group that hail from all parts of the United States – and the world. Millennials have various backgrounds, family structures, incomes and education.

Therefore, for the purposes of this paper, this short overview will be limited in scope to understanding and profiling millennials leave their home or place of education to start a career in New York City. This is the group that is most specifically effected by the sharp inflation of rental prices in “New” New York, and geographically speaking

Inflated New York

Millennial Market

are the largest demographic population at this age range within these boundaries.

Generally speaking, these are those millennials that have recently completed postsecondary or graduate school and are moving to the city as a 23-30 year old, looking for a

temporary to long term rental apartment from which

din by those that have successfully obtained jobs and

they can commute to work from. These millennials on

are showing it. The image is projective, and in many

average are educated, come from a subset of middle-

cases a blushing version of the city.

class background, and are highly mobile. This segment is particularly important to understand because they

This creates a powerful perception of what the city

are the ones who are motivated to come to New York

should be to those who are hopeful in moving there –

City, and understanding these motivations and aspira-

more commonly it is the very foundation for why mil-

tions will better help recognizing the impacts a chang-

lennials are moving to New York. As will be revealed

ing rental landscape will have on the city’s future.

in this study, millennials don’t make more money in New York, don’t have bigger apartments in New York,

These aspirations have been greatly impacted by so-

can’t save in New York, and don’t experience unique

cial media and the specific, charismatic New York it

amenities as compared to other cities anymore in

portrays. The image of the city to those outside is that

New York – so why are millennials still moving to New

which is exhibited by shows like “Sex and the City”,

York? It is because millennials aspire to live a certain

“How to make it in America”, “Gossip Girl”, “Billions”;

way, which is perceived to be possible in New York.

in movies like “Taxi”, “Manhattan”, “The Wolf of Wall

This following pages will explore how millennials are

Street”, and “The Devil Wears Prada”; on the Insta-

actually living in New York, and what this means for

gram feeds of models and celebrities that live in and

its future.

travel between the city; and on Facebook and Linke-

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Jobs The nature of the “job” has greatly evolved for today’s millennial. In previous generations the path was relatively clear – graduate high school, potentially attend college, and work full-time. In many cases, it was normal for an employee to stay with a company their entire career. Today’s employment environment is much different; filled with transitory positions, geographically dispersed companies, digital start-ups, entrepreneurs and traditional corporations. McKinsey recently projected that by 2020 40% of the nation’s workforce will be independent workers (52). A Kauffman Foundation study in 2014 found that 54% of millennials want to or have already started their own businesses, and that 470,000 businesses are launched in the U.S. each month (52).

Moreover the concept of ‘career’ has changed, with more opportunity, less stigma,

Jobs

and more resources for millennials to self-define what ‘work’ is.

Millennials in Ads This recent General Assembly ad captures the ‘spirit’ of the millennial workforce.

Although increasingly this ‘spirit’ is be-

Millennial Market

coming more of an advertising ploy as

Technology is quite possibly the largest disrupter in this sense, having completely redefined how, where, and at what capacity people work. This has drastically impacted lifestyle, work culture, career aspiration, and cultural trends for the Gen Yers who grew up in the revolution. More educated, mobile, and self-directed than ever before; millennials provoking companies to change how they hire, retain talent and operate.

This change though has not come with considerable challenges. While the technology revolution has liberated some young workers, it has created a convoluted and capricious world for others. Jobs are harder to hold, the process of being hired is more enigmatic, education has never been more important or expensive, pay is wildly

Inflated New York

disproportionate between industries, and competition for jobs has never been more fierce (54). Moreover, the great recession of 2008-2011 compressed hiring, a tail this generation is still feeling the effects of today. A large segment of millennials are ‘underemployed’ and scramble for temporary positions such as unpaid internships – a product of the recession – that still plague young industry today (54).

Unemployment Rate for Recent College Grads Bloomberg, 2015

Unemployment Rate for Recent College Grads The Federal Reserve, 2015

Job vs. Career The recession has had a tangible and lasting effect on

for earning growth within the first decade of their ca-

millennial job markets. The crash created a landscape

reers. They also found that this slow start meant that

where educated millennials couldn’t find jobs, were

they would typically maintain a below-median wage

taking work that they were well overqualified for, or

throughout the entirety of their careers (54). This has

were working in positions simply make ends meet

had a lasting impact on an entire segment of millen-

(52). Many of whom were saddled with immense

nial population, many of which due to an extended

college debt, the weak hiring cycle that lasted years

period of not working in their core competencies

made many act as “agents of employment with mul-

have been both priced and aged out of original career

tiple firms” (54). In a 2015 report, economists at the

paths. With competition from younger and cheaper

Federal Reserve (the “Fed”) found that by not secur-

labor graduating, and little actual practice experience

ing a strong job at the outset of a career, many millen-

in what they studied, this segment has been forced to

nials had drastically decreased their future potential

scramble to find a new direction.

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Although since 2011, unemployment has steadily decreased, ‘underemployment’ – what the Fed defines as a worker being over qualified for a position they hold – is still a prevalent issue. Bloomberg found in a 2015 report that the unemployment rate fell to 4.6% in to 2015 after being at a post-recession high of 7.1% in 2011 (52). That being said, similarly to the Fed’s findings, Bloomberg found that this unemployment drop was coupled with an increase in underemployment. Bloomberg found that 44% of millennials polled were in positions that they didn’t necessarily need the degrees that they obtained from college for. Likewise, Bloomberg was able to identify a more macro-trend that there was less demand for college-educated workers in general (52).

This phenomenon has prompted the Fed to make a distinction between ‘job’ and ‘career’, each of which had major quantitative implications on the success of a millennial

Jobs

throughout their career life. Although today it is commonplace to glorify the entrepreneurial nature of the millennial generation, in many cases it is not as rosy as one would hope. Likewise, research shows that it is not always by choice.

The Fed found in a 2015 survey that the younger generation entering the job market after secondary and post-secondary education are greatly affected by what the report called “contingent” work situations; contingent being defined as contracted, part-time, temporary, and seasonal work (66). Categories of jobs that would fall into this umbrella term would include all of the titles that the millennial generation is all too familiar with: stipend paid work, internships, and trial periods – concepts companies created during the recession when there was no money but have since been institutionalized as a career ‘rush period’ of sorts.

Millennial Market

Number of Respondents and type of job held The Federal Reserve, 2015

Now a fact of life, contingent work is notoriously hard to continue for long periods of time. This is not surprising given the little to no pay, long hours, and expensive urban

Inflated New York

places that these positions are usually in. This has forced many millennials since 2008 to jump from job to job, creating a resume that can be both scattered and longwinded (66). A 2011 study by the Heldrich Center found that in the case of recent graduates from high school and undergraduate college, “40% had quit a job since graduation and 12% had been laid off.” (65). The Fed found that in many cases, young workers hadn’t held a single full time job for the past year or five years, and that the number of respondents that were holding more than one job at a time was increasing (65).

In both the case of Heldrich Center’s and the Fed reporting’s, temporary employment is not ideal for millennials; “Overall, young workers prefer steady employment (67 percent) to higher pay (30 percent) when seeking and selecting a job” (53). This is difficult to do though in an employment environment that has equalized to lower hiring volumes, and in a world where technology is increasingly eliminating the need for personnel. Although jumping from job to job may allow a worker to grow their relative income quicker, it greatly effects employment stability and long term earning ability; thus impacting how a millennial saves, spends, and pays down debt. This employment insecurity is a large factor in the ‘mobility’ of millennials and the increasing rate of renter-ship in places like New York – many are forced to move often and cannot commit to long leases, fueling secondary markets (that will be explored later in this project). These macro employment trends speculate that millennials will rent later into life, delaying settling down and starting families (regardless of want) (55). The Fed reported in their annual “Survey of Young Workers” that only 54% of young workers hold a ‘traditional job’, otherwise defined as a permanent, full-time job; and that only half expect to stay at their place of work for more than one year (53).

Push Downs Contingent work leads to a derivative problem economists refer to as labor market ‘push-downs’. A push down is the long term effect that a millennial accepting a job they are overqualified for has on the greater market. As more and more young workers take these positions, they quickly render themselves obsolete in the greater competitive marketplace which has a negative effect on the long-term income and wages of these young workers (53).

Underemployment Rates The Federal Reserve, 2015

In expensive cities that are magnets for highly skilled and educated employees, this phenomenon creates vicious cycles. This is especially true for New York, one of the United States’ largest job markets. By being “pushed down” millennials are incentivized to jump from job to job, damaging long-term wealth creation. For those in the millennial segment that have not completed a post-secondary degree, there is the real danger of being pushed down to permanent or long-term unemployment. In the Fed’s 2015 Survey of Young Workers, 83% of respondents that were currently looking for work had not completed a postsecondary degree (53).

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Not surprisingly the Fed found that the older a young worker was, the more likely they were to hold a permanent job and thus higher earnings and stability. Those aged 18 to 24 reported in significantly more numbers that they were currently holding temporary jobs, whereas respondents aged in the range of 25-30 were in more permanent jobs, “the oldest respondents were most likely to have been in a job for two or more years (66 percent) than those 18 to 21 years old (8 percent) or their 22- to-25-year-old peers (26 percent)” (55).

All that being said, there are still ample opportunities in New York for millennials to find work – the city contains one of the most diverse array of industries in the nation – the game just has higher stakes. MIT estimates that the largest industry by market share in New York is Healthcare and Social Assistance; followed by Retail Trade; Profes-

Inflated New York

Millennial Market

Jobs

sional, Scientific, Tech services; Accommodation and Food Service; Finance and Insurance; and lastly construction (28). With so many choices, and the typical millennial moving to New York being educated, the city is a ripe place to start a career.

Percentage of Market Share by Industry, New York City 2014 2014 ACS 1-Year Estimate; Graphic MIT DataConnect

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Income How a millennial is paid is greatly dependent on whether they are permanently or temporarily employed. Likewise, what level of education they have received also plays a large part. The Federal Reserve reported in their annual “Survey of Young Workers” that those polled with higher levels of education were more likely to hold a permanent position and as such earn a salary rather than an hourly wage (53). This is important both in terms of stability and in the decrease of a millennials forced mobility (as oppose to choice mobility facilitated by technology).

As higher education becomes more typical for a millennial though, stratifications have begun to form which greatly impact pay grades. The Fed found that the shift to a salary was most pronounced for respondents who had at least a bachelor’s degree.

“More than 80 percent of respondents without a four-year degree earn an hourly Income

wage, while 49 percent of those with a bachelor’s degree, 70 percent of those with a master’s degree, and 79 percent of those with a professional or doctorate degree earn a salary” (53).

The correlation between education and the ability to better secure a job was found to be very strong (53, 66). In addition to all the reasons one would expect – more educated, better qualified, better skills – the Fed also cited the environment one finds at an academic institution. Graduating students have more access to job resources including basic job information, career fairs, and flexibility to intern during the summers, as well as college alumni and professional networks to draw from (66). This is becoming increasingly important for millennials in a world that is flooded with workers from around the world and tech enabled skill training such as online courses.

Inflated New York

Millennial Market

Similar studies found that if recent graduates were able to align what they received their degree for and the job they were able to obtain, their probability for higher salary and long term wealth creation greatly increased (66). These positions the Fed refers to as “career positions” in contrast to “jobs”.

For those polled that had salaried positions, the Fed found that the largest salary segment millennials fell into was between $24,001-$42,000 a year nationally (53)

Distribution of Annual Earnings of Salaried Workers in Fed Survey the Federal Reserve, 2015

In New York though the income picture is different, and closely aligned with industry and educational background. StreetEasy found in a 2015 study that nearly 21% of graduates received a Business degree in postsecondary school (62). The same study found that 12% of young workers moving to New York received Fine Arts degree (62).

2010-2013 1-year ACD Estimates and Occupational Employment Statistics Data suggested that the highest paid young workers in New York matriculated from a Business background and the lowest paid young workers who majored in Education (27).

Millennials in Ads 2010-2013 1-year ACD Estimates and Occupational Employment Statistics Data.

According to the 2014 ACS1-Year Estimate (USCB) The typical household in New York, NY has a median household income of $52,996, just lower than the United States Median of $53,657. (Grey is United States, Orange is NYC). (27)

Median NYC Incomes 2014 ACS 1-Year Estimate; Graphic MIT DataConnect

NYC Yearly Income 2014 ACS 1-Year Estimate; Graphic MIT DataConnect

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Not surprisingly, a Bloomberg poll found that millennials were stressed about the extreme costs in the city. Wage inflation is nowhere near the inflation rate of the cost of living. Many responded that money was, “there one day and gone the other” that they couldn’t build up substantial coffers in case they were to lose their job (45).

Help The mismatch of cost of living, low income growth, and many millennials simply having “contingent” jobs has had major implications on the ability of a millennial to support themselves financially. Full-time jobs come with healthcare and insurance benefits, benefits that part-time and internship positions typically do not include. These costs can surprise a young worker and cause financial ruin if something unexpected were to happen. The Fed found that young workers believed health care was the most Income

important benefit to receive from an employer, although only 70% of the respondents actually had access to the benefit currently (53).

Most Important Benefit Associated with Full-Time Job

Inflated New York

Millennial Market

the Federal Reserve, 2015

Map of Median Incomes in New York Metro Area 2014 ACS 1-Year Estimate; Graphic MIT DataConnect

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Education Economists found that the level of education a millennial has directly correlates to their holding a career position. The Fed cited in a 2013 National Longitude Survey of Youth Study that high school dropouts were the least likely to hold fulltime positions (68). That being said, due to the recent recession, the Center for College Affordability and Productivity found that for the first time in history there is more supply of college-educated labor than is demanded by the labor market. This makes jobs more competitive and harder to find - even for those coming from the best academic backgrounds. Research shows that education is necessary though, even at the stratospher-

Education

ic prices institutions are charging.

Right: Ages of Respondents and Longevity of Position Held This Federal Reserve, 2015

Below: Percentage of Market Share by Undergraduate Degree, New York City 2014 2014 NCES IPEDS Dept. Educa-

Millennial Market

tion; Graphic MIT DataConnect

According to 2014 NCES IPEDS information from the Department of Education the most common degree awarded in New York was General Psychology, followed by Gen-

Inflated New York

eral Business Management, and Accounting (31).

The most common Masters Degrees in New York are General Business Administration; Social Work; and Public Administration (31).

Interestingly enough, the relative generational wealth impact higher education has is decreasing. As more and more people obtain higher and higher degrees, the less impact these degrees have on wealth creation overall (63). This means that millennials will be stuck with more debt for a longer period of time due to stagnating wages. Millennials are the most educated group in history – yet this has had little impact on their earning power.

Above: Percentage of Market Share by Graduate Degree, New York City 2014 2014 NCES IPEDS Dept. Education; Graphic MIT DataConnect

Left: Earning Power in Relation to Education The New York Times, 2015

The fed found in a 2013 “Experience and Perspectives of Young Workers” report that, 37% of respondents reported that they have the level of education and training needed for the type of job that they would like to hold in the next five years. As expected, the respondents’ confidence in their education increases with each level of attainment. The higher the level of education, the more likely they were to be working in a field related to their education and training, and to characterize themselves as being in a “career” rather than “just a job” (54).

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Debt This demand for education does not come without cost. Market Watch found that last year’s graduating class (2015) has the most student debt in history. Each student has on average $35,051 in debt owed, about $2,000 dollars more than the class of 2014 (60). Research agency TNS found that millennials between the ages of 18 and 35 have an average general debt of $41,286.60, a substantially higher number than the national average of $29,400 according to the Department of Education (61).

The increased amount of debt is due to a convergence of multiple factors. Tuition has inflated by 234% since 1993, on average 10% ever single year (63). That figure is far above the 63% overall inflation rate for that period, on average 2.8% growth year over year (63). With salaries barely growing over this period as well, millennials must choose between no debt or no job. The situation is even more dire for those millenni-

Debt

als in contingent positions, paying debt service is extremely difficult if not impossible.

Few millennials polled had any idea on when they would be able to pay back their student debt, and many regret taking out as many loans as they did (57). Bloomberg found that many students would have not attended college at all if they knew how much it would have actually costed beforehand (57). “Five years after leaving school, borrowers in low-income communities have made practically no progress in paying down their loan balances”, according to an April 16 presentation by New York Fed Economists. “Their aggregate balance is still 97 percent of the amount they left college with” (68).

This has obvious impacts on how millennials live their lives (and rent in a place like New York), but also beyond simply their generation and to our nation as a whole.

Millennial Market

Warnings of larger ripples have started to surface, most recently with Moody’s warning to investors buying collateralized student loans that it may take investors longer than promised to get their money back. The credit grader threatened to lower rankings on $3 billion of top-rated debt due to the impending threat of investors receiving slowed principal payments or receiving no interest at all (64). SLABS (Student Loan Asset Backed Securities) are also making a comeback – a mirror image of CMBS issuances which had a major role in the 2008 meltdown.

What this all means: Financial Footing, Debt, and Compensation for Millennials The significance of this is that generally speaking millennials in urban places are on

Inflated New York

shaky financial footing. Only 60% of millennials in New York could support their current expenses and housing costs according to the New York Fed (54). When asked if they could support themselves if they were to lose their jobs, 30% responded that they could (the period being four weeks). When asked if they could support themselves for a period of 12 weeks, only 20% of participants were confident (54).

Above: Tuition, Debt and Bill Inflation

Below: Where Millennials find Financial Help

The New York Times, 2015

The Federal Researve, 2015

For those who could not afford current expenses and housing costs, the Fed found that “help from parents” was the primary means of income. Another large group referred to “help from family members” and loans in some form or another. This was also true for those millennials attending school either part or fulltime. segment. The Federal Bank of New York found that Bloomberg found that 17% of New York Millennials

millennial’s net worth in 2013 was just $10,400, con-

were struggling with overwhelming amounts of debt,

siderably less that the $18,200 that generation Xers

28% had no debt, and 41% were managing (57). The

had in 1995 when they were under 35. “With incomes

amount of debt that millennials are struggling with,

squeezed, millennials are not only not saving much;

in addition to the high price of rent in places like New

they are dipping into whatever savings they do have.”

York, have affected the general wealth of their market

(54).

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There is a direct correlation between how self-sufficient a millennial was and the permanence of their job. This is important in a market like New York where millennials struggle with temporary positions after school and well into their 20’s and 30’s. The combination of being financially unstable, insecure about job prospects in the future, and holding multiple impermanent jobs at the same time is a lethal combination. Surprisingly though, when asked the question, “How confident are you that if you work hard you will be able to build a comfortable life,” the Fed found that 80% of interviewees responded they were confident (54). Despite almost everything working against them, millennials are hopeful about the future – maybe the American Dream is still alive.

Median Net Worth of 18-34

Inflated New York

Millennial Market

Debt

year olds.

The New York Times, 2015

Growth in Total Education Debt at Graduation The Federal Reserve, 2015

Growth in Nonmortgage Balances The Federal Reserve, 2015

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Millennial Market Summary For the real estate industry, this information should be disturbing. The renter and buyer base that is set to replace baby boomers has very little stability, wealth, or purchasing power. Many are forced to be mobile â&#x20AC;&#x201C; and the other portion are simply empowered to be through technology. Millennials may be projected to rent later in life, but this is assuming that they can stay in New York at all. With exploding debt levels, falling income levels, increasing housing and cost of living costs, and a millennial culture that is based on conspicuous consumption â&#x20AC;&#x201C; betting on booming millennial demand in New York is betting against the odds. Although this market segment is the

Inflated New York

Millennial Market

Sumamry

most educated ever, it may shake out to do more harm than good.

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Issues Plaguing Renters in NYC 1.

Introduction to Issues

2.

Flexibiliy

3.

Transaction Costs

4. Payment 6.

Trust and Security

7.

Roommate and Community Risk

8.

General Cost of Rent

9.

Needed Products

The Problem

Inflated New York

The Problem

5. Timing

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Intro It is clear to anyone that has had to navigate the rental market in New York that there are numerous issues at play that make the experience miserable at every stage of the search. It is a complex, mobile, and evolving equation filled with conflicting players with individual and non-aligning motives. It is an all too typical conversation in the city (so much so that is often used as an ice-breaker at social functions), people complaining about the craziness of their search, that they canâ&#x20AC;&#x2122;t find an apartment, that they were surprised by a crazy roommate, or that their landlord is a crook. Rarely though you will see an itemized breakdown of specific issues plaguing the market, and without this change is not possible.

Introduction

This section isolates and describes specific challenges customers face when renting in New York. Each category is followed by an itemization of market products that would solve the issue. The goal of doing this is to be able to distill the essence of the issue and transform the findings into a salient solution. These solutions are then coalesced into a holistic proposal later in the project.

Issue Categories 1. Flexibility 2. Transaction Cost 3. Management Communication 4. Payment

Inflated New York

The Problem

5. Timing 6. Trust and Security 7. Roommate and Community Risk 8. General Cost of Rent

Compounding Barriers Both renters and owners face substantial barriers when entering the market. These only get worse when the two barriers interact with each other â&#x20AC;&#x201C; compounding into a nightmare situation. With the absence of technology in the process (as will be explored in later chapters), there are few solutions to alleviate the bottleneck.

Solution - Simply Introduce Technology The solution to all of these barriers owners and renters must face (each of which is handled by different services) is simple. Itâ&#x20AC;&#x2122;s called technology. Real estate is an arcane industry in terms of processes and technological integration. By introducing a simple platform that consolidates and streamlines issues, the process could become much simpler for both sides. (See Solution Section).

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Flexibility: As has been discussed in this project, millennials are more mobile than ever before â&#x20AC;&#x201C; and not always by choice. Many are in contingent jobs which force them to either hold multiple temporary positions, or jump from job to job to make ends meet. Other millennials are empowered by technology and lifestyle changes to simply do not live in one city for long. Either way, flexibility is needed to todayâ&#x20AC;&#x2122;s rental marketplace.

An aspect of flexibility that has not been discussed in this project thus far is the high concentration of students and recent graduates who travel to New York for internships

Problem Categories

and study abroad opportunities during specific times in the year. As the level of education has increased drastically, so have the requirements for students to get jobs and into graduate school after post-secondary education. Not surprisingly, this has included students needing to ramp up and stock their resumes with impressive credentials earlier to be able to secure even the most entry level jobs in a place like New York.

This means that the typical student will participate in number of internships during their careers. Likewise, students trying to differ themselves from highly competitive student bases with the means, will study abroad or fly to exotic places for research. All of this has been made easier by technology and social networks â&#x20AC;&#x201C; foreign places and cultures have never been more accessible.

What this means for New York is that during the summer and winter seasons, the city is flooded with young millennials in search of temporary housing for 4 months or less.

Obsolete lease structures that require year-long commitments are no longer appropriate, nor are the rigorous background checks and capital requirements that are commonplace now. Students and their parents looking for short term housing are forced

The Problem

to use secondary markets such as Craigslist currently.

Inflated New York

Needed Market Products 1. Housing search tools that allow apartments to be quick and easy to find 2. Lease lengths that are variable 3. Leases that can be easily terminable with little notice 4. Rental agreements that accommodate varied tiers of credit and background

Transaction Cost: Transaction costs of obtaining a lease on a primary market are prohibitively high in New York City. In many cases this results in the pushing of young professionals onto the secondary markets to find housing. Mobile and young professionals that are starting new jobs, or have not had jobs long, don’t have the ‘nest egg’ needed to obtain the lease.

A typical one bedroom lease on the primary market in New York requires the customer to: 1.

Currently makes 40X the monthly rent amount

2.

Pay a 1X monthly rent deposit

3.

Pay first month’s rent

4.

Pay last month’s rent

5.

Pay for application

6.

Pay for a credit check

7.

Pay broker fee (1X rent)

Therefore, for the average Manhattan apartment at $4,050 a month, a young professional would have to command a salary of $162,000 a year and pay an upfront amount of $16,400 to acquire the lease. For a student just graduating or a young professional who has just started working, this is a burdensome hurdle.

These costs and risks go up if a customer is looking for an apartment with more than one room. Even though the individual cost of a room may be reasonable, the upfront cash amount of all of the rooms together make securing an apartment to stay in for a year a family affair. In the example that a group of three are looking for a three bedroom apartment at the same price point ($4,050 a room), they wound need to write a check for $49,200 to a landlord just to rent. This is the same as a down payment on a $328,000 house.

Realistically speaking, the more bedrooms you are searching for the cheaper they are on a room by room basis – thus $4,050 may be more like $2,700 - but the logic is still the same.

To simply rent in New York, the upfront cash cost of transaction is huge. The majority of young professionals seek to skip this and are looking for tools to do so.

Needed Market Products 1.Rental agreements that do not require enormous amounts of upfront cash 2.Cheaper ways to apply (skip $100 charges) 3.Cheaper ways to be credit checked and verified 4.Eliminate need for Broker fees

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Management Communication: In current lease formats in New York City communication with management or the landlord is shoddy at best. The majority of the rental stock in New York is turn of the century and in many cases are owned and operated by unsophisticated landlords.

In these cases communication with a landlord is typically limited to phone calls or in some cases emails. This becomes particularly problematic when there are issues with the building or apartment itself such as plumbing problems, lighting problems, mail problems, problems with neighbors etc. Because communication is inefficient, both landlords and residents can afford to be unresponsive and unaccountable, citing tech-

Problem Categories

nology or method of contact.

Needed Market Products 1. Direct communication techniques consistent with contemporary messaging platforms 2. Platform that holds both parties accountable

Payment: Payment methods are both antiquated and inefficient in most New York rental buildings. Even sophisticated landlords have yet to adopt digital payment techniques that have been institutionalized over the past five years in every other consumer market segment. In many cases, Paypal, ApplePay, Venmo and Direct Deposit are all unacceptable forms of rent payment to landlords.

Lessees are typically expected to pay monthly via check, a form of payment that is becoming more obsolete every day to the millennial and Generation Z market segments.

This form of physical payment is problematic in a number of different ways. The first of which is that it requires a renter to pay weeks ahead of time by physically mailing

The Problem

the check to the landlord. In this system there are no guarantees that the landlord will receive the check or that it will arrive on time. Likewise there is a risk that the check could be confiscated and sensitive information could be lost along the way. For the mobile millennial who may be traveling or not physically in their place of residence at all times, sending checks can be problematic depending on where they are and how available physical mail stations are. Moreover, physically collecting rent from roommates to send to a landlord can be difficult.

For a landlord, physical checks can also be inefficient in terms of timing if the check were to bounce. The amount of time it would take to realize the check was unsecured, contact the tenant, and receive new payment in the mail may represent a major loss Inflated New York

for a landlord â&#x20AC;&#x201C; a risk that could be hard to quantify for a mom and pop landlord.

Needed Market Products 1. Direct and Secure Digital Payment Options, even for the most unsophisticated operator.

2. Remote payment systems, credit payment systems

Timing: Timing is a large issue to millennials who are constantly on the move or are in shaky employment situation. Searching for an apartment in New York is time consuming, from looking for an apartment to the interview process. Given the unsophistication of the current procedure, much of the probability of securing apartment rests on the ability of the potential tenant to appeal to who is controlling the lease controller. Despite the explosion of online communication channels, visual and social, hopeful renters must spend evenings and weekends physically being in the city. This is especially problematic for those who do not live in New York, where the cost of traveling can be prohibitively high. Moreover, simply the amount of time needed for this travel can be improbable due to work or travel availability.

Typical search windows for apartments are also a challenge to the millennial and young professional. Not surprisingly, it is commonplace for a landlord or a leaseholder searching for a subletter to market their apartment months ahead of time. This can be particularly problematic to a millennial or young professional who is recently graduating or receives a job offer with the edict that they must start as soon as possible. Sublettors and tenants are then forced to pay higher prices and enter a much more competitive and stressful market while trying to establish a place to live with only a week or two to find it. This becomes even more difficult to the shopper who is not familiar to the city they are moving to or simply live in a difference city. Trips and travel can be costly, especially when it is last minute.

Needed Market Products 1. Quick lease signing function 2. Ability to understand and tour apartments from a remote location.

General Cost of Rent: As explored in the market portion of this paper, the month to month cost of renting in New York City as a portion of annual income is prohibitively high. This inflates secondary and informal rental markets when renters scramble to find an affordable alternative to studio and 1br. This though is a vicious cycle, the price of a room in an apartment becomes similarly inflated to account for both increased demand and the increased income of the renter (as increased prices for 1br create a larger renter profile in the city).

Needed Market Products 1. Primary market rental options that are affordable to those making less than $200,000/yr 2. Rental product that is less expensive than current studio and 1br options

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Trust and Security: Security is one of the largest issues still plaguing the modern apartment search today. Obsolete methods of information transfer and egregious amounts of personal information needed makes it a risky endeavor. The problem is prevalent at multiples stages of the housing process. During the pre-application phase a user must submit sensitive information to a host of competitive apartment owners and servicers with no real understanding of who they are and what they are doing with their information.

In competitive markets like New York, it is commonplace to apply to dozens of apartments all of which require submission of bank account information, family information

Problem Categories

employment information, and credit information amongst other things. In many cases this information is handed over to unsophisticated landlords who then do what they want with the information â&#x20AC;&#x201C; this is especially true on secondary markets where millennials and young professionals are living informally and seeking sublets. All this simply to apply to an apartment.

To acquire a lease the process can be even more invasive. Even the most unrefined mom-and-pop landlords in New York require that a leaseholder submit extremely valuable and sensitive personal information about themselves, and in many cases a family member or guarantor. This can include, and is not limited to, other property holdings, net worth, bank account statements, lines of credit, and major assets held by each member. For a customer who may be moving each year, this means that their extremely intimate personal information could be distributed to multiple landlords and their staff throughout the course of a stay in the city. It is difficult to regulate or protect this information once it has been handed over to the unknown.

General methods of information transfer are in most cases insecure as well. Most landlords prefer that a tenant fill out their information and sign a lease in hard copy with which they send by email to their offices or parties involved with executing the The Problem

lease. General email is one of the most insecure forms of information transfer, and moreover there is no assurance that the hard copy is stored in a safe place once it has been sent. When working with a sophisticated owner or operator this is typically less of an issue, but the majority of New Yorkâ&#x20AC;&#x2122;s rental stock is old and owned by individual landlords who handle this sensitive information themselves.

In many cases security becomes an issue after the application and approval phase as well. This comes in the form of unregulated and unstipulated maintenance practices from the landlord or building supervisor. In many mom-and-pop shops there is risk of a super who bends boundaries with little repercussion or has the ability to intrude Inflated New York

when he or she pleases.

Needed Market Products 1. Secure/online tenant background verifications 2. Limited transfer of sensitive information 3. Secure application processes not involving paper trails 4. Standardized practices of maintenance and communication

Roommate and Community Risk: Roommate risk is one of the largest issues when securing housing through secondary markets. Due to the cost of living in New York being so high, the majority of young professionals live with roommates for much of their twenties, and in recent years, well into their thirties. What consistently proves to be a headache for those desperately seeking sublets in existing apartments, or those looking to fill a vacant room, is the long process of interviewing potential roommates to see if their lifestyle is compatible with those living in the apartment already. As one would expect in rental markets as competitive as New York, interviewees put their best face forward â&#x20AC;&#x201C; projecting their lowest impact, cleanest, more compatible self â&#x20AC;&#x201C; only to transform months later into the complete opposite at which point is too late.

There have been a handful of startups in the last two years who have begun to develop roommate matching programs where potential roommates can match via an algorithm and chat within the program itself. This streamlines the process that can take many days of interviewing multiple candidates multiple times.

Although basic algorithmic matching programs are a step in the right direction, there have yet to be holistic platforms that integrate multiple levels of reference. Users can still fake who they are and what they are looking for in an effort to simply land an apartment and thus there still tends to be a distrust in the system.

Needed Market Products 1. Smart matching system so like people live together 2. Roommate reviews such that the real person is revealed 3. Search functions for compatibility when searching for roommates.

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Needed Product Summary The list to the right represents all the products that are needed to be able to truly service the demands of the rental market. Many of these categories are logical and can be solved through the introduction of technology into the real estate market. Real estate by nature is similar to all other markets and can be made more efficient through competent forms of information dissemination and communication. As it stands currently, real estate is plagued by draconian processes and methods of conducting business. In many instances, information is still chiefly translated through word of mouth

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The Problem

Problem Categories

â&#x20AC;&#x201C; astounding in this day and age. By using simple digital platforms (many of which that have assisted other industries for over 20 years) to create tools that address these issues, finding and renting housing in New York City can be made incredibly simpler.

Keep in mind that these tools donâ&#x20AC;&#x2122;t have to reinvent the wheel, only be translations of existing products that are already active elsewhere. Products currently being developed are outlined in the next section.

Flexibility: Needed Market Products 1. Housing search tools that allow apartments to be quick and easy to find 2. Lease lengths that are variable 3. Leases that can be easily terminable with little notice 4. Rental agreements that accommodate varied tiers of credit and background

Transaction Cost: Needed Market Products 1.Rental agreements that do not require enormous amounts of upfront cash 2.Cheaper ways to apply (skip $100 charges) 3.Cheaper ways to be credit checked and verified 4.Eliminate need for Broker fees

Payment: Needed Market Products 1. Direct and Secure Digital Payment Options, even for the most unsophisticated operator.

2. Remote payment systems, credit payment systems

Management Communication: Needed Market Products 1. Direct communication techniques consistent with contemporary messaging platforms 2. Platform that holds both parties accountable

Timing: Needed Market Products 1. Quick lease signing function 2. Ability to understand and tour apartments from a remote location.

Trust and Security: Needed Market Products 1. Secure/online tenant background verifications 2. Limited transfer of sensitive information 3. Secure application processes not involving paper trails 4. Standardized practices of maintenance and communication

Roommate and Community Risk: Needed Market Products 1. Smart matching system so like people live together 2. Roommate reviews such that the real person is revealed 3. Search functions for compatibility when searching for roommates.

General Cost of Rent: Needed Market Products 1. Primary market rental options that are affordable to those making less than $200,000/yr 2. Rental product that is less expensive than current studio and 1br options

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1.

Introduction

2.

Unit Comparison

3.

Hospitality Options

4.

Dorm and Common Space Options

5.

Micro Units

6.

A Closer Look: WeLive

7.

A Closer Look: Common

8.

Exchange or Conduit Platforms

9.

Traditional Broker Models

10.

Traditional Landlord Models

11.

Sponsored Algorithm Platforms

12.

Roommate Matching

13.

Informal Channels

14.

Whatâ&#x20AC;&#x2122;s Needed

Current Tools

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Tools

Whatâ&#x20AC;&#x2122;s Currently Out There

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What’s Currently Out There Thankfully the tech revolution has begun to impact Real Estate. NYC Real Estate tech startups saw $195 million of venture capital funding in the fourth quarter of 2015 alone (34). Basic platforms and startups have begun to sprout – feeling similar to the first years of Twitter, Turbo Tax and other now ubiquitous companies ruling the world.

The tools are rudimentary, fragmented, and haven’t been fully adopted by users; but still are making the rental market a more navigable place to be. It is only a matter of time until these platforms work out the kinks, integrate functionality from smaller start-ups, and become household names – after all, housing affects everyone and homeownership is at a 70 year low in America alone (42).

Introduction

This section identifies major players in the market trying to change the way we interface with both formal and informal rental markets in New York City (and beyond).

Many are only months old, such as WeLive and Common, and others have been sitting on shelf for a number of years like Apartments.com and Craigslist.com. What they all have in common is that they are the only tools out there for potential renters and many command majority market share (as bad as they are) due to sheer lack of competition.

Companies are first organized into categories based on their structure and UX (user experience). Applications and platforms that are of particular significance to the market are then broken down further with analysis. Each has a diagram that characterizes how the platform administers its service to the customer. Pricing is also summarized on a unit by unit basis such that the market segment the platform is servicing can be better identified.

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Tools

RENTER OPTIONS 1.

Hospitality Options

2.

Dorm and Common Space Options

3.

Micro Units

4.

Exchange or Conduit Platforms

5.

Traditional Broker Models

6.

Traditional Landlord Models

7.

Sponsored Algorithm Platforms

8.

Roommate Matching

9.

Informal Channels

A Renterâ&#x20AC;&#x2122;s Choice Renters have two general markets that they can search for listings on.

Primary markets are more expensive but are more established, the traditional go-to category in the last century. Secondary markets are for all those who are either priced out of primary markets (like millennials) or are looking for unique aspects in their stay such as flexible terms, less capital required upfront etc. Secondary markets have cheaper options, but involve a great deal of time, risk and know-how to navigate the market itself.

The Trade-off Unfortunately secondary and primary markets rarely coincide and a user is forced to use either or. Each comes with a handful of tradeoffs. Secondary markets are where cheaper deals are, but involve a larger amount of risk of fraud and failure. Primary markets minimize these two risks, but it comes at an extremely high cost -which is prohibitively high for most millennials.

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Dorm and Common Space Models Coliving and dorm models have become popular again in the last five years. Once associated with commune living in places like Berkeley California, sophisticated operators have seen market demand and opportunity in places like New York where prices for 1 bedrooms are extremely high and adults living with roommates well into their late thirties is commonplace.

Coliving models come in various shapes and forms but can be generally described as a community based model where residents share living space, communal space, amenities, social services or other living amenities typically privatized or reserved speficically for one resident. A typical example of this could be a dorm on a campus where washDorm Models

room facilities and lounge space is shared amongst the entire building community.

One might find in a more privatized version in New York adults living in their own room but sharing a kitchen and dining space amongst multiple apartments, or social facilities such as living rooms, garden space, etc.

Communal living is by no means a new invention. Its current renaissance has been spurred by a number of different factors including the increased mobility of urban people, the extreme price inflation of living in cities, the generally unaffordable premium placed on once typical building amenities, an increased appetite for social living, and the recent decrease in homeownership over the past 20 years.

Most fundamentally, in places like New York, the majority of urban dwellers can simply no longer afford to live alone and thus colive with roommates later into life. With no real formal channels to facilitate this, people typically turn to classified ad listing services such as Craigslist to tap into secondary rental markets and bunk up with people in similar positions. Companies such as WeWork in the past few months seen the opportunity to formalize the process into integrated online platform where customers can locate a room in an apartment, sign a lease, and move into an apartment with just

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a few clicks.

Although face value of these coliving operating models feels similar, each greatly differs by the way they handle traditional real estate lease and ownership structures.

Some coliving models require purchasing an entire building before outfitting it while others operate on what would traditionally be called incentive based operating contracts. What each start-up chooses is foundational to its longevity and success. Likewise, how a company gains control to operate the real estate has major implications on the premium they must charge. In all cases pre-fitted rooms run a 20%-40% premiInflated New York

um on a similar product found in the secondary market.

Although the rental market is bigger than it ever has been before, many of these companies still struggle with regulatory and legal restrictions created in a time before tech.

In many urban places such as New York, Brothel and Single Room Occupancy laws limit the formalization of the process despite the fact that the city is being overwhelmingly habited in these informal manners already. Given its prevalence, common law should evolve current law practices, but dated law still proves to be a challenge for this emerging business model.

From the business’ point of view, what these models have that other web-based real estate startups do not is ownership to the right of real income. Whether they have an incentive based management agreement, a leasehold, or fee simple right to the property; these companies have real assets that produce real income – as oppose to an exchange platform whose income is derived by advertising, or as a percentage of usage (fee based). Where the later don’t own anything real, the former does – which can be valuable if managed correctly, but also a great risk if not.

Rental Process Chart Listing agents are in-house with owners. Renters search manually and communicate with agents.

Market Share Leaders

108 Dorm Models

WeLive --- A Closer Look

As of April 2016 WeWork, the co-office space giant recently valued at 10 billion dollars, launched its coliving model in Washington DC and New York City. Operating similarly to its hugely successful office model, WeLive integrates technology, community, and now living into a seamless process where a customer can join a community and live in a fully amenitized apartment or room in an apartment. The apartments are flexible – catering to a millennial set that doesn’t stay in one apartment or city for too long – and advertises a bespoke community of like-minded people that you Tools

gain access to as a resident. Each room and apartment has been fully outfitted in the namesake WeWork manner and the building shares large communal amenities such as laundry, movie facilities, and game rooms amongst other things.

Welive operates on an ownership model whereby they purchase a building with partners and act as the GP to design and develop to the brand’s vision. Although this greatly limits the scalability of the model due to the huge capital requirements to acquire a building, it increases their profit margins by not limiting it to a premium for services (which a management agreement does). That being said, ownership Inflated New York

opens the company up to greater risk having obligations to both Limited Partners and Lenders. If the macro real estate market goes bust and Welive cannot command the premiums they have underwritten for each apartment, the company is still stuck with Manhattan building size debt obligations for which they will have to answer to.

I was able to tour the first WeLive on Friday April 10, 2016. The tour was led by a broker who showed me apartment spaces in the price range of $1,500-$2,000 a month. In addition to research purposes, I was also viewing the space as a true potential renter as my career will be taking me to New York in the Summer of 2016. This was the best way to view the space due to the fact that it forced me to not simply critique it as an abstract concept for a target audience, but literally for myself as a potential home.

Advantages: 1. Common Spaces – very well appointed, fixtures that are too expensive to afford otherwise 2. Design – the rooms are very well designed and friendly 3. Programmed community events – very good for those just moving to the community

Disadvantages: 4. Cost – well above market, clear into the higher ends of the luxury markets. Utilities very high also.

5. No roommate matching capacity – residents still must find their own roommates on Craigslist 6. Feels like a dorm – no controls on the community (I.e. Who is living there, lifestyles etc.)

7. Too community driven within direct vicinity of living spaces – very loud, no escape 8. Geographically restricted – community only exists in the building, 9. Sign up – procedure still requires broker to tour you around.

10. Tough Scalability

1 Br. Living Space

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Studio Living Space

Dorm Models Tools

Space: The overall architecture is very integrated and well designed. The spaces include built-in features such as storage, seating, and cubbies. The spaces also come already appointed with art, decorations, and fixtures in the kitchen. 1-bedroom’s have pull down Murphy beds for another roommate such that the apartments are convertible into 1.5 bedrooms. Each apartment comes with huge TV’s and other nice fittings such as well-designed tables, chairs and sofas.

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The overall architectural feel of the building is that of a WeWork to the point where you feel as if you are literally sleeping in one. Hallways and staircases are finished with dark paint and images such that the space feels like a night-club – less like apartments.

With the many free drinks and drinking events in the building, it becomes quickly apparent when walking floor plates that this just might become a nightclub each night.

1 Br. Bathroom

1 Br. Kitchen

Cost: 1-Bedroom: $3900/month Utilities are a flat rate of $250/month and include water, electric, internet, cable and one full cleaning of the space once a month.

Fully refundable security deposit due at signing which is 1x the monthly membership fees payable by ACH. One time setup fee of $250 per bed, which includes a Welcome Packet including sheets, t-shirts, shave kits, and WeLive swag.

112 Dorm Models

Community and Interior ‘Neighborhoods’: The building is divided up into vertical neighborhoods of three floors with interior stair cases to be able to circulate through without the use of the elevator. Each neighborhood has shared spaces including a large kitchen, dining space, laundry facilities, as well as small ‘bodegas’ where customers can buy shampoos, soaps etc by simply swip-

Tools

ing their card. Hallways off of vertical circulation include seating and lounge furniture to be able to host guests, similar to what one would see in an Ace Hotel.

The main initiator of community in the building is WeLive’s online portal for residents where users can find free events going on in the building or in the ‘neighborhoods’ and join in. Each night had some sort of event going on in one of the shared spaces, many including free food or drinks.

The spaces themselves were also extremely conducive to community. Each of the shared kitchens included large professional scale cooking appliances, bars and bar Inflated New York

seating, picnic style tables, large TV’s as well as high end blenders and cooking fixtures that would normally cost a person thousands of dollars to own on their own. It is very easy to imagine reserving the kitchen for a dinner party, or for a viewing party during a big game.

Network: Upon signing up for WeLive, you are granted access to an online portal. Physical posters area posted in the hallways for events happening on particular nights.

Services included as a WeLive Member: 1. Fully furnished down to the fork - just bring your

7. Mobile app to keep you connected to your neigh-

clothes and yourself.

bors and events within the building

2. Bedding and linens provided - we weren’t kidding,

8. Bike share program, bike storage and repair station.

just bring your clothes.

9. Outdoor patio with hot tubs, grills & much more.

3. All utilities included - your own wifi network, cable,

10. Full bar

temperature controls and monthly deep clean-ing 4. Bose speakers and 55’ flat screen TV 5. Amazing shared common spaces such as a screening room, fitness studio, chef’s kitchen, laundry room and more!

6. Community events including fitness classes, happy hours, cooking classes and more!

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Timing: A renter can sign a lease for a period of 6mo or 12mo, with the process of signing being the same as a typical broker process. This includes meeting with the broker and signing a typical lease. Month to Month, 6 Month, 1 Month Increments. 12% discount for one Month to Month.

People / Customers: There is no formal system of matching roommates to each other, it is up to the room-

Dorm Models

mates to coordinate all of this. Therefore it is extremely similar to renting in a normal apartment where one person assumes the lease and others have to split, thus a customer is still exposed to the risk of living with people very unlike themselves with no control over the community they are thrust within. Customers seem to be older, or extremely young – those coming out of college with help from their parents, staying for a temporary period until they find a more permanent living situation.

WeLive is actively seeking young creative types to live in the building. Touring the building uncovered a much different situation though. Given the extremely high pricing per bed it seemed that everyone living there or walking the building were in their 30’s to early 40’s. That being said those that I could see where easily recognizable as creative types most having tattoos, facial hair, alternative hair colors.

Scalabilty: There is very little to no scalability to this model without huge sums of upfront capital.

To maintain the level of finish and appliances in the apartments along with the common areas, WeLive must purchase the building that they are operating within (or work extremely closely with a large owner with access to immense TI and CapEx allowancTools

es) and outlay much more than a normal developer would. Due to this large investment on the front end, it makes it extremely difficult for the brand to expand to high income areas of the city without their prices per unit inflating to unrealistic levels.

Currently the first brand is operating their first location at 110 Wall Street – the very periphery of a neighborhood that is not high on most renter’s lists when it comes to New York City. WeLive’s pricing per unit currently is similar to renting a one bedroom on the Highline, one of the most desirable locations in the city. For WeLive to buy a building by the Highline and outfit in its signature fashion, their pricing would have to Inflated New York

be multiples of market to make a return in a realistic timeline for investors. Likewise, with barriers to entry high to foreign ownership of real estate in non-United States markets, it is difficult to imagine WeLive smoothly expanding abroad.

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Review For a host of reasons, I found WeLive to be unsuccessful for my age and income. WeLive has incredible aspects to the brand and does many things right, but also misses the ball on a few core concepts in which leads me to believe that WeLive will not be sustainable through a down cycle and beyond.

WeLive is a great concept when considered abstractly but touring and imagining actually living in what amounts to a dense dorm for adults it becomes less attractive. The architecture of the space is high quality, but ultimately feels more like a night club or boutique hotel than a home and thus gives you the sense that you will not have the Dorm Models

privacy or the option for quiet if you need it. For a young person moving to the city right out of college, WeLive seems to be a great transitional option from dorm life, to a more adult version of it. Unfortunately though, the pricing is such that the majority of the younger population moving to the city will never be able to afford it. Thus, I project that the actual tenants living in this building will be late 20’s to late 30’s creative types interested in the unique lifestyle that CoLiving affords you. This was supported when I toured the property and almost everyone I saw was mid to late thirties.

Ultimately WeLive is similar to any other luxury apartment building in New York, simply with better branding. At the WeLive price point a customer can live in any neighborhood in New York, and in most cases in a luxury building. These luxury buildings contain similar, if not more, amenities than WeLive – 2 Gold down the street from WeLive for example contains viewing rooms, solariums, roof decks, grilling space, game rooms, large kitchens, and bars amongst other things. What sets WeLive apart is its online portal that connects the tenant base and it’s fully furnished apartments that

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Tools

are very well done. The experience otherwise in terms of leasing, roommate acquisi-

tion, and moving in and out are very typical to other luxury rentals in the city.

What I was most surprised about was what was lacking in this community, and how similar WeLive is to any other large traditional landlord. I would have expected that the WeLive platform would cleverly meld the services of many other real estate startups into one, allowing a customer to choose a living space based on personal qualities, living desires, as well as social desires. This is not the case.

In our 2016 top of the market economic climate, I believe that this model will do well.

As soon as the market turns though and creative and service industries have to tighten their belts (as they always do), WeLive will have to compress prices which will be difficult with the ownership obligations it currently has (master lease, debt). The lifestyle has been tailor made to creative types only, and therefore it is harder to imagine those with more purchasing power and higher incomes such as FIRE employees living here.

WeLive may be able to hedge itself through diversification of geography as a typical REIT or real estate portfolio manager would do, but given the immense upfront capital needed, and market pricing caps, I believe the brand is limited in its scalability and thus can leave itself very exposed in a bad market

118 Dorm Models

Common --- A Closer Look

Common is a recently created coliving concept that is set to be the major competitor to WeLive. Based in New York City with three locations, and having been created in 2014 by General Assembly cofounder Brad Hargreaves, Common has thus far purchased small buildings in the outer neighborhoods of New York and outfitted them with fully amenitized apartments, shared amenity spaces, and other typical apartment building furnishings such as laundry and wellness rooms. Common seeks to create a flexible community of renters that engage with each other through programmed social

Tools

events, shared kitchens and social spaces, and easy to rent rooms.

On Saturday April 16th 2016 I was toured through Commonâ&#x20AC;&#x2122;s new South 4th and Havemeyer building as a prospective tenant looking for a bedroom for 3-6 months.

The building was still under construction and set to be leased by the next month. As a part of the tour I saw all of the different units available as well as the future roof deck, viewing room, wellness center, and circulation spaces. The building is located at the heart of an up-and-coming neighborhood in South Williamsburg, two blocks from the first stop in Brooklyn on the JMZ line. The neighborhood is filled with coffee shops, Inflated New York

unique retail and a mix of the old Brooklyn and the new. The building is set to be Commonâ&#x20AC;&#x2122;s flagship location, having recently raised 7.3 million dollars in a Series-A round in July 2016. The structure of the Havemeyer deal is that Common teamed up with a Brooklyn developer on a build to suit building.

Similar to WeLive, although the concept sounds appealing in abstract, in practice Common’s model is much more typical than one would think. From the renting process, to the use of a third party application for social events, to the flexibility of stay in the apartment; the process of renting in Common feels very similar to that of a typical apartment building in New York. The Havemeyer location that I was able to tour consists of 51 bedrooms, 12 suites, a rooftop amenity, shared work and lounge space, a screening room, and a wellness studio. Common has a similar membership package to WeLive with flexible terms, WiFi and community events included.

Advantages: 1. Great pricing for ease of use and high quality space 2. Apartments well designed 3. Community benefits nice 4. All included pricing makes rent and utilities easy

Disadvantages: 1. No roommate matching – Common chooses for you, risk of unwanted roommate 2. No leasing services – the same as using a broker 3. No real differences from typical Brooklyn development 4. Less amenities than a luxury building as a lesser price point

C Unit Bedroom

120 Dorm Models

Space Commonsâ&#x20AC;&#x2122; spaces are simple and elegant, feeling like typical low-to-mid rental new build in Brooklyn. Unlike WeLive who has access to massive amounts to capital upfront, Common does not and you can tell when walking through the space. That being said, the company does a sophisticated job of executing on a smaller budget, having specâ&#x20AC;&#x2122;d high quality cabinets, kitchen utilities, and bathroom fittings. The ceiling height is large, and unlike WeLive, white paint is used in all of the apartment spaces thus making it feel much more like a home. Countertops are masterfully designed, with a clean poured in place concrete used with large aggregate that at first seems like a dark

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marble.

The bedrooms are bare but each come with their own AC units, dimming lights, black out shades, and operable windows. There are three types of bedrooms that a user can rent, each at a different price point with unique features. The A unit is the smallest with only 90 sf in a room and comes with a simple Casper bed, Parachute fittings and a chair. Nothing else is in the room, but Common will allow you to put up pictures and move in a desk if the customer would like. The units get larger as you move down the alphabet to the F unit. B-F units have simple built in closets and come with a small rug Inflated New York

and two chairs. Common allows you to bring small furniture, but requests that the use work with what is in the room already.

Staircases and central spaces are well appointed with hardwood flooring and steel structural components. Although the space is bare, it feels like an apartment.

Shared Kitchen

Shared Kitchen C Unit Closet

Cost: At Common customers have the ability to rent rooms, not full apartments. The room are listed below and decrease related to length of lease.

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Timing: Common is flexible in the amount of time they need notice to book (assuming that there are vacancies). Lengths of stay are also variable, but do not include a month to month option as WeWork and other CoLiving concepts do. Common offers tenures of 12 Months, 6 Months, and 3 Months. Pricing varies with each. The customer simply must let Common know 30 days ahead of time that they will be moving out to be able to move. Leases are renewable assuming the customer was well received in the community and took care of the apartment.

People / Customers:

Dorm Models

Common seeks to attract the young and the creative to their Brooklyn locations. With a better price point than WeLive and great flexibility in lease terms, this feels realistic.

Their locations are currently better suited to the creative set and their model better reacts to the needs of transient renters who may be new to the city or need a home for just a few months.

That being said, similar to WeLive, when touring the property there were a number of mid-thirties to 40s customers interested in rooms. This may be because the price point is lower than a luxury apartment, but still high enough to be 60%-70% higher than a similar product on the informal market.

Scalabilty: Common is in a similar position to WeLive where they operate an ownership model.

Therefore, their community and apartments are limited to the buildings they own.

Although the pricing is competitive, much more so than WeLive, it is still difficult to imagine the brand expanding to thousands of units given their exposure in a down market scenario. Likewise the capital that would need to be raised on a deal by deal basis for building acquisitions in New York are beyond the fundraising capability of Tools

Common at the moment. Investors would rather invest with a typical multi family operator such as Avalonbay or TF Cornerstone.

User Experience (UX): The user experience of booking a room seems relatively seamless, with only a deposit and first months rent needed as a guarantee -- but is also the same as a typical brokering process that would happen elsewhere in the city. We still had to tour the

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apartment in person with a broker, would have to book and sign directly with him, and still felt the pressure to sign as quick as possible due to the â&#x20AC;&#x2DC;high demandâ&#x20AC;&#x2122; for rooms that the Common broker was seeing. This, mixed with the inability to choose your own roommate, almost makes the experience worse than simply using a broker â&#x20AC;&#x201C; atleast with your own broker you can control over who is living in your space.

Shared Circulation Spaces

Services included as a Member:

Services are limited in Common to what you pay for.

1.

Flexible Terms

Included in the cost of renting are the typical utilities

2.

Private Bedroom

one would expect, high speed internet, premium TV

3.

Fully Furnished Apartments

channels, and access to Slack. When touring the prop-

4.

All Utilities

erty Common touts the Slack community as a service,

5.

Superfast WiFi

but in reality one could join this website from any-

6.

Shared Supplies

where in the world for any reason in the world.

7.

Free OnSite Laundry

8.

Community Events

9.

Weekly Cleaning Service

Similar to WeWork there are few to no leasing or roommate services. A customer must still tour the property with a Common broker and sign a typical lease with Common as their landlord. Moreover there are no roommate matching services and thus a customer will have no idea who they will be living with in their own apartment. Potential renters can tour when Common wants and therefore there is the risk that people you donâ&#x20AC;&#x2122;t know will be in and out all the time due to the flexibility of the leases.

Wellness Center

Outdoor Shared Space

Services and Network:

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Community The community aspect of Common is serviced through the existence of amenity space which is assumed to be used in a social way by residents. Unlike WeWork, Common has no propitiatory application or system that connects people in the building, but they do use the 3rd party messaging system Slack to announce events that residents might be trying to plan. Similar to most luxury residential buildings in Manhattan, Commonâ&#x20AC;&#x2122;s Williamsburg location will have a rooftop deck, wellness room, and study with a large table. Other than that there are no unique features to the building that set it apart from any other residential building in New York.

Dorm Models

Review Common has developed an interesting concept and executed in its South Williamsburg location well. The building is well built and the finishes are simple, but effective.

That being said, due to a lack of unique online infrastructure or UX, the company feels more like a typical apartment builder than a startup. For all intents and purposes it is, with the only difference being that a renter can access rooms for rent directly through the operator as oppose to using secondary channels like CraigsList.

Although the building has a host of amenities in which the company touts as a unique selling point, this is in fact no different than any other luxury builder in the city. Many are ramping up and building fantastic amenities to attract tenants in the more competitive marketplace. Moreover, the price point per room, although less than WeLive, is still substantially more than what a renter can find in Manhattan â&#x20AC;&#x201C; let alone South Williamsburg where a typical fully-furnished, new-construction room-for-rent will cost $1,100-$1,300 a month.

Common suffers the same drawback in scalability as WeLive does. Because of the long-term management contract that Common enters into with one builder in one Tools

location, it becomes very difficult for them to scale without significant capital upfront.

In terms of building culture, the concentration of Common apartments in one building draws a specific customer and limits its general appeal. Although I was told that this building was targeted at the millennial (18-31) set, most renters touring with me seemed to be in their later 30â&#x20AC;&#x2122;s and of the alternative lifestyle (judging by hair styles/ colors, piercings, tattoos and clothing). It was difficult for me to imagine renting in close quarters with unknown 30-somethings, with no control over who I lived with, for such a high price, in such a distant neighborhood. For these reasons I believe Common

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will not be successful in their current model.

126

Micro Units Micro Units are a recent trend in expensive cities whereby developers are building extremely small units that still contain all of the typical living facilities that a larger apartment would have. Popular in amongst architects and urban planners interested in creating more efficient and affordable living solutions for millennials and mobile professionals, in many cases these apartments feature transformable fixtures and furniture such that spaces can be used for multiple uses over the course of a day or week. Examples of this could include beds that fold into the wall, or desks that substitute as storage or futons.

Dorm Models

Counterintuitively, these spaces are more expensive for developers to build and thus need to be priced at a higher per square foot rentable price-tag than a normal apartment. Owners tend to price in and around market rate for a one bedroom, but have received a high demand for the units due to their ingenuitive use of space and quality of finish. Thus, for a smaller amount of space developers have been able to receive more profit.

Some Micro Apartment developers are pairing the space with online services and signups similar to common and WeLive. An example of this would be Ollie.com who recently launched Carmel Place in New York. Using a prefabricated system, Stage 3 Properties in partnership with Monondock Development were able to construct the property in record amount of time (40). To go along with the property, Ollie has set up a community based platform online from which customer can register themselves, be

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vetted, and apply to one of the apartments.

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Madrid Micro Apartments by Miguel Bernardini Asenjo and Aurelie Beriot 300 SF Total “The economic crisis has made small spaces the only choice or many young people and there are a lot of small, old apartments in the city center. ‘Making the best of them is always rewarding,’ he said. ‘ParadoxDorm Models

ically, the space constraint allows for greater design freedom, as it implies steering away from the usual stuff to better respond to circumstances.”

(36)

Wroclaw Micro Apartments by Ewa Czerny 312 SF Total

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“Czerny initially bought the apartment as a fixer-upper. She said it was so old and neglected that it was cheaper to buy, which allowed her to spend the money on the renovation which took three to four months.

The high ceilings allowed her to customize the space even further.”

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(36)

Ollie Apartments Ollie apartments are one of New York first forays

Despite its original goal to create integrated and

into legal micro units. Having waived restrictions

affordable rental units in New York, the costs of rent-

on the construction of apartments under 400 sf

ing in a Carmel Place apartment are considerably

specifically for the construction of the Carmel Place

higher than similar product in the neighborhood.

microunit building developed by Ollie apartments,

Rents for the studios start at $2,650/month for a 260

the city sees this typology as a possible solution to

square foot unit, and will rise to more than $3,000

the high cost of renting in the city. Consisting of 12

for a 350 square foot unit. This clocks into around

market rate apartments, many of which will be fur-

122/sf for rent, almost double the price of much

nished with built in furniture features such as Mur-

larger rental units on the same block. (36).

phy beds and storage, Carmel Place was finished in 2015 and is located in the Kips Bay neighborhood of Manhattan.

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Single Room Occupancies Single room occupancies have been used throughout history as housing for low to very low income urban and suburban residents. In this model, most buildings are operated by a government or non-profit organization, customers stay for a flexible period greater than 30 days and share different living facilities with other residents of the building.

SROs saw a decline in construction and occupancy after the 1960’s in many major American cities as they were located in destitute areas that were experiencing urban renewal. Therefore their sites could be redeveloped for much more profitable uses

Dorm Models

(36).

Many cities in this period enacted conversion ordinances due to the low income and crime ridden nature of SRO buildings (36).

Lower East Side SRO’s SRO’s have traditionally been government sponsored programs that provide housing for low to no income city dwellers. Thus, the connotation associated with SRO’s in most

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Tools

urban places is negative.

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Hospitality Options and Models The hospitality industry has seen a great deal of disruption through tech in the last 5-10 years. No longer do customers only book directly through the website of a hospitality chain such as Marriot, W, Starwood, Standard etc. Although it still happens, more typically it happens through a secondary site that matches users to a brand according to their stay and price credentials.

Services have emerged in the last 5 years that have completely eliminated the need of chain hotel brands in general. These companies act as the middle man and provide Hospitality Models

a platform where peers can connect and rent directly to each other, eliminating extra costs that are associated with a brand. These companies allow users to rent couches, rooms, or entire properties from individual users looking to make some extra cash.

Unlike a regular hotel that may feel similar no matter where you are in the world, each property a user stays in are completely contextual and unique to their place. This can be considered an asset, but also a risk in that there is very little regulation on the properties and therefore a user has little guarantee that each room or apartment is what the provider says it is â&#x20AC;&#x201C; beyond reviews, images and peer crowdsourcing techniques.

Trust and safety tend to be the biggest concern with these startups and each company has developed a series of interesting measures over the years to address this including

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Tools

Messaging and Verification, Profiles and References, and community support 24-7.

Rental Process Chart Hotel operators and owners manually list open rooms onto second party exchange site. Renter manually searches on exchange site for open rooms and books directly on secondary exchange.

Market Share Leaders

134 Hospitality Models

Airbnb Airbnb is a website for people to list, find, and rent lodging. It has over 1,500,000 listings in 34,000 cities and 190 countries. AirBNB is a Short Stay Option typically serving people for under a 30 day period and is similar in concept to hotels. Therefore their pricing is similar to that of a hotel.

Pros: Airbnb has a fantastic visual website and online community that is robust.

Searching for listings is easy. Reviews and profiles make it an easy platform to trust as a first time user, and it is all very access able through the website. AirBNB also includes interesting neighborhood reviews to make is easy and exciting for prospective users to get familiar with a new place that they are staying. Secondary revenue lines such as insurance is also an interesting model from AirBNB.

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Profiles: Makes it such that you can get to know the people that you will be doing business with. AirBNB is particularly powerful due to the fact that you are staying in real places, places that are of the context. When you stay in a AirBNB you really feel like you are where you are, as oppose to a hotel that feels the same no matter what place you are in the world.

Cons: AirBNB does short stay very well, but is unsustainable for long stay apartments.

Likewise, because you are peer to peer, or C to C, there is always the risk that what is

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shown is not what it actually is. There is no guarantee of quality.

Options on Airbnb include your own room, your own apartment, a shared room, a shared apartment

Couchsurfing Couchsurfing envisions a world made better by travel and travel made richer by connection. â&#x20AC;&#x153;Couchsurfers share their lives with the people they encounter, fostering cultural exchange and mutual respect. Couchsurfing is a global community of 10 million people in more than 200,000 cities who share their life, their world, their journeyâ&#x20AC;? (couchsurfing.com). Couchsurfing connects travelers with a global network of people which in thier mind makes travel a truly social experience (couchsurfing.com).

Couchsurfing is a similar peer to peer service to Airbnb where a user can rent a couch in another users home to sleep on from night to night. Based on the popular European model of students traveling during gap year, this company took off around the same time as Airbnb. It has many of the same features of AirBnb, community based interface, inter-site chat hosting, service extension to social services and event connection etc. Options for rentals on Couchsurfing include Private Room, Public Room, Shared Room, Shared Bed. This service truly is a community in that in many cases you can rent couches for free.

Much of the allure of the company is to build a relationship and network with people you would have not otherwise met. Some couches have a cost, but in many cases it is a contact the host and see situation.

136 Hospitality Models

VRBO Rentals VRBO is Vacation Rentals by Owner, a network where renters can book a vacation listing from across a family of brands and a list of almost one million listing choices. The company advertises the service as perfect for family vacations, reunions & group travel. Similar to AirBNB, VRBO is a short term rental service where people can list their houses or apartments for full rent. Pricing is similar to Airbnb and hotels. (VRBO.com).

The website is less friendly and well executed than Airbnb and feels older, as if it was created in the late 90â&#x20AC;&#x2122;s. For that reason, it has the instant feel of inherent risk, it really feels like you need to dive into this website to understand the system and not get

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Tools

played â&#x20AC;&#x201C; it feels like it has less regulation than the Airbnb site. It has the feeling of a

Tablet Hotels Tablet hotels has done a great job of mixing the classic hospitality model with a contemporary and easy to use online search platform. Geared specifically towards boutique hotels, this service creates a community of trusted brands and hotels that fulfill a certain niche. By catering to a certain type of hotel, the user can trust that they will get a certain product when they book through the service, which is extremely important and something you lose in a peer to peer model. In recent years the brand has also added Airbnb-like value add propositions such as exclusives, recommendations, and stories about places.

138

Traditional Broker Model Brokerages are the most traditional way to locate an apartment beyond having a personal connection to a lease owner or landlord. Brokerages have started to transform in the last five years due to innovation and technology disruption, but largely the model has remained the same for the last few decades. The process is the apartment hunter hires a broker who then searches for listings, sets up showings and ultimately handles the paperwork for a fee. In New York the fee can range anywhere from one monthâ&#x20AC;&#x2122;s rent to 15% of the gross annual rent. This cost is paid for by the searcher, or in some cases by the building.

In New York brokers are expensive and are only an option to searchers who are lookBroker Models

ing for an apartment for themselves or for a group of people they have already identified. Because brokers operate within a regulated industry with standardized reporting systems, brokers do not typically connect searchers to temporary housing and do not operate in the informal sublet markets. Therefore price points are higher when using a broker, and leases that a searcher must sign are longer. Although there are some cases, brokers typically do not waste their time in the lower decile of the market due to cost of doing business and risk.

Some brokerages are leveraging technology more in the last three years. An example would be Compass who has had numerous successful funding rounds and has established an online search system that melds the resources of a traditional brokerages with the searching algorithms of a search platform such as Zillow.com. Compass has seen a great amount of success in the last few years, although it is still fundamentally

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Tools

a traditional brokerage model.

Rental Process Chart Landlords and Owners hire brokerage to place their listings on the open market. Brokerage then assigns agents to batches of listings. Renter must reach out to and contract individual agents who then show renters the listings they have access to.

Market Share Leaders

140

Traditional Landlord Model: In the context of this paper, the traditional landlord model can be described as having a direct relationship with the landowner that a user would be leasing from. The most common example of this in New York is to lease directly from a large multifamily housing owner who vets your rental history, credit history etc. themselves. Examples of these sorts of companies would be TF Cornerstone, Avalon Bay, and the Related Companies. For the sake of simplicity, I have included direct to manager into this category as it essentially operates the same way from the lessors point of view. An example of this would be Stuyvesant Town in New York where the property is controlled by a large real estate owner and investor (Blackstone), but is operated on a day to day basis by a

Landlord Models

separate company in which the lessor is in contact with.

For large companies with the capacity to have substantial online private platforms, this is an efficient way to rent in the city. Given the resources needed though from the owners standpoint, these apartments tend to be middle to high middle market rates and are offered in the traditional form of 1-2 year leases. Finding sublets are less common in the format of a large owner or manager. That being said, if a customer has a relationship with an existing landlord, sublets are possible in the city. Likewise in many cases large companies such as TF and Related offer temporary and corporate housing for which they charge a premium.

Because of the vertical integration, these companies have been pioneers in streamlining the lease signing process. Typically an arduous process filled with paperwork and snail mail, sophisticated operators at the scale of Avalon have engineered â&#x20AC;&#x2DC;one-clickâ&#x20AC;&#x2122; solutions of online lease signings similar to that of student loans. In just a few minutes a customer can log onto their portal and sign a year lease assuming that their credit

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Tools

and rental history is within the company and asset risk profile.

Rental Process Chart Renter seeks open units through direct contact with Landlords and owners on their sites. One of the most efficient ways of finding rental housing in terms of communication and degrees of separation.

Examples of Market Share Leaders

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Tools

The Related Companies Rental Online Portal

Landlord Models

142

TF Cornerstone Online Rental Portal

Avalon Bay Rental Online Rental Portal

144

Sponsored and Algorithem Based Search Platforms: Search platforms such as Zillow.com and Apartments.com have exploded in number over the past 10 years. Fueled by simple mapping and elimination algorithms, these websites allow a user to easily input basic filters to their search and see listings either in list or map format. These platforms are similar to C-C models in that they have no stake in the transaction and act simply as a conduit between businesses and customers. Unlike Craigslist, search platforms connect established brokerages or listing agents with customers searching for apartments. After identifying a potential apartment, a customer uses the platform to contact the agent associated with the property. These agents can be as various as large managers to the individual broker, but are typically

Algo Models

listed and regulated.

Sophisticated platforms have introduced community based search items in recent years including types of roommates a person is looking for, social activities and more in depth profiles of those both listing and searching. Similar to Craigslist, once a listing has been identified, the customer must establish a connection with the listing agent or owner through a secondary channel.

While these websites provide an interesting search engine, they offer little more value than a traditional broker does by simply listing images of available apartments.

Although the site is free to use, in many cases the listing agents who they connect you with are not and thus it is almost more efficient to simply use a broker in the first place. Likewise, these websites are not â&#x20AC;&#x2DC;smartâ&#x20AC;&#x2122; in the way technology usually is in this day and age. The secondary work that must be carried out by the customer is still arduous and time consuming despite the glossy imagery of the website itself. In many cases, websites like Streeteasy.com and Zillow.com have transformed to data collectors from which to understand metadata about submarkets in different urban centers.

This has been a fundamental shift in the business plans of a number of the larger

Tools

search platform websites on the market currently.

Despite the large amount of the websites available, not truly perform as efficiently as one would want because a user still must go through the steps of contacting personnel beyond the bounds of the trusted platform. Therefore the platform has little use beyond being a listing service. As you can see on the following pages, each website looks and performs in the same way, thus rendering many of the platforms redundant. One

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can assume that the algorithms used to power each platform are also almost identical.

Rental Process Chart Landlords and Owners hire brokerage to place their listings on the open market. Brokerage then assigns agents to batches of listings. Brokers pay to list their apartments on secondary exchange and search engine platform. Renter must search manually on exchange platform. Once renter has identified listing, they must manually contact Broker on different platform to engage apartment.

Market Share Leaders

Zillow

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Tools

PadMapper

Algo Models

146

Apartments.com

Sumu

148

Conduit Platforms (B to C, C to C) (Short/Medium Stay) Customer to Customer platforms are intermediary services that simple act as the conduit between a seller and a buyer. This would be the equivalent of an exchange, each with their own degrees of regulation, administration, guidance and entry requirements. For example Craigslist would arguably be the least regulated, most pure form of marketplace on the internet. Here owners, managers, individuals, leaseholders brokers, can all post for free hoping that a customer will bite. Said customer can contact at customers risk. What people are posting and who is responding is completely ungoverned and Craigslist has no liability in the transaction â&#x20AC;&#x201C; it is simply connecting two parties. Roomi on the other hand acts as a similar conduit, but to people. One

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Tools

Exchange Models

roommate searches for a roommate on this platform, advertising a sublet in their existing apartment. Roomi has holds no liability and is simply the platform people can use to connect with each other.

Rental Process Chart Any party can list vacant apartments through the conduit exchange platform. Renter searches listings on conduit. Once renter has identified listing, they must manually contact listing party on different platform to engage apartment.

Market Share Leaders

Zumper

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Tools

Craigslist

Exchange Models

150

TripleMint

Roomi

152 Exchange Models

Craigslist Craigslist is an online customer to customer marketplace platform Craigslist is a classified advertisements website with sections devoted to jobs, housing, personals, for sale, items wanted, services, community, gigs, rĂŠsumĂŠs, and discussion forums (69). In recent years it has become the go-to platform to advertise for vacant space for sublet Tools

in high demand markets such as New York, San Francisco, Washington DC and Boston.

On this bare and very basic platform a user can input what they are looking for with various filters such as geography, price, length of stay and through an algorithm be matched with sellerâ&#x20AC;&#x2122;s with similar profiles.

In New York, craigslist has become the most highly used secondary platform for finding rental housing in the city. There are very few alternatives beyond using a broker to find an apartment - and no substantial tools for finding a room in an apartment or

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lease length for less than a year. Craigslist especially excels at offering sublease opportunities, where traditional brokerages do not. On this site a temporary resident of New York can locate a room or a full apartment for almost any period of time granted there is a host looking to transact.

Once a user has located a posting for a potential housing situation by searching through a chronologically ordered text list, it is up to them to reach out and establish contact with the host or seller through a secondary means of communication such as email or by phone. Craigslist simply acts as an online posting and advertising marketplace for users of all types. All transactions and interactions happen independent of the site itself. Therefore Craigslist is a very valuable posting service, but can be a hassle to use depending on the parties involved in the transaction.

Cons: There are substantial challenges to using Craigslist given the simplicity of the platform. While attractive to a tech purist, there is little to no regulation of who is posting and who is transacting, therefore there is little confidence that what is posted is true. In more cases than not, housing posts in Craigslist are scams and it is up to either the user or the seller to figure it out on their own. There is also no regulation of the formatting of posts, craigslist still exists in the chat forum posting format of the early 2000â&#x20AC;&#x2122;s and thus is extremely inefficient and difficult to navigate.

Once a user has found a posting that he or she finds interesting, the process of contact can be arduous at best. Craigslist establishes the connection, but it is up to the users to continue the conversation from there on a second platform. This means that there can be numerous emails back and forth regarding pricing, times to see the property, what they property looks like, describing yourself to each other etc. In many cases where unregulated posts are scams, users get caught up in phishing by sending their personal information to unknown users.

Due to lack of other tools and resources in the city, despite its clear inefficiency Craigslist remains as the go-to website for finding housing at certain price points and timing periods.

154

Roommate Matching: In recent years entrepreneurs have started to explore social search platforms understanding the importance of having like-roommates when searching for sublets in New York and similar cities. When using Craigslist, much of a customerâ&#x20AC;&#x2122;s time is spent vetting whether the people they will be living with are similar to themselves and not dangerous in any way. Moreover, the connections have to be done on private email accounts and through secondary services such as Facebook of Gmail.

Roommate matching platforms allow a lessor to list an apartment or room in an apartment and filter lessees based on social indicators as oppose to financial â&#x20AC;&#x201C; likes, Roommate Models

dislikes, interests, hobbies, lifestyle. The majority of these services also feature an inboard messaging system such that you can directly communicate through the platform. Each user has a profile such that there is a greater degree of trust, although the services is still customer to customer with little individual regulation or management from the platform itself.

These companies are the pioneers in the secondary market in integrating smarter

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Tools

techniques of matching and searching for apartments in New York.

Rental Process Chart Landlords and Owners initially lease to Lessor. Lessor who then has a vacant room in their lease searches for potential roommates on roommate matching exchange/ forum. Once Lessor and potential roommate have identified each other, Lessor subleases directly to roommate.

Market share leader platforms enable communication only at this point. All apartment information handled on personal or secondary communication channels.

Market Share Leaders

156

Informal Channels Informal channels are an extremely common way of attaining short term rentals in places like NYC. Their prevalence is due to the lack of requisite tools to be able to find housing in NYC for a reasonable price. Informal channels in the information age can be described as listservs or closed groups on social networks not specifically built for startups. Such would be groups on Facebook, closed lists on Whatsapp, listings on Instagram, listservs based on shared interests or experience (school, fraternity or sorority, club) etc. These groups are typically closed and are controlled by an administrator with limited entry into based on peopleâ&#x20AC;&#x2122;s credentials and backgrounds.

Informal Models

The strength of these informal channels of finding housing is the inherent trust that a customer has by being part of a closed group that they know and trust. They therefore are more willing to rent and do business with these like-minded people with similar experiences.

Rental Process Chart Informal and non-sanctioned forums are created on platforms not intended for real estate listings. These groups are typically private and thus limited to select groups of people according to common interests, friend groups, and other qualifiers. Renter communicates with apartment listing through informal forum or secondary

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communication channels.

Facebook Boston Apartments Listings

Facebook Harvard Housing Listings

158

Unit Comparison It was important for the sake of pricing to understand what a customer would be paying if he or she used any one of these services. Often stories are circulated online about customers using Airbnb for a month as oppose to subletting an apartment.

While I believe this is possible, I do not believe that this is a sustainable or affordable option for those living in cities, especially for those interested in staying for over 30 days (which is the profile of the millennial renter in NYC). Likewise using these services beyond 30 days is illegal in New York and other jurisdictions.

That being said, in order to price the point that a solution would need to be at, it was necessary to tabulate the costs of these similar businesses on an average per unit

Comparison

basis (one night) and if a user was to use the service for a month (30 days/units).

A high, mid, and low scenario was created for each business to approximate the spectrum of apartment price points a user can choose from in New York. These were geographically chosen based on previous mapping research conducted in this final project, prices are correlated with neighborhoods in New York. The low scenario is represented by the Lower East Side, the mid scenario Flatiron Neighborhood, and the

Tools

high scenario as SoHo. For consistency of units, 1-bedrooms were used as the basis.

Unit Cost Comparison All units were the estimated averages based on location in the city.

Thes prices were then multiplied by 30 to estimate average monthly cost.

AirBnb offers competitive prices in the more expensive neighborhoods, but in the

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cheaper neighborhoods of New York such as the Lower East Side, the average price of an apartment is 50% -75% more expensive than a hotel room in the same neighborhood. In middle market neighborhoods, AirBnb prices are almost equivalent to hotels in the same neighborhoods. In terms of hospitality options, VRBO is the cheapest of the more established and traditional markets, with average pricing being just slightly less than Airbnb. This could be because of the smaller user base that VRBO has. The

cheapest option by far is couchsurfing. This is because it is a community based system and for short term stays the service is free.

In terms of Dorm and CoLiving models, SROs come in at the lowest pricing. This is not surprising given their connotation and reputation throughout the community. Due to the fact that many are government owned, these are obviously not as accessible and amenitized as other options. WeLive is the most expensive CoLiving option, with a one bedroom costing almost $4,000 a month â&#x20AC;&#x201C; just under the New New York average.

160

What is Needed As exhibited in this section, there has been a number of advancements in consumer market real estate technology in the last five years. Clearly though, after listing and reviewing those that have the largest market share in each of their categories, there is still work to be done.

The tools available for renters are unfortunately still isolated and uncoordinated, and as such the process remains burdensome and convoluted. Each operates in their own sphere and fails to account for the other aspects of the rental process. This leads to inconsistencies in pricing, information and speed.

What’s Needed

The largest failure of these startups is the lack of ‘big-picture’ awareness – the simple needs of the customer. Even with all of these platforms, finding and renting an apartment is a labyrinthine operation matching service to service. Although each service might have made their niche more efficient, the overall process has not been impacted in the same way.

For example, if a millennial with a conservative budget moving to New York were to try and find an apartment with all of these tools available, the process would be as such: Use Zillow to find an apartment in the correct price range. Contact broker from Zillow via Gmail. Walk apartment physically with Broker. Use Roomi to find potential roommate. Contact roommate via Gmail or Facebook. Sign and fill out hardcopy leases, send via Fax machine to landlord. In this relatively simple scenario, the millennial must navigate 5 unrelated platforms to simply locate and secure a place to live. The operation becomes much more complex when variables of competition, multiple apartments, and unsophisticated landlords are thrown into the mix.

What is needed is a platform that integrates the individual functionalities of each category – searching, matching, pricing, leasing, and listing – into one consolidated place. A one-stop-shop concept where a renter could locate an apartment, people to Tools

live with them, and sign a lease all without the hassle of switching social media networks and startup services. Logically, this makes the entire process smoother, more communicative, and generally more efficient as all information is kept on a single marketplace. A service like this would capture the market completely and render all other

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inefficient services obsolete.

162

The Halcyon Platform 1.

Introduction

2. Halcyon 3.

Business Plan and Vision

5.

Design Strategy

6.

Partnerships

7.

Landlord Advantages

8.

Customer Advantages

9.

Go to Market Plan

Solution

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Solution

4. Scalability

164

Intro It is clear that the rental market in New York City, as well as other similar urban markets, needs to be completely rethought. Fundamental market inefficiencies and the lack of addressing renter’s needs have created a landscape that is agonizing to navigate. The market is informal, over-priced, quick to shift, and full of players operating according to their own incentive structures. Moreover there are few to no tools that properly address the demands of the customer and thus renters are left to simply deal with the status quo.

Previous sections in this project have itemized challenges renters face and suggested market tools that would remedy those issues. Previous sections have also identified a

Introduction

large majority market segment that has been left to their own devises due to inflated pricing. These sections have also identified the perimeter of what this market considers to be New York and the effective prices of renting in this zone.

The ‘Solution’ section draws off this body of research and itemization to explore a start-up concept solution that could fundamentally change the way people rent in New York. Engineered to integrate multiple market tools, this concept aims to be a comprehensive platform where renters in New York can search, sign up for, and comfortably rent apartments easily, safely, and with the flexibility that is demanded by their lifestyles. This business is also set to deliver rentable spaces at the targeted price-point for this consumer segment such that the majority of renters in New York no longer have to resort to informal or secondary markets to find shelter.

This section also explores the scalability of this model, understanding that today’s young professional and millennial are highly mobile and must operate within the sharing economy as oppose to ownership. If this model can work for New York it can work in other gateway cities where issues of inflation are just as poignant. Moreover, a large network connecting renters to rental markets of the world would allow people to

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Solution

live where and how they want, but now without their primary barrier – the challenge of finding a place to live. Structures and concepts in this section have been adapted through research of other like business concepts and pitch architecture.

Overview Informal and non-sanctioned forums are created on platforms not intended for real estate listings. These groups are typically private and thus limited to select groups of people accord-

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Halcyon Halcyon is a cradle-to-grave, integrated subletting platform for urban places. The Company controls a network of fully-amenitized, flexible-stay living spaces around the world that members can identify through our platform and sign up for in just a few clicks – while controlling for price, roommates and location. All member services including cultural, social, utility, and payments are handled through a single portal and are digital. You can move anywhere in the world and be confident that the quality of

Halcyon Business Overview

apartment will be incredible, and do so with just a few hours’ notice.

Halcyon (“the Company”) creates a networked market of rental housing responsive to the mobile, highly stylistic, and income-restricted workforce fueling the world’s urban places today. In addition to fully amenitized and ready-to-live in space, the company provides access to an integrated online platform where users can quickly choose and book housing based upon roommate preference, cost, amenities, location, and community. The Company’s seamless blurring of digital and physical services is designed to create a constellation of trusted rental ecosystems set to replace existing inefficient informal marketplaces. Likewise, the community driven digital services allows customers to take advantage of all of the benefits of a CoLiving community without the disadvantages of physically coliving with large amounts of people you don’t know.

The Halcyon business model is built upon four mutually-reinforcing pillars: Space, Trust, Flexibility, and Community.

This section covers Halcyon’s: 1.

Business Overview

2.

Market Opportunity

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3. Strengths 4. Strategies 5.

Sustainable Competitive Advantages

6.

Downturn Resilience

7. Summary

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8.

Elevator Pitch

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Halcyon Business Overview

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Halcyon Business Overview Halcyon (“the Company”) creates a networked market of rental housing responsive to the mobile, highly stylistic, and income-restricted workforce fueling the world’s urban places today. In addition to fully amenitized and ready-to-live in space, the company provides access to an integrated online platform where users can quickly choose and book housing based upon roommate preference, cost, amenities, location, and community. The Company’s seamless blurring of digital and physical services is de-

Halcyon Business Overview

signed to create a constellation of trusted rental ecosystems set to replace existing inefficient informal marketplaces. Likewise, the community driven digital services allows customers to take advantage of all of the benefits of a CoLiving community without the disadvantages of physically CoLiving with large amounts of people you don’t know.

The Halcyon business model is built upon four mutually-reinforcing pillars: Space,

Trust, Flexibility, and Community.

Space: Halcyon seeks to launch in the heart of New York City, first targeting multi family commodity buildings built between 1900-1970 in highly demanded neighborhoods for the millennial market segment. After the company stabilizes income from assets in these base neighborhoods, the Company will expand its target profile to the higher income bands thus expanding into more expensive and boutique properties in the city.

To establish its locations, Halcyon enters into 2-3 year master lease agreements with individual landlords at a fixed market rate (or a slightly discounted rate to market due to the period of the lease) and outfits the space with elements that young professionals and millennials – the company’s target market – find attractive to live in. This Solution

includes fully amenitizing the apartments with everything a customer would need including bedroom essentials, living space furniture, bathroom essentials, kitchenware, electronics, and rugs.

Halcyon locations also feature high-speed internet, cable and premium channel subscriptions, cleaning, grocery delivery, and clothing cleaning services as a part of the rental tab. Halcyon then goes a step further and partners with local artists and designers to outfit the apartments with art and wall fittings that make the home uniquely contextual to whatever neighborhood or city it might be in. Unlike a dorm or coliving Inflated New York

model, by nature each apartment master leased is unique, but still contain the fundamental living amenities one would expect from a premium subscription company.

Relaxing in a Halcyon Unit Halcyon pairs its physical amenities with digital, each customer creates a profile on our platform and when a Halcyon member moves from apartment to apartment, or city to city, their information and service preferences always stay with them. Integrated laundry, food delivery, entertainment, and social subscription services update automatically. The Halcyon master-lease system allows its network and community to scale without bounds to every rental market at every price point, and the synergy of a constantly updating and amenitized life both physical and digital allows a customer to move anywhere within the Halcyon ecosystem comfortably and with little notice or hassle.

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Halcyon Business Overview

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Flexibility The the mutually beneficial combination of Halcyon controlled apartments and a networked digital platform is fundamental to the Company being able to execute it’s ultimate goal – to create a constellation of apartments around the world millennials can

Halcyon Business Overview

move in and out of freely and easily according to their lives at the moment.

Halcyon target customers are both transitory and mobile, typically at the whim of their employment at the moment. Halcyon allows customers to choose 3 month, 5 month, 9 month, or 12 month commitment terms according to their particular situation at the moment. Customers can book a room for anyone of these lengths, in any part of the world, with just a few clicks on Halcyon’s online platform. This is a completely unique feature to all other rental platforms that exist currently.

A sublease is generated and pre-populated with the customer’s information and can be “accepted” with one click – a process similar to booking a hotel with the ease of allowing access to an app. This is all possible through the pre-check process a user must complete as a part of the account set up process. Because Halcyon is guaranteeing the master lease, there is no need for lengthy correspondence with unknown landlords and unique leases every time a customer moves. If Halcyon can pre-verify the customer, the customer can book almost instantly.

Trust A consistent issue in the market for renters today is trust: can a renter trust their broker, their landlord, their roommates, a posting online, a search platform? The Halcyon platform will be the most complete and holistic rental network in existence. Every stage of the process is administered and verified through one company (Halcyon) Solution

creating a single ecosystem of diverse services the customer can trust.

Apartment Product: Although each apartment will be unique architecturally due to the Halcyon master lease model, Halcyon individually pre-checks, repaints, and outfits and certifies (need diff word) all apartments to make sure they are up to Halcyon standards. This gives the customer the confidence that no matter what city, town or country they move to, if it is in an Halcyon apartment they can expect the same level of furniture, finish, service and ease of living and booking. Trust in the Halcyon network

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is paramount to building a truly global constellation of homes.

Roommates: Halcyon customers have the ability to choose who they live with and can view renters profiles on the Halcyon platform. This way there are no surprises when they show up, and there are no brokers talking the liberty of choosing roommates

for you. Each renter has a profile with a description of themselves, their background, their living preferences, and what they are looking for in a roommate and apartment.

Perhaps more importantly, each renter has a review section such that there can be no forgery in their living habits. Renters can choose to live with people with similar jobs, hobbies, backgrounds, or shared interests â&#x20AC;&#x201C; all by using the Halcyon platform, as oppose to egregious amounts of emails and coffee shop meet ups. The Halcyon messenger makes sure that a potential renter can contact roommates directly, without the I use of a third-party platform, exposing sensitive and personal information.

Payment and Contracts: The Halcyon platform fully integrates lease signing and payment so each roommate or apartment deal directly with the company individually.

This eliminates the need for roommates to collect checks and coordinate payment or sending highly sensitive personal information to landlords who a renter may only be leasing for a short period from. By leveraging digital payment methods such as Venmo, PayPal and ApplePay, customers can pay the day rent is due from wherever they may be. No more need to physically send checks weeks in advance with no means of verification. This also means that a customer can pay via credit if need be, allowing renters flexibility and grace periods if they lose their job, are in transition from one city to another, or are a student with little cash after school moving for a new job.

Leases are handled entirely through the digital Halcyon platform to eliminate the risk of leaking highly sensitive bank account, social security, employment, or family information to unverified parties such as new roommates, unfamiliar landlords, or unfamiliar brokers when transferring information. Typical means of lease signing include sending signed documents via easily hackable personal email accounts or through snail mail to management companies or third parties the renter does not know or can trace. Halcyon generates simple, pre-populated leases for each roommate via their profile in which a customer can sign by clicking an â&#x20AC;&#x153;I Agreeâ&#x20AC;? box. All information will be kept safe and secure through the platform.

Accountability: Because Halcyon integrates all aspects of the renting process, customers only have one contact to reach out to when there are issues. The Halcyon digital platform includes a 24-7 manned messaging application where customers can ask any question they may have and will be directed to the correct person to solve their problem. This includes technical issues, payment issues, apartment fixes, roommate issues, as well as moving issues. No longer does a renter have to struggle with who to contact, wait unknown periods of time for responses, or never receive a response at all. Halcyon makes sure there is always one, easy point of contact.

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Community Halcyon is not a CoLiving concept. Its services are not limited to an individual building and its amenities not confined to single physical spaces. Halcyon is a constellation of unique homes dispersed across all of the world’s towns and urban places. Through the digitally networked Halcyon ecosystem, its community can be the same way. Halcyon

Halcyon Business Overview

seeks to foster community beyond individual apartments and create a flexible forum for members to connect in the ways that they want. Halcyon provides passes, information and access to unique features throughout different cities – all accessible to members should they choose to sign up. Simply renting through Halcyon makes a customer a basic member, with the ability to reach out to others based on profession, interests or where they are in the world. Through strategic partnerships, Halcyon Connect members receive passes to New York Fashion Week, New York Restaurant Week, Local Museum and Gallery nights and other like events in places all over the world.

This flexibility allows Halcyon’s community services to evolve and adapt, changing based on the needs of its members – not being restricted to space or physical boundaries. Halcyon will truly become a global community, one that blurs the line between digital and physical and eliminates current community boundaries that are based on

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physical space or non-inclusionary principals.

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Market Opportunity The Halcyon market opportunity is primarily driven by the following factors: Mobile Lifestyles: Empowered by technology and non traditional career types and trajectories, younger generations live more places for less time. By the time a student finishes their undergraduate career, it is not uncommon that they have interned

Halcyon Business Overview

for a summer in a remote location, have studied abroad for a number of months, or have traveled to a place for an extended period of research. Moreover, working professionals who return to school for a Masters or Post Professional Degree commute for 4 months at a time between school, which may be in one place, to their home and places of work which may be in another. Todayâ&#x20AC;&#x2122;s workforce is more mobile than ever before, young professionals are staying at companies for less amount of time and companies leveraging technology create work forces mobile who can work from anyplace they choose. For these reasons, individuals seeking rental housing are driven by the need for flexible lengths of stay, ease of housing search, ease of leasing, and geographic location. The appeal of ownership and spending decades in one place has all but diminished. Halcyon believes that providing a trusted network of reliable apartments that can be booked quickly and easily will greatly service this growing market segment.

More School: The younger generation is more educated than ever before, extending the need for multi-month temporary housing longer into their lifetimes. Intensified by the 2008 financial crisis, more professionals are going back for graduate degrees and post graduate education. Increasing competition for jobs in the markets millennials cluster around (New York, San Francisco, London) force applicants to have more education than in previous generations. Currently there are no formal and affordable tools for huge student population segments to use when renting in remote locations for short period of times. Halcyon believes that itâ&#x20AC;&#x2122;s network will be especially powerful Solution

both in zones highly populated by academic institutions and destination cities where students look for jobs and internships.

New Needs: The rising generation has new needs and behaviors which are fundamentally changing the way people consume, live and work. The younger generationâ&#x20AC;&#x2122;s consumption decisions are increasingly being driven by convenience, value and experience (Uber, Airbnb). They prefer access over ownership (Spotify, Netflix). They value urban amenities and real-world opportunities to connect with peers (SXSW, Burning Man). Halcyon believes that these macro trends will drive higher levels of demand and Inflated New York

usage for its differentiated platform.

Networked workforce: Entrepreneurship, freelancing and small business formation is surging. People are increasingly becoming drawn to entrepreneurship due to recent developments in technology, unprecedented access to funding, and diminished corporate appeal. Starting a business has never been easier and more socially esteemed. A recent survey conducted by the Kauffman Foundation found that 470,000 businesses are launched in the United States every month. The Company believes that young professionals will be drawn to Halcyon locations using its network for the convenience of moving, community and services it offers, collectively making their moving and living experience as they build their business more fulfilling.

The world is smaller, and people want to be part of it. Certain regions are becoming millennial magnets, resulting in highly-concentrated clusters of creative and talented people from all corners of the world. Technology has erased many of the misplaced disillusions of foreign places and made travel simpler than ever before. Millennials enjoy proximity to one another and to urban amenities such as food, culture and entertainment. This trend has accelerated in recent years and is creating geographic “spikes” of economic activity throughout the world. Halcyon is focused on providing living spaces that are responsive to this macro-trend, in the global markets where it is most pronounced.

Existing tools and markets are fundamentally unfit for the new renter. Millennials currently have no formal tools when seeking multi-month rental options in urban places. Renters of all ages turn to Craigslist, a general classifieds solicitation forum, to seek apartments or rooms that may be available. With little regulation or formatting, the process is untimely, expensive, unsecured, and psychologically demanding. Prevalent lease structures have little to no flexibility, can be risk laden to a sublettor, and require extensive time and capital commitments. Roommate searching solutions are practically non-existent, requiring renters to rely on their own existing networks in places they may have never been. Hospitality and corporate housing options are priced nightly and are unsustainably expensive for extended stays. Halcyon bridges the gap between the modern generation and an outdated real estate model, creating tremendous value for both the mobile workforce and property owners.

The market is massive. Homeownership is the lowest it’s been since the 1960’s according to a 2015 study by the Harvard Joint Center for Housing Studies. Younger generations place less emphasis on ownership and are forced to rent longer due to more student debt, less job security, slowed income growth, capital and credit requirement

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to buy, and the increase in general prices for goods. In New York, Halcyon assumes that all people making less than $238,000 dollars a year are potential members given the average price of a 1 br in the city is $4,050 dollars a month. Using this framework we estimate that 96% of the United States are potential members of Halcyon if they were to move to New York City.

Additionally, Halcyon stands to capture significant business from informal and unso-

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Halcyon Business Overview

phisticated landlords in places like New York who do not have time, capital or ability to access the younger generation.

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Strengths First Mover. Halcyon is the only focused, global competitor for networked controlled rental market business and has the potential for commanding powerful first mover advantage. While one-off coliving buildings and broker to customer online exchange models are emerging around the world to meet rapidly growing demand, Halcyon has the only holistic and integrated solution. In a business that enjoys substantial economy of scale and network effects, Halcyon could easily become the brand name for rental

Halcyon Business Overview

units for the young generation and dominate this compelling market opportunity.

Thriving ecosystem with powerful network effects. Halcyon will cultivate a community of thousands of active members who will leverage the Halcyon platform for mobile, easy, community based, and inspired living. As the member marketplace grows in depth and breadth, a flywheel effect will be created where increased demand and increased value are mutually-reinforcing. As Halcyon’s apartment base continues to grow, the scale and virality of Halcyon membership will allow the Company to enjoy significant economies of scale, reducing capital costs, needs for deposits, and costs of construction, sales, and operations. Scale will also allow for increased partnerships as brand awareness grows, creating a truly networked constellation of digital and physical life services globally.

Catch-all platform customers can trust. The integration of functional tools, social and service features, and secure transaction processes makes Halcyon a one-stop-shop for members renting around the world. Currently the process of finding and renting real estate is fragmented, requiring customers to understand eccentric and nuanced customs and regulations that change from place to place. Moreover, customers have little idea who to trust or what channel to use when looking, this being especially true when people move to a place they don’t know. By fulfilling all of a customers needs in one place, making the rental process smooth and chronological, Halcyon will quickly

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become the only tool people will want to use.

Powerful Brand. Halcyon will become a recognized and trusted brand, particularly in key gateway market such as New York, San Francisco, Boston, Washington DC, Seattle, and Los Angeles , where the Company will enjoy positive worked of mouth advocacy and referrals from existing members. When the brand expands beyond the United State’s borders, it will become known as the only brand one can rent from anyplace a customer desires.

Scalable and Capital Efficient. Unlike coworking ownership models that require start-

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ups to purchase whole buildings in expensive primary markets, Halcyon’s master leasing system requires less capital upfront to gain control of apartments. As the Company grows and expands its lease holdings in diverse markets, the brand name and the

significant real estate value that Halcyon as a tenant will bring to property owners, will allow the Company to eliminate the need for deposits and months of rent upfront altogether. Landlords will accept letters of credit as a guarantee in the case of default, shrinking Halcyon’s upfront lease acquisition cost to almost zero. Strong relationships with real estate owners and service providers will lead to partnership which reduce Halcyon’s up-front capital expense. The “Asset Light” expansion will meaningfully increase project ROI and will allow the Company to scale more quickly and efficiently.

Digitally-enhanced. Halcyon harnesses architectural BIM software and management platforms that streamline the design, development and management of its locations as well as an externally-facing member network to facilitate member collaboration and drive meaningful network effects. These intelligent tools, mixed with substantial real estate and design experience in the Halcyon team, will help the Company scale while harnessing system-wide data to further develop and optimize its offering.

Contextual, each apartment is unique. Halcyon guarantees a consistent level of finish and quality in all of its apartments no matter where they are in the world. What makes the brand unique is that each of its apartments are unique, being completely contextual and of their place – if a Halcyon member is living in the Mission in San Francisco, it will not feel like they are living in the East Village of Manhattan. The master-lease model allows Halcyon to fit-out indigenous apartments and as such they will always feel local. Halcyon is set to leverage this strength to appeal to an audience that does not want to live in ‘adult-dorms’ as CoLiving spaces are often criticized for. Each customer will have distinct independence but also access to a networked and social community that extended beyond the physical boundaries of their living space if they choose to engage with it.

Leadership and Vision. Halcyon’s leadership team consists of seasoned real estate, design and technology entrepreneurs with deep expertise in people operations, asset management, acquisitions, valuation, architecture, construction, marketing, digital design, and hospitality. The Executive Team includes executives with former roles at Foster + Partners, Skidmore Owings & Merrill, L&L Holding Company, Ernst and Young and Goldman Sachs. The Halcyon Board has attracted experienced leaders from Silicon Valley (Benchmark Capital), Real Estate (JMC Capital, L&L Holding Company), and publicly-traded companies (Nokia, Motorola). Halcyon founders Anthony Stahl and Jim Traynor lead the company around its mission: To enable people to go anywhere, be anyone and see everything – no matter where life takes them or how quickly it takes them there.

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Strategies Space Strategies: Leverage value-added tenancy to achieve favorable economics. By creating well designed and fitted out apartments leased to favorable tenants, Halcyon will increase property values in the surrounding building (as has been typical in successful CoWorking schemes such as WeWork). As a result, when negotiating leases with landlords, the Halcyon Business Overview

Company will be well positioned to achieve tenant-favorable economics and execute on discounted or fixed rate master leases. This is also due to all landlord-related vacancy risk being eliminated by Halcyon guaranteeing the base lease. Typical landlord concussions will most likely include preferred presence within an asset, reduced base rent, reduced security deposit, increases free rent period or a combination of all of the above.

Reduce risk and capital outflows through profitability. As the Halcyon brand grows in size and reputation over time, the Company will offer a profit sharing option to landlords to decrease initial capital outflow from Halcyon and to incentivize landlords to lease to Halcyon. This incentive based model landlords contribute 80% of the upfront capital to outfit an apartment as per Halcyon specifications in exchange for an ongoing profit share in the increased rent received. By entering into a greater proportion of such leases, Halcyon is able to scale more quickly and capital efficiently, while also mitigating real estate risk by aligning interests with established landlords.

Utilize technology and the Halcyon platform as a competitive advantage. Halcyonâ&#x20AC;&#x2122;s proprietary softwares crucial and time intensive tasks highly streamlined and efficient.

This includes locating and matching customers for sublets, coordinating roommate interviews and correspondence, the credit and employment verification process, the lease signing process, as well as the coordination of vacancies available for rent. From Solution

a management perspective, tasks are automated through the use of smart algorithms.

Integrated and smart tracking systems coordinate customer services and communicate to the third party vendor digitally, requiring less time from manned staff.

Each step of new location development process will be digitized, from sourcing and pipeline management; to architectural design and interior planning (Revit); to lease leads and waitlist tracking; to billing, collectors and space management (SpaceMan); to member support (Halcyon Connect Mobile). location and acquisition of new leases are also streamlined through an online application portal available for landlords seek-

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ing to partner with Halcyon. As the brand grows in size and reputation, the Company foresees this as being a major source of property procurement. As a result Halcyon will be able to grow faster, manager its business more effectively, and leverage data to better measure and optimize business processes.

Leverage expansion / scale to drive additional profits. Landlords stand to benefit greatly from a Halcyon transaction. Because the landlord will be eliminating all vacancy risk, credit risk, cost of leasing and managing sublets, as well as brokerage costs; the landlord effectively eliminates all risk while benefitting from the brand value and revenue generated by Halcyon â&#x20AC;&#x201C; taking part in profit sharing per unit. As Halcyon expands itâ&#x20AC;&#x2122;s network globally, and at the same time decrease capital costs through partnerships and economies of scale, architectural quality will greatly increase along with landlord hunger for involvement.

Leverage strategic partnerships to reduce hard costs. Halcyon leases existing apartments where the base architecture is in suitable shape to meet the Companyâ&#x20AC;&#x2122;s standards, leaving hard costs as the only major expense of up preparing an apartment for lease. Halcyon plans to leverage the value of direct-to-consumer marketing to decrease the hard costs of fitting out, creating strategic partnerships with powerful brands with aligning corporate goals. Lifestyle brands (Martha Stewart Living, Ligne Roset), furniture brands (Pottery Barn, Restoration Hardware), and wholesalers (Target, Walmart, IKEA) will have the opportunity to advertise their latest collections in the apartment, with product purchase information directly available through the Halcyon platform and iPad application. Similar partnerships will be created with local artists to obtain wall fixtures and other decorations for little to no cost. As the Company grows larger and networks throughout the world it will benefit greatly from economies of scale and the discounted wholesale pricing.

Community Strategies: Create and leverage a critical mass, economies of scale, and network effects. By first concentrating Halcyon lease acquisitions in key markets, Halcyon is able to create both meaningful community benefits and financial savings. When concentrated, Halcyon members enjoy more market depth, access to larger and better events hosted in the city, more professional and social networking through the platform, and greater breadth of physical option in apartments and neighborhoods. Concentrated operations also drive cost efficiencies across construction, warehousing, leasing, staffing, cleaning, partner services, travel, and marketing. The combined result is a more valuable product, offered at a uniquely affordable price to primary rental markets. This in turn will drive more growth, greater member value and increased economies of scale.

The same is true as the brand expands globally, allowing customers to leverage the Halcyon network in any city that they choose to live.

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Enhance community value with software and integrated services. The Halcyon network is designed to create an online environment where shopping for and choosing a home to live in is intuitive and surprise free. By integrating all aspects of the renting process into a catch-all platform, it provides great value to customers who otherwise must navigate fragmented and insecure channels. The Halcyon platform and mobile App serves as a unit marketplace, roommate marketplace, knowledge bank, and recommendation engine for services, people and places. It also serves as a place to Halcyon Business Overview

find, sign up for, and secure a home to live in. By placing this functionality alongside social and service tools such as food delivery, cleaning, laundry, and payment Halcyon enhances the visibility and discovery of potential connections, and drives meaningful community value that extends beyond the physical boundaries of a single apartment, city or nation.

Grow the size and value of the Company through batch leases. Although initially conceptualized to lease sporadic apartments in a diverse set of neighborhoods, cities and price ranges; Halcyon will evolve to attract customers by the thousands. As the segment of the market Halcyon serves becomes larger, it will be necessary for the company to acquire multiple apartments in single buildings, or potentially entire buildings depending on size of asset. This concentration of apartments in a single asset will only strengthen the value of the Halcyon network and generate unique opportunity for Halcyon initiated community benefits.

Services Strategies: Leverage scale to create value for members and service providers. Halcyon will leverage the size of its community to negotiate with established service providers to secure below-market rates for its members. Under this structure, members will receive high-quality services at preferred prices, including entertainment, laundry services, Solution

cleaning, grocery delivery services, and urban amenity memberships amongst other things. Service providers gain a powerful distribution channel of a typically fragmented rental market and customer base, and Halcyon earns revenue while offering substantial value to its customers.

Expand the breadth of services offerings. In addition to room booking, roommate matching, integrated messaging, leasing services and payment options that will exist at the launch of Halcyon; the Company intends to significantly increase service offering through additional partnerships to include short term lending and credit services,

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off site gym memberships, and club memberships. By layering holistic services offerings on top of a fundamentally useful platform, Halcyon will create an evolving and ever increasingly valuable product while driving new, high-margin sources of revenue.

Direct to consumer advertising revenue. Halcyon plans to include a multidimensional advertising platform for third party vendors to exhibit and sell work within the apartments. Vendors and brands can sell lifestyle products directly to customers using them on a daily basis through the Halcyon portal. This includes advertising on the TV, placement of products throughout the apartment, as well as though the Halcyon iPad which will come preloaded with options for the customer. This unique service allows Halcyon members to test products first had and for vendors to advertise in a way that directly reaches the customer (similar to Instagram or Facebook).

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Pre-Loaded Entertainment Services - Reduce Overall Costs: Show up and Enjoy. Everything is preloaded onto your tv so all you have to do is sit down and turn it on. User names allow movie rentals to be billed directly to your account with Halcyon.

Everything else is inlcuded in your flat-rate monthly Tab.

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Halcyon Business Overview

Whatâ&#x20AC;&#x2122;s on the TV

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Whatâ&#x20AC;&#x2122;s on the Table

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Built-in Life Services to Make Living Easier: Everything is preloaded onto a wall-mounted ipad for ease of use. Click the icon, help is on the way. Likewise, this instant and guaranteed exposure is great advertising for each of these brands.

Fresh Direct

Halcyon Business Overview

All your groceries delivered to your doorstep, no hassle, no trips walking across the city

Blue Apron Fresh ingredients, original recipies delivered weekly, in one simple package. Your shipping and interests are saved by Halcyon, meals are one click away.

Task Rabbit Any task you need done, at your fingertips.

Cleanly Laundry

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Halcyon will connect you automatically to Cleanly, so whenever you need laundry done, all you do is press the button on your pre-installed ipad, and drop in the pre-designated box, and Cleanly will come pick up.

Handy Anything breaks, we coordinate with Handy to get it fixed. No need to contact and wait for non-responsive landlords.

Amazon Prime Halcyon will link you to your Amazon account so wherever you go, your orders will seamlessly be delivered to your Halcyon room.

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Staying Local: Everything in the household can be for sale, from art, to the soap, to the furniture. If you want to take it with you, you can. This can allow for these apartments to be fully immersive platforms for brands to advertise. Think the images on the walls, the new TV that is mounted above the fireplace the rug that you stand on. This captive audience is similar to brands

Halcyon Business Overview

showcasing on Instagram - release a product, guaranteed audience.

Etsy Partnership for Local Products New York is one of the largest creative hubs in the world. We can create totally unique and contextual apartments by harnessing this.

Exibiting Local Artist’s Work By exhibiting local artists work in the apartment Halcyon may help garner attention for the artist and income if the renter was to like it so much that they buy!

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Young Architects Program - Architizer Halcyon wants to launch a program where young architects in the city get the chance to design apartments – this gives them a platform they don’t currently have, and gives Halcyon reduced design costs.

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Sourcing local foods Partnerships can give local artisans the chance to exhibit and sell directly to Halcyon renters. Health bars, drinks, snack – anything a local NYCer can think of!

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Corporate and Advertising Partnerships - Lowers Hard and Soft Costs: Technology has enabled advertisers to connect directly to millions of people in a guaranteed way that has never happened before. Through channels like Instagram and Snapchat, companies can be positive that their product will flash before a customerâ&#x20AC;&#x2122;s eyes, unlike when their product is on a billboard or on TV. This phenomenon has never been a reality in real estate until now. Halcyon plans to partner with companies like Target and IKEA to outfit Halcyon apartments with their latest furniture and lifestyle lines. This is direct to consumer advertis-

Halcyon Business Overview

ing like never before, potential customers will literally be living within their advertisements.

This allows Halcyon to lower their hard costs, receiving the furniture at a discounted price, and also generate advertising revenue. Customers can directly purchase in-apartment lamps, bowls, or art through the Halcyon Platform. Meanwhile brands can benefit from targeted consumer marketing, deploying products where and to who they want.

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Partner Brands

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Halcyon Connect - Fostering Community and Place: For those interested in getting to know their new city better, Halcyon will offer subscription services that automatically curate and include tickets to local events like Restaurant Week, Broadway Week, Art Week, and Fashion Week. Travel swaps and membership discounts for certain companies that operate similarly minded as Halcyon. Building brand loyalty and awareness through community oriented engagement opportunities is important to the brand. Services through Halcyon let members connect to apartments with people that are

Halcyon Business Overview

similar to them. This could be through professional background, interests, or social lifestyle.

These then can be bolstered through Halcyon offered perks and meetups.

Museum Week Access and information about all the interesting new exhibit openings and galas during the year

Restaurant Week Access passes to some of the best restaurants in the city during the highly discounted week of NYC Restaurant week. Halcyon Connect members will know what is going on and when.

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NY Fashion Week Information and connection to one of New Yorkâ&#x20AC;&#x2122;s most talked about and photographed events of the year.

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Career Based Networking Chances to connect with people doing similar things in thier career thorughout the city. Network and make use of the great meet-up forum that is New York.

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Making Paying your Tab Easy, From Wherever You Are: Payment would be made easy. All payments would take place online and through the use of 2nd party startups such as Venmo and PayPal. There may also be the possibility for credit services through PayPal. This would be especially attractive for students who have just graduated college and are looking for a way to get to the city. Typically first time movers are priced out because of the enormous broker fees, deposits and rent amounts. This system would let PayPal lend on a few months so that a student can get started up. The digital way of payment Halcyon Business Overview

also means that people can pay from any part of the world, and that anyone can pay for them. Now parents can pay for their kids easily, seamlessly, and without wiring charges.

Venmo Pay your Tab from anywhere. Have a friends or family pay for you.

PayPal

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Solution

Debt solutions. This would be especially attractive for students who have just graduated college and are looking for a way to get to the city. Typically first time movers are priced out because of the enormous broker fees, deposits and rent amounts. This system would let PayPal lend on a few months so that a student can get started up.

200

Halcyonâ&#x20AC;&#x2122;s Sustainable Competitive Advantages Halcyon will enjoy a number of business advantages which provide long term insulation from existing and future competitors: I. Established real estate and capital relationships give Halcyon a unique ability to

Halcyon Business Overview

scale quickly and efficiently II. The Halcyon platform is the only fully integrated rental platform, synthesizing all processes in one place.

III. Economies of scale (at the apartment, market, and corporate levels) give Halcyon a lower cost structure than CoLiving competitors.

IV. Master lease and incentive based contracts reduce capital costs for Halcyon as compared to CoLiving competitors.

V. Proprietary platform and software tools make design and management of Halcyon apartments highly data-driven and effective.

VI. The potential scale of the Halcyon community will create powerful network effects, increasing in value for its members as it grows.

I. Established Relationships:

Real Estate: Over the course of their combined 20 year tenure as real estate professionals, Halcyonâ&#x20AC;&#x2122;s cofounders have developed strong relationships within the real estate industry.

Solution

Given their balanced backgrounds in design and construction, and in finance and development; the Executive team has existing relationships with contractors, architects, engineers, developers, owners, lenders and real estate financiers. This intimate industry knowledge allows Halcyon to execute with the right partners, produce the right product, act as a leading manager, foresee construction and design issues, and seek help from industry experts if needed. Real estate is an eccentric and diverse industry and can only be navigated by professionals that understand its nuances. In the gateway cities Halcyon plans to be most active in, this is even more important given unique regulatory, policy, construction and management constraints. Halcyon Inflated New York

Co-Founders have real estate experience in a broad set of markets including New York, Washington DC, San Francisco, London, Rio De Janeiro, Mexico City, Chicago, Miami and Minneapolis.

Capital: Halcyon Co-Founders have established relationships with key capital partners and investment groups throughout their tenure as real estate professionals and now entrepreneurs. This includes Benchmark Capital, De Garay Venture Capital, Allianz Bernstein, BlackRock, GreenOak Capital, JMC Capital and L&L Holding Company.

II. One of a Kind, Cradle-to-Grave Platform: There are currently no other tools on the market that allow customers to engage with the rental market holistically. Moreover, with inflated price points and capital requirements in millennial-magnet markets, Halcyonâ&#x20AC;&#x2122;s target segment must resort to secondary listing markets that are convoluted and un-trustworthy. Halcyonâ&#x20AC;&#x2122;s integrated rental network and platform will be the only service a customer could use from cradle to grave:: search for housing, acquire a roommate, sign a lease, move in, pay bills/rent, manage services/community, and move out. This first mover opportunity will act as a windfall for Halcyon and be the clear solution for the market given other alternatives currently on the market.

Halcyon also uses its proprietary software to streamline the sourcing, design and development of new locations, accelerating the real estate pipeline and reducing the nerve location design process from months to weeks.

The Company will use in house built-to-suit sales and space management software, making management and market employees more connected and data-driven than its less connected and sophisticated competitors.

Halcyon is developing a digital community application that facilitates member support, community, and information. This connectivity will create substantial network value for members via community listings and a robust member services marketplace that is non existent in the market currently and requires immense time and nuanced knowhow to replicate with existing tools.

As a result of this multi-faceted, holistic software, Halcyon will be able to grow faster, manage its business more effectively, and leverage data to better measure and optimize business processes to a greater degree than its competitors.

202

III. Economies of Scale: Halcyon intends to launch ten apartments in late 2016, equating to 30 sublet units, located in South Williamsburg Brooklyn and the East Village Manhattan. As the brand expands, larger concentrations of apartments in select markets will allow Halcyon to

Halcyon Business Overview

achieve better lease terms and gain efficiencies across design, construction, staffing and operating costs. Coupled with lower acquisition costs, Halcyon will be set to increase gross margins by 40%.

The size of the Halcyon community and network will give the Company significant leverage when negotiating with business service providers. These personal and business services differentiate and add value to Halcyon membership.

As Halcyon adds apartments, the Company becomes more profitable due to the leveling of corporate overhead and high unit-level contribution margins. Increased profitability allows for greater access to capital and increased capacity for investment in proprietary technology, branding initiatives, and R&D. IV. Master Lease and Incentive Based Contracts: By electing to master lease as oppose to purchase real estate assets, Halcyon allows its model to scale efficiently and with little upfront cost comparatively to coliving competitor businesses. As the company begins to benefit from economies of scale, initial capital required to expand will be close to zero, thus allowing the Halcyon network of apartments to grow without bounds. Moreover, the Company assumes no large debt obligations though the purchase of high-cost real estate assets in expensive markets and in down market scenarios can scale back quickly and efficiently, protecting its Solution

downside by not over exposing itself financially. Profit-sharing programs with landlords align incentives for both Halcyon and its master lessors.

V. Powerful Brand: Halcyonâ&#x20AC;&#x2122;s integration of the physical, social and communal on a simple to use holistic platform, and singularity in the marketplace, positions it to become the most recognized and trusted brand in the rental market. Members will be proud to announce their membership into one of the largest global networks of living places and social Inflated New York

communities in the world. This will create powerful word of mouth advocacy.

Halcyon’s thoughtfulness for design and unique appointments of apartment finishes will establish a trusted level of quality and consistency across all of its leased assets.

Unlike typical CoLiving models that have a distinct feel of a college dorm, Halcyon apartments will be unique and contextual to the places they are, yet always contain the same level of quality amongst all of its asset levels, classes and types. Halcyon’s spaces are beautifully aesthetic; balancing liviability, functionality, and aspirational visions of décor.

VI. Network Effect: As the Halcyon constellation of ecosystems grow, community and network value increases due to a broader apartment base, user membership base, and depth of content. Unique partnerships will also grow only increasing demand for Halcyon membership.

Halcyon creates value for all constituents – members, landlords, and Halcyon. The resulting flywheel will continually improve Halcyon’s competitive prospects as its momentum builds.

204

Halcyon’s Downturn Resilience

Halcyon is engineered to be more resilient than its competitors: I. Master lease and incentive based contract model allows for elastic scalability and thus extreme resiliency.

Halcyon Business Overview

II. Halcyon model allows for portfolio diversification III. Halcyon’s cradle-to-grave model makes it the only and most powerful place for renting IV. Halcyon’s target members are a growing and untapped market.

V. Halcyon’s business model is inherently urban, efficient, affordable and profitable – making it resilient VI. Due to its unique offering, macro-trends, and broad attractiveness; Halcyon is cycle-agnostic.

I. Portfolio elasticity Unlike its CoLiving competitors, Halcyon operates on a master lease and incentive based contract system. This allows it to scale at great ease, but also contract if need be during a catastrophic market cycle similar to 2008. Halcyon’s competitors (WeLive, Common) operate an ownership model whereby the company purchases a multi-family building to outfit it into a CoLiving dorm. While this works in a growing economy when companies can charge hefty premiums to cover debt obligations (60% Solution

LTV is typical in Manhattan) and operation costs, if the market was to contract and vacancy rose, these companies are stuck with massive debt and tax obligations that could capsize the entire company given the cross-collateralization of their holdings.

Halcyon only commits to 2-3 year master leases, making it easier to liquidate holdings if macro-trends indicated less demand. Real estate cycles are slow and rental prices typically “sticky”, the ability to exit a lease within 2 years is considered highly nimble and very advantageous optionality. This flexibility is extremely valuable in foreign markets where political and regulatory risk is high, Halcyon is not tied to ownership in the

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same way a large multi-family operator historically has been known to be.

II. Cradle-to-grave process makes Halcyon the only resource renters need to use.

The integration and holistic nature of Halcyon’s platform and rental process makes it a completely vertically integrated tool for renters on the market. The one-stop-shop nature of the system insulates it from customer flight risk in a downturn. Where competitors who only match roommates or only identify brokers may find a loss of users; Halcyon is bolstered due to its depth, diversified services, and linked user experience.

III. Halcyon’s target market is massive… and growing.

Current costs of owning in Halcyon target markets such as New York and San Francisco have become prohibitively high for younger generations who are leaving school with record levels of debt and joining workforces with record stagnating income levels.

Homeownership is the lowest it has been since the 1960’s according to a Harvard Center for Housing Studies 2015 white paper. Contemporary work and social cultures have caused younger generations to delay homeownership until much later compared to previous generations, opting for more mobile and shared economy lifestyles instead.

For these reasons, rental markets globally are expanding, exponentially so in eastern urban markets such as Mumbai, Johannesburg, and Shanghai. This represents an immense global opportunity for a powerful brand and operating platform like Halcyon who can deploy its model at nearly all bands of the supply spectrum.

Currently the majority of the younger generation living in places like New York find rental housing on secondary markets such as Craiglist and Facebook due to the extreme expense of using a broker, capital requirements of renting a 1 bedroom, and lack of tools to find sublets in the city. Halcyon taps into this market and is the only dedicated exchange whereby they can find the rental product they need.

IV. Opportunity for portfolio diversification, apartments at multiple price points.

Because pricing is formulated on a negotiated base with landlords, Halcyon can build a highly diversified customer set that ranges in age, income, mobility, and industry.

Some customers will be interested in renting full apartments at the higher end of the price spectrum, whereas newly minted professionals may opt for something cheaper.

Because Halcyon’s business model scales across the supply spectrum, its portfolio can act to diversify the companies real estate holdings In the traditional manner, insulating once class from other and protecting against unforeseen market shifts.

206

V. Cycle-agnostic demand.

Halcyon’s rental model stands to see increased membership rates from a downturn.

In the case of a shrinking market, more people will turn to renter-ship, or similarly to 2008 return to school. In both cases Halcyon would still serve as the premier platform for customers to use. Likewise, Halcyon’s diverse choice of price point and ability to Halcyon Business Overview

adjust base prices quickly will make it such that even in a falling market, Halcyon can provide appropriately priced housing for people.

The Halcyon model capitalizes on profound changes in technology, lifestyles, demographics and urbanization – trends which are collectively driving a long-term, macro shift towards more flexible living arrangements, mobile lifestyles, and remote work models.

VI. Unique business model.

Halcyon locates all across the world, but primarily in primary gate-way markets which are historically the most resilient to economic downturns and are the first markets to recover. Such concentrations also drive local network effects and economies of scale, allowing Halcyon to provide more value while maintaining lower prices.

Halcyon’s highly competitive pricing model provisions the Company to attract and retain cost-conscious members during a downturn.

VII. Risk mitigating real estate strategies.

Solution

Leasing strategy: Halcyon’s brand and profit share value add will allow the Company to sign tenant-favorable leases in world-class locations. In the event of a downturn, Halcyon can elect to not renew leases thus responding to a change in demand.

Halcyon leases are signed by free-standing LLCs / SPEs (not the Parent) and are secured by letters of credit only (approximately 6 months’ rent).

Halcyon signs 2-3 year leases, and as in some cases (“lease light”) incentive based

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management agreements where the landlord pays for capital costs and receives a portion of income from net rent.

VIII. Deal Structures Halcyon will migrate to a â&#x20AC;&#x153;Lease Lightâ&#x20AC;? structure as the brand grows and seeks expansion abroad where the majority of initial capital expenses are incurred by the landlord and not Halcyon.

Many Lease Light structures include a profit share agreement with landlords, aligning

208 Halcyon Business Overview

Platform Development Summary

01. Current Situation The current situation is convoluted and inefficient. As demonstrated by past chapters, this is the issue that Halcyon

Solution

seeks to fix.

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02. Needed Solution The solution concept is simple, introducing technology to consolidate currently disjointed processes into one full-solution platform. This eliminates the need for the dozens of startups that specialize in separate issues facing owners and renters. The Halcyon platform is an ecosystem; a one-stop-shop for finding, renting and paying for housing in markets all over the world.

03. Proposed Solution The success of Halcyon lies in its ability to provide value-add for both owners and renters - neither have to interact with each other. Halcyon assumes control of apartments through either a Lease Light contract or Master Lease, guaranteeing the owner a steady paycheck with no vacancy or tenant risk. This allows Halcyon to then make the process of searching, renting and paying completely streamlined for rental customers. Halcyon controls the whole process and

04. Solution Structure What makes Halcyon different is that it eliminates the need for renter to interact with apartment owners, therefore eliminating unknown and risky variables when they seek new housing. Likewise all issues and communication are handled directly through Halcyon, so the service is always the same. The profile architecture in the customer side of the platform allows users to move wherever they want with a saved profile, therefore eliminating many of the typical initial hoops they have to jump through. All their information is safe.

210 Halcyon Business Overview

Platform Development Summary

Renter Tools on Halcyon On the renter side, customers have access to an array of tools and functionalities â&#x20AC;&#x201C; all in one place under one brand.

This includes the ability to search for housing based on a number of different qualifiers (such as roommates, lifestyles, sleeping hours etc.) as well as pay digitally and easily (and with debt if they choose).

Landlord Tools on Halcyon The landlord side is basic, but allows the landlord to communicate with Halcyon quickly and efficiently. This side of the business handles payment of ground rents to landlords as well as the legal aspects of signing Lease Light contracts and

Solution

Master Leases.

Renter Customer Profiles Renter Profiles are saved onto the Halcyon system, so no matter where or how often they move their information always is consolidated. The profile is split to a Public

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and Private. Private profiles hostsâ&#x20AC;&#x2122; information Halcyon uses to manage their memberships.

General Renter Platform Functionality Columns There are a number of simple pillars of functionality that make Halcyonâ&#x20AC;&#x2122;s user facing side the most integrated on the market. These pillars are what build out a userâ&#x20AC;&#x2122;s profile to be completely robust.

Active VS Automated Platform Functions Many of these functionalities are in the background and do not require active user involvement, thus making the platform so easy to use. For example; Halcyon manages memberships, subscription services and community services totally. If the user wants to fine-tune and actively engage, they can. If not, they will automatically organize themselves anyways. Some functions require one time involvement, like accepting a lease.

Invisible Functions Some functionalities are totally invisible to the user but make the user facing portion of the platform more efficient. This includes credit checking (typically an arduous process), billing and bank transfers, as well as the matching algorithms that help pair like-roommates.

212

Halcyon Summary long-term interests while reducing Halcyon’s exposure to market fluctuations Halcyon’s fully integrated rental and community platform stands to completely disrupt current rental market practices and become the leader in industry. Its flexibility and scalability allow it to create a constellation of rental ecosystems around the word that users can access simply online. The model targets the expanding younger generation market who values experiences, travel and the sharing economy over permanence, immense debt obligations, and “settling down”. It also creates a powerful social com-

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Solution

Halcyon Business Overview

munity of these people that is not tied to place, but is vibrant and alive around the world. Halcyon empowers members to live how they want where they want, and to be as free and inspired as their wildest dreams.

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Solution

Go anywhere, Be anyone, See everything..

Halcyon Business Overview

214

..no matter where life takes you, or how quickly it takes you there.

216

Making it a Reality 1.

Intro + Budget Descriptions

2.

342 East 15th Street Case Study

3.

Grammercy Background

5.

342 Individual Apartment Underwriting

6.

Portfolio Underwriting

7.

JMC Proof of Concept Summer 2016

Case + Budgets

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Case + Budgets

4. Budgets

218

Intro This section tests the viability of the Halcyon business plan through the development of real budgets and execution on a case study apartment in the East Village â&#x20AC;&#x201C; an apartment that would a typical Halcyon target apartment. It is especially important in this section to test the long term durability of the underwriting â&#x20AC;&#x201C; to see if the profit margin holds during upside and downside macro-market scenarios.

At the end of this section is an exploration of the scalability of this model. The project goes beyond one apartment and analyzes the performance of the model at a portfolio level; testing income bands, the product of comingling asset types, and the expansion

Introduction

of the model beyond New Yorkâ&#x20AC;&#x2122;s borders.

All prices have been pulled directly from catalogues and from consultation calls with services. To understand returns it was essential to have accurate pricing projections.

Return summaries are at the end of this section in the findings section.

Budgets The items in each budget have been pulled from a general index of items on a master budget. All of the apartment fixtures are from Ikea, this is due to both cost and access (Ikea in Red Hook Brooklyn). Although the outfitting will be relatively basic, Halcyon does include art, carpets, credenzas and other choice furniture to create a sophisticated apartment atmosphere beyond what a renter would be able to transport from one apartment to another on an annual basis.

Each page represents a different room in the apartment and include a gross summary

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Case + Budgets

of cost per room at the bottom of the list. Moving costs and business costs have been allocated at the operational level in a summary underwriting at the end of the section.

220

342 East 15th Street, Manhattan The specific apartment chosen for this case study is 342 East 15th Street, Manhattan Apartment 6b. This is a 6th floor walkup in a typical east village building. This apartment would be an extremely likely Halcyon lease acquisition. The building itself has good bones, is in a high demand area, and is managed by a landlord who is not sophisticated and is not a landlord fulltime. This apartment building is on a safe and desirable street, but its rents are controlled due to the market rates in the larger East Village neighborhood context.

In terms of its urban position it is highly desirable for a young professional. It is only

342 E 15th Case

four blocks away from Union Square a popular retail and nightlife destination, two blocks from Grammercy Square Park, one block from 14th Street and central to all the nightlife and retail that has come to be definitive of the East Village. Moreover, it is extremely close to multiple forms of transportation which is of the essence for a young professional who needs to commute to work and cannot afford cab service. This central location and access to transportation also makes it an ideal location for a new New Yorker who has just moved to the city or is moving temporarily â&#x20AC;&#x201C; giving it a wide range of potential Halcyon customers The apartment itself is in good shape which is a fundamental necessity for a Halcyon apartment. Although the service will be fitting out the apartments, there is no CapEx allotted for architectural work such as flooring and drywall work, therefore all this needs to meet a base quality threshold for the lease to be acquired by the company. Within the apartment all of the basic fixtures and fundamentals are in place and work properly. Marble countertops, deep stained hardwood floors, well outfitted wet rooms, undamaged drywall/paint, and unstained ceilings. With a simple Halcyon staging, a member would find this apartment extremely desirable and worth paying Case + Budgets

a small premium for. There is no laundry in the building and no other amenities other than an unfinished roof with limited access for residents.

The entry experience to this building is that of a typical East Village walk up. A renter walks up to a buzzer door and gains access through key. Passing through a small vestibule the renter passes down a long hallway with turn of the century marble flooring, and up a small marble switchback staircase up to the 6th floor. Many of the apartments in 342 are still rent controlled and house a number of elderly renters. The rest of the apartments have been renovated and are being rented out on a room-by-room basis to young professionals and millennials.

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Each room typically rents for $1,100 per month, and each apartment consists of approximately 4 rooms with two bathrooms. Halcyon would need to fit out the apartment and be able to charge a premium to the $1,100 that can be found on the informal market.

222

Grammercy Neighborhood The East Village is an ideal Halcyon testing ground both from a geographic and pricing standpoint. From an urban standpoint the majority of the neighborhood construction is characterized by turn of the century walk-up multifamily buildings with typically multiple apartments per floor. In the last 20 years the area has experienced a renaissance, undergoing a migration of young professionals and recent graduates flocking to the neighborhood for its unique retail, particular restaurants, great nightlife, and gritty and creative feel. Itâ&#x20AC;&#x2122;s pricing is at the low to medium end of the market, with an average 1 bedroom renting for $4,100. This area is known though for its abundance of Craiglist apartments where multiple young people will bunk together to make rent

342 E 15th Case

work. Due to the nature of the older buildings, multiple occupancy goes largely unregulated and is administered by unsophisticated landlords in buildings they may have inherited or has been in their family for generations.

Due to the recent popularity of the neighborhood, these landlords are not surprisingly being as opportunistic as possible and are packing as many people into their apartments as they can, raising the price of a room to be competitive with that of a studio.

This area also has a great number of rent controlled apartments, having been rented out by older patrons originally in the 70â&#x20AC;&#x2122;s and 60â&#x20AC;&#x2122;s when the area was blighted and the inner city was not an attractive place for people to live.

The East Village is a dichotomy between new and old, antique and rebuilt, and informal and formal markets colliding. It has one of the largest inventories of apartments in the city and has a high number of young professionals working in creative and middle

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Case + Budgets

market salary industries, making it a perfect testing ground for the concept.

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Bedroom and Typical Bathroom (1 of 2 Bathrooms)

Case + Budgets

342 E 15th Case

224

Living Space Combined with Kitchen

226

Water Filter Placemats Flateware Tray

1 1 1

Sum Sales Tax New Jersey Gross Ikea Budget - HARD

10.99 3.99 8.99

10.99 BRITA 3.99 AVSKILD 8.99 VARIERA

3.00% $

Target 402.816.54 202.802.69

1-Pack 4-Pack 1-Pack

201.27 6.04 207.31

Living Room (1)

Coffee Table Kitchen Option 1 $ Large Couch

342 E 15th Case

1 229.00 229.00 STOCKHOLM 702.397.10 This is expensive, but looks good 1 179.00 179.00 BALKARP 503.079.36 Sofa-Bed Sofa Cover 1 99.00 99.00 HOLMSUND 503.213.72 Cover Bedroom (1) # Per Total Name SKU Description Love Seat 1 350.00 350.00 KIVIK 298.968.66 Love Seat Bedframe 1 products listed 0 0.00Dishware NONE (Boxspring) Nonea hassle None The images to the right are below. and plates are Carpet 1 59.99 59.99 OSTED 902.703.04 Brown Boxspring 1 120.00 120.00 ESPEVAR 291.566.04 White Credenza 1 274.00 274.00 BESTA 791.238.52 With TV Storage Mattressespecially for students 1 89.00workers 89.00 MINNESUND 303.158.76 White move, or young in the market for temporary housing. Floor Lamp Tall 2 39.99 79.98 ALANG 001.908.30 Lamp Side Table 1 9.99 9.99 LACK 903.020.60 White Short cases a renter will1 dispose of 24.99 24.99 ALANG 201.908.34 Table Lamp InLamp many their pots and pans and repurchase at their next Hangars 5 0.39 1.95 BAGIS 701.970.84 4 Pack Bulb 1 4.49 4.49 LEDARE 102.667.68 LED 400 Lumen Clothing Rack 1 9.99 9.99 MULIG 102.468.60 White Power Strip 2 3.99 7.98 KOPPLA 000.864.28 2-Pack destination simply due to the cost of99.99 shipping being not worth the time and effort.

Drawer 1 99.99 MALM 002.145.53 4 Drawer White Credenza 1 64.99 64.99 KALLAX 502.784.82 8 Box White ExtrasHalcyon apartment comes fully equipped with everything a renter would need to Each Pillows 2 3.49 6.98 AXAG 302.826.73 Basic White Mirror 1 44.99 44.99 HEMNES 001.228.22 On Credenza Blinds 2 2.99 5.98 SCHOTTIS 202.422.82 Pleated Shade prepare and enjoy meals.

This includes multiple sizes of plates, bowls, cookPicture Frames 2 5.99utensils,11.98 HAVERDAL 002.647.36 White Lighting 2 39.99 79.98 ALANG 001.908.30 Floor Lamp Plant 2 9.99 19.98 FEJKA 501.769.78 Fake Plant Bulbs 4.49 22.45 LEDARE 102.667.68 LED 400 Lumen ing ware, mugs, chopping 15surfaces, cleaning surfaces as well as organizational items. FootStool Ottoman 99.00 99.00 EKENAS 002.766.83 Brown Pillows 1 3.99 3.99 ULLKAKTUS 902.673.73 Brown Accent Cushion Extras Halcyon provides enough of each for residents to be able to host friends and not worStorage Combination 1 450.00 450.00 BESTA 291.247.26 Wall Pictures 3 5.99 17.97 HAVERDAL 002.647.36 White ryBowl about after every for keyscleaning their dishes 1 2.49 meal. Although 2.49 FARGRIK the prices are cheap, 002.522.91IKEA Orange Sum 1938.37 Accent Carpet 1 14.99 14.99 TANUM 303.074.85 Multi Colored Sales Tax New Jersey 3.00% 58.15the kitchen enjoyable. provides that will Wall Shelveswell designed pieces 1 6.99make using 6.99 LACK 701.036.22 White Gross $ 1,996.52 Sum Tech Hardware (1) Sales Tax New Jersey Living room TV Gross Apple TV Router Kitchen (1) Sound System Plates / Bowls / Large Ipad Mini Silverware Wallmount Plastic Cups Cutting Board Sum Knives Sales Tax New Jersey Cooking Gross Mugs Kitchen Utensil Set Bathroom (1) Dish Towels Shower Curtain Sdishwashing Brush Shower Curtain Rings Table Trashcan Chairs Corner Wall Shelf

Case + Budgets

Extras Sum Water Filter Sales Tax Placemats Gross Flateware Tray General Apartment (1) Sum Runner Sales Tax New Jersey Images Gross Hooks Skrews Living Room (1) DryWall Screws Coffee Table Large Couch Sum Sofa Cover Sales Tax New Jersey Love Seat Gross Carpet Credenza Lamp Tall Number of Rooms Lamp Short Number of Bathrooms Bulb Gross Other Items Power Strip Grand Total

Sum Sales Tax New Jersey Gross Tech Hardware (1) Living room TV Apple TV Router Sound System Ipad Mini Wallmount Sum Sales Tax New Jersey Gross Bathroom (1) Shower Curtain Shower Curtain Rings

169.99 $ 149.00 40.99 199.99 19.99 399.99 9.99 20.00 4.99 1.99 5.99 29.99 $ 1.99 3.99 3.99 7.99 1.49 0.99 39.99 1.49 7.99 19.99

1 3.00% 1 1

10.99 3.99 8.99

1 3.00% 1 1 2 1 1 1 1 3.00% 1 1 1 2 3 1 2 1 1 2

39.99 60.00 0.99 3.00 3.00 229.00 179.00 99.00 350.00 59.99 274.00 39.99 24.99 4.49 3.99

1 2 2 1 1 1

44.99 5.99 9.99 99.00 3.99 450.00

Total for Apartment

Extras Mirror Picture Frames Plant Ottoman Pillows Storage Combination

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`

3.00% 1 1 1 1 1 1 2 1 2 1 1 3.00% 1 4 1 1 1 1 1 1 1 4 1

$

$

$

$ $ $ $

$

169.99 149.00 40.99 199.99 399.99 20.00

$

1 1

7.99 0.99

201.27 39.99 6.04 60.00 207.31 0.99 6.00 3.00 229.00 179.00 109.98 99.00 3.30 350.00 113.28 59.99 274.00 79.98 1,711.06 24.99 62.75 4.49 3,326.47 7.98 5,100.27

Sharp-32" LED 1080P Apple TV Consol/Remote NetGear Wireless N Rout Bose-Soundtouch 10 Wireless FARGRIK Apple Ipad Mini DRAGON Etsy IKEA 365+ DRALLA ANDLIG SKANKA SOMMAR SPECIELL ELLY GRONSKA PLASTIS RINGSJON TARENDO FNISS GUNDE GRUNDTAL

OSTED ETSY LILLNAGGEN GENERAL GENERAL STOCKHOLM BALKARP HOLMSUND KIVIK OSTED BESTA ALANG ALANG LEDARE KOPPLA

HEMNES HAVERDAL FEJKA EKENAS ULLKAKTUS BESTA

2351018 Website 8998506 4316000 901.316.57 4266007 700.917.61 702.783.58 501.531.23 702.576.24 601.495.31 502.257.75 503.190.34 700.696.37 302.074.24 301.495.56 231.029.00 990.004.83 602.954.38 002.177.97 501.769.16

Best Buy Apple Best Buy Best Buy 18 Piece Dinner Set Best Buy 10 Piece Flatware Set Etsy 6 Pack Glass 2 Pack Chopping 3 Pack Cutting Knives 6 Piece Cookware Set Blue Tumbler 5-Piece Utensil Set 4-Pack Desired Length Red 12-Pack Black Black or White Black For Multiple People

Target 402.816.54 202.802.69

1-Pack 4-Pack 1-Pack

002.804.92 Estimate 802.651.57 Estimate Estimate 702.397.10 503.079.36 503.213.72 298.968.66 902.703.04 791.238.52 001.908.30 Bathrooms 201.908.34 General 102.667.68 Tech 000.864.28 Kitchen Bedrooms Living Room 001.228.22 002.647.36 501.769.78 002.766.83 902.673.73 291.247.26

Runner Etsy Local Hook Rack, White Home Depot Home Depot This is expensive, but looks good Sofa-Bed Cover Love Seat Brown With TV Storage Floor Lamp 1.23% Table Lamp 2.22% LED 400 Lumen 19.79% 2-Pack 4.06% 33.55% 39.15% On Credenza White Fake Plant FootStool Brown Brown Accent Cushion Wall

1938.37 58.15 1,996.52

169.99 149.00 40.99 199.99 399.99 20.00

3.00%

Per Room

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OSTED ETSY LILLNAGGEN GENERAL GENERAL

Bathrooms General 002.804.92 Tech Estimate Kitchen 802.651.57 Bedrooms Estimate Living Room Estimate

1.23% 2.22% Runner 19.79% Etsy Local 4.06% Hook Rack, White 33.55% Home Depot 39.15% Home Depot

Bathrooms General Tech Kitchen Bedrooms Living Room

1.23% 2.22% 19.79% 4.06% 33.55% 39.15%

1

2

3

5

4

6

234

Lamp Tall Lamp Tall Lamp Short Lamp Short Bulb Bulb Power Strip Power Strip

2 2 1 1 1 1 2 2

39.99 39.99 24.99 24.99 4.49 4.49 3.99 3.99

79.98 79.98 24.99 24.99 4.49 4.49 7.98 7.98

Extras Extras Mirror Mirror Picture Frames Picture Frames Plant Plant Ottoman Ottoman Pillows Pillows Storage Combination Storage Combination

1 1 2 2 2 2 1 1 1 1 1 1

44.99 44.99 5.99 5.99 9.99 9.99 99.00 99.00 3.99 3.99 450.00 450.00

44.99 44.99 11.98 11.98 19.98 19.98 99.00 99.00 3.99 3.99 450.00 450.00

Bathrooms

ALANG ALANG ALANG ALANG LEDARE LEDARE KOPPLA KOPPLA

001.908.30 001.908.30 201.908.34 201.908.34 102.667.68 102.667.68 000.864.28 000.864.28

Floor Lamp Floor Lamp Table Lamp Table Lamp LED 400 Lumen LED 400 Lumen 2-Pack 2-Pack

HEMNES HEMNES HAVERDAL HAVERDAL FEJKA FEJKA EKENAS EKENAS ULLKAKTUS ULLKAKTUS BESTA BESTA

001.228.22 001.228.22 002.647.36 002.647.36 501.769.78 501.769.78 002.766.83 002.766.83 902.673.73 902.673.73 291.247.26 291.247.26

On Credenza On Credenza White White Fake Plant Fake Plant FootStool Brown FootStool Brown Brown Accent Cushion Brown Accent Cushion Wall Wall

The Sum images to the right are products listed below.

1938.37Items in the bathroom are relatively Sum Sales Tax New Jersey

1938.37 58.15

3.00%

Sales Tax New Jersey 3.00% 58.15 limited given that the essentials of most bathrooms Gross $ 1,996.52 in apartments come built in. In Gross

$

1,996.52

the case of 342 though what Halcyon sought to do is make the bathrooms roommate Tech Hardware (1) Tech Hardware (1)

Living room TV This meant building 1 169.99 169.99 Sharp-32" LED 1080P can store 2351018 compatible. in facilities such that roommates their own Living room TV 1 169.99 169.99 Sharp-32" LED 1080P 2351018 Apple TV 1 149.00 149.00 Apple TV Consol/Remote Website Apple TV 1 149.00 149.00 Apple TV Consol/Remote Website Router NetGear Wireless N Routand rugs 8998506 shampoo and soaps, hang11their own40.99 towels, and40.99 have clean towels to step Router 40.99 40.99 NetGear Wireless N Rout 8998506 Sound System 1 199.99 199.99 Bose-Soundtouch 10 Wireless 4316000 Sound System 1 199.99 199.99 Bose-Soundtouch 10 Wireless 4316000 Minineed. Due to the great 1 399.99 399.99 Apple Ipad Mini ifIpad they pricing at IKEA, this was extremely cheap. 4266007 Ipad Mini 1 399.99 399.99 Apple Ipad Mini 4266007 Wallmount 1 20.00 20.00 Etsy Wallmount 1 20.00 20.00 Etsy -

342 E 15th Case

Sum Sum Sales Tax New Jersey Sales Tax New Jersey Gross Gross Bathroom (1) Bathroom (1) Shower Curtain Shower Curtain Shower Curtain Rings Shower Curtain Rings Trashcan Trashcan Corner Wall Shelf Corner Wall Shelf Sum Sum Sales Tax Sales Tax Gross Gross General Apartment (1) General Apartment (1) Runner Runner Images Images Hooks Hooks Skrews Skrews DryWall Screws DryWall Screws Sum Sum Sales Tax New Jersey Sales Tax New Jersey Gross Gross

3.00% 3.00%

1 1 1 1 1 1 1 1

Case + Budgets Inflated New York

7.99 7.99 0.99 0.99 1.49 1.49 19.99 19.99

3.00% 3.00%

1 1 1 1 1 1 2 2 1 1 3.00% 3.00%

Total for Apartment Number of Rooms Number of Rooms Number of Bathrooms Number of Bathrooms Gross Other Items Gross Other Items Grand Total Grand Total

$ $

3 3 2 2 1 1

979.96 979.96 29.40 29.40 1,009.36 1,009.36 7.99 7.99 0.99 0.99 1.49 1.49 19.99 19.99

$ $ 39.99 39.99 60.00 60.00 0.99 0.99 3.00 3.00 3.00 3.00

$ $ $ $ $ $ $ $

GRONSKA GRONSKA RINGSJON RINGSJON FNISS FNISS GRUNDTAL GRUNDTAL

302.074.24 302.074.24 231.029.00 231.029.00 602.954.38 602.954.38 501.769.16 501.769.16

Desired Length Desired Length 12-Pack 12-Pack Black or White Black or White For Multiple People For Multiple People

OSTED OSTED ETSY ETSY LILLNAGGEN LILLNAGGEN GENERAL GENERAL GENERAL GENERAL

002.804.92 002.804.92 Estimate Estimate 802.651.57 802.651.57 Estimate Estimate Estimate Estimate

Runner Runner Etsy Local Etsy Local Hook Rack, White Hook Rack, White Home Depot Home Depot Home Depot Home Depot

Bathrooms Bathrooms General General Tech Tech Kitchen Kitchen Bedrooms Bedrooms Living Room Living Room

1.23% 1.23% 2.22% 2.22% 19.79% 19.79% 4.06% 4.06% 33.55% 33.55% 39.15% 39.15%

30.46 30.46 0.91 0.91 31.37 31.37 39.99 39.99 60.00 60.00 0.99 0.99 6.00 6.00 3.00 3.00

$ $

Best Buy Best Buy Apple Apple Buy onBest Best Buy Best Buy Best Buy Best Buy Best Buy Etsy Etsy

109.98 109.98 3.30 3.30 113.28 113.28 1,711.06 1,711.06 62.75 62.75 3,326.47 3,326.47 5,100.27 5,100.27

1

2

3

4

5

236

342 Underwriting - Overhead and Corporate Costs Each apartment has costs associated with it that go above and beyond simply capital expenses and hard costs at the onset of the lease acquisition. This section identifies the cradle-to-grave costs of setting up 342, including identifying utilities and subscription costs, and analyzes the return Halcyon would see after one year.

Note that the returns would greatly increase on the “Lease Light” model where the landlord would fully cover initial capital costs. Although Halcyon would share profit with the landlord, the Company would assume much less risk and very little investment upfront beyond soft costs. Therefore returns would scale directly with increased 342 E 15th Case

pricing and the amount of properties in a portfolio.

Optional Costs Optional Costs are offered through the Halcyon

memberships to London where, if they were a

Connect service. This includes the increased ex-

Whitney Contemporaries Members, they could

perience passes and memberships that Halcyon

visit the Tate Modern for free.

receives a discount to in the city. Although a member could hypothetically go out and purchase these

The full cost of these memberships and the man-

memberships themselves, the Connect platform

agement of them is billed back to the customer

consolidates all of them and manages reciprocal

in full, therefore Halcyon sees no down-side.

memberships and discounts across the city. For

Likewise, members can easily sign up through

example, a Whitney Contemporaries membership

Halcyon by checking a box on the website, and

will also allow a member to receive 20% off when

the bill is directly included into their monthly Tab

staying at the Standard in the Meatpacking district

– no need to manage memberships and pay at

(amongst many other things). Therefore, if a mem-

different time.

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Case + Budgets

ber were to move to London after New York, the Halcyon Connect service would easily transfer their

Soft Costs of Setting Up These are estimations of the administrative costs of

in-house design costs by Halcyon (choosing furniture),

setting up the single unit. This includes the legal and

as well as the time that it takes to transport and pur-

in-house council time of drafting and negotiation leas-

chase the furniture itself. All buying and correspon-

es, as well as the back and forth time associated with

dence of the design and outfitting of each apartment

this process. These costs also include the deep clean-

is handled by experienced Halcyon architects and

ing before moving furniture in, inspection costs to

interior designers.

make sure the apartment is appropriate for Halcyon,

238 Inflated New York

Case + Budgets

342 E 15th Case

Reoccurring Monthly Costs These are the costs associated with subscriptions

Halcyon also charges a premium for each of these

and maintenance of the units. These costs ulti-

services to cover management, operational,

mately get billed back in total to the renters. Hal-

and overhead cost associates with each. Note:

cyon benefits from economy of scale in regards to

general overhead corporate costs have not been

subscriptions, each unit becoming cheaper as the

factored into 342, these would also benefit from

portfolio grows. The annual and monthly amounts

economies of scale, but would negatively skew

are divided and factored back into the monthly Tab

returns on an individual apartment model sce-

amount for a Halcyon Member.

nario.

Complete Fit-Out List/Budget This list is all of the initial furnishing capital costs associated with fitting out 342.

240

342 Roll-up Below is a basic underwriting for the 342 case. Total capital costs incurred by Halcyon are $4,372.79 assuming there is no deposit or first+last month requirement to obtain the lease (this is to keep the UW simple for now). After factoring in all monthly subscription costs, moving in costs, and master rent that Halcyon would need to pay; the annual cost of operating and renting this apartment would be $56,717.52. Thus, the first year total cost incurred by Halcyon would be $61,090.31.

Luckily, Halcyon can charge healthy premiums to renting these rooms due to the

Inflated New York

Case + Budgets

342 E 15th Case

services provided by the Company. On the secondary market, each room in this apart-

ment rents for $1,100 a month which includes no utilities, furnishings, brokerage costs, or application costs. Each renter must bring their own furniture, plates and apartment fittings.

Halcyon assumes that for its services and ease of use it can charge a 20% premium for each room, the equivalent of $1,320 per room. After factoring in the full-package of premium services as well as monthly utilities, the effective premium that Halcyon is charging for this room is 28.9%. This inflation is due to management premiums on the services. The effective rate a renter would pay per month to Halcyon all said and done is $1,417.94 a month.

242

342 Return Summary Given all the services, furnishings, and ease of renting though Halcyon, we believe this is an extremely reasonable price point to be able to realize such fantastic returns for the Company. For the renter, this is both affordable and convenient. Although it is just a little more than what they would have paid if they found 342 on Craigslist; the costs of purchasing furniture, the time they would have spent searching and communicating, along with the headache of the process would have made the Halcyon option worth it. $1,400 a month hits a sweet spot in the market: it is substantially less than the aver-

342 E 15th Case

age one bedroom in the East Village priced at $3,400 a month, but also close enough to the informal market rate of $1,100 that it doesn’t put itself in a completely different category. This was a fundamental issue with Common and WeLive; their prices were so uncompetitive with both formal and informal markets, that it made no sense to use their services at all. They priced rooms at the same rate as one bedrooms in some of the nicest neighborhoods in the city. Halcyon is able to be competitive even in the most desired markets in New York city – and that is what will make it successful.

For Halcyon, the low initial capital cost of $4,372.79 and Net Operating Income of $11,342.50 at the end of the year, means that the company achieves a 159.41% Return on Investment in the first year. This greatly outperforms commodity real estate returns in New York which typically hovers in the 12% range. This calculous makes sense at every price point and only is magnified in in the “Lease Light” structure where Halcyon does not incur capital costs at the outset. By scaling this model to multiple apartments, Halcyon is poised to see huge returns in the first year, and even higher in

Inflated New York

Case + Budgets

the second and third when furniture can be reused.

244

JMC Proof of Concept Summer 2016 Halcyon will be partnering this summer with JMC Holding Company at their 110 South 8th Street property in Williamsburg Brooklyn to test proof of concept in three apartments. Although it is not exactly the price and demographic band we are looking for, partnering with an owner to outfit and build an online platform as a test will be a valuable stepping stone to understanding true demand and costs of running this model.

The building is 17 stories tall, is just a few blocks from the first stop of the JMZ in Brooklyn and is centered in one of the fastest up-and-coming neighborhoods in Brooklyn. Just blocks from the new Domino Sugar Factory redevelopment by Two Trees,

Proof of Concept

this area has seen an influx of young renters as high prices in North Williamsburg has pushed people East and South. The building itself was recently renovated and has basic fixtures and finishes, easy spaces to outfit from Halcyonâ&#x20AC;&#x2122;s standpoint.

We will first rent the fully amentized apartments on the informal market and use the proceedings to develop the online platform that will serve as the foundation for the

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Case + Budgets

companies launch in 2017.

246

Development of Halcyon The branding and graphic integration of the Halcyon platform is critical to its success. Not only does it need to invoke an aspirational lifestyle, drawing cusfeel comfortable trusting the Company with highly

Halcyon Process

tomers to use it, but also must make the customer

sensitive personal information and large amounts of their money. Therefore, the Halcyon platform cannot look as basic and contrived as the typical start up website these days, many of which are sourced

directly from SquareSpace with no engineering built

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Halcyon Brand Development

in.

248

Branding Imagery The aesthetic of the site is designed to be a balance of technical and polish, and fun graphics. Halcyon wants the customer to know when they first open the site that this is a legitimate company providing a legitimate service, but also is a platform that can empower them to live an amazing life wherever that may be. What this translates to are bright, simple colors; mixed with aspirational and inspirational pictures of millennials living the lives we wish we all had. These pictures are meant to be bright and full of

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Halcyon Brand Development

Branding

energy, an extension of Instagram into the real world.

250

Why Halcyon? Why the Kingfisher?

There are a number of happy coincidences that led to the name Halcyon and the mascot of the company being a kingfisher. We wanted a name that was extremely recognizable, memorable, and evoked a home of some sort. We wanted to differentiate ourselves from many company’s today that simply add a “y” to words to create their names – “Bedly”, “Shyp”, “Properly” etc. The word Halcyon means, “calm; peaceful; tranquil. A happy, joyful, or carefree place. ‘Halcyon days of youth’.” We felt that the word “Halcyon” represented the many facets of life we are trying to encourage.

Surprisingly enough, “Halcyon” is also a genus of bird; this being a great animal to relate to millennials moving from place to place quickly. The Halcyon bird is more commonly known as the kingfisher. Kingfishers are a perfect mascot given their size

Inflated New York

Halcyon Brand Development

Branding

and the spectrum of bright colors that they adorn on their bodies. All of the Halcyon genus, these birds come in oranges, blues, purples, yellows and reds – colors that align perfectly with the highly saturated images of millennials Halcyon plans to use on the website.

1.

2.

3.

calm; peaceful; tranquil:

rich; wealthy; prosperous:

happy; joyful; carefree:

halcyon weather.

halcyon times of peace.

halcyon days of youth.

252

Logo Process The logo therefore became a play between the house, and a small bird. We wanted the bird to be happy, fat, and free – floating from one home to the next and feeling completely open to do so. The logo needed to look professional and clean, but also fun and recognizable. We want people to love to wear shorts and stickers emblazoned

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Halcyon Brand Development

Branding

with “Hal”, the name of our bird buddy.

254

Logo Process We further imaged that we could take the concept a step further, having multiple colors of birds and mascots flitting around the page from one home to another as a person scrolled down the site. This would merge the playful and the professional â&#x20AC;&#x201C; clearly demonstrating that Halcyon is not an amateur website, but also showing our tech roots and our want to change how people live.

Placeholder Site

The current placeholder site that is live for Hal-

Branding

cyon exhibits both the logo and images of apartments how they should look. Note the bright color of the images, the seductive upholstery and fitting out of the apartments, as well as the professional quality of the images. We want everything to be a mix of personal and professional. The actual platform will be quite different than this incarnation

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Halcyon Brand Development

though.

256

Website - Inspiration Board The images to the right and below are typical startup websites, each are very similar and are very crisp in their presentation. We especially liked the Tablet Hotel website because of its great mix of lifestyle, imagery, as well as functionality â&#x20AC;&#x201C; without being too overbearing. It sits perfectly on the line in between startup and traditional. The

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Halcyon Brand Development

Platform

platform would need to have both image functionality as well as mapping functionality

258

Website - Inspiration Board To differentiate Halcyon though, and to incorporate a sense of place into our website, we wanted to bring in human aesthetics – after all living somewhere is not all business. Halcyon wants to blend a sleek and trustworthy site (functionality, ease of reading, diagrams etc.) with the tactility of being human and exploring places throughout the world. The reason for this being that all cities are not like New York or London – emblazoned with steel and glass. Cities like Paris and Barcelona have a distinctly more historical feel and culture and should be represented as such. Therefore we looked to

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Halcyon Brand Development

Platform

branding like “Narcissa” in New York that incorporates handwriting into their designs.

260

Incorporating a Human Aesthetic To take handwriting a step further, we were inspired by hand-drawings of the places people could live â&#x20AC;&#x201C; a romantic form of representation that conjures happy imagery in a viewerâ&#x20AC;&#x2122;s mind. Even the smallest sketch of a lamp can inspire people to go to Paris or Brussels. A mix of this aesthetic with the highly technical would be extremely pow-

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Halcyon Brand Development

Platform

erful.

262

Website - Integrating Concepts The manifestations of these concepts came together in a series of quick sketches which try to imagine the two aesthetics being combined into one. These are concepts for the home page that a customer would see as they first type in hiHalcyon.com and scroll to further learn about the company. The hand sketches have been translated into loose diagrams of the cities you can live in, and as you scroll small colorful birds

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Halcyon Brand Development

Platform

fly to one or the other, commandeering them as their new wireframe home.

Mixed in with the diagrams and graphic wing-dings are colorful images of how people live in these spaces, maps of cities, and images of the apartments themselves â&#x20AC;&#x201C; everything you need to both teach people about the service and get them excited at the same time. Included would be a axon metric floor plan that when scrolled over would demonstrate some of the unique features of the apartments.

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Halcyon Brand Development

Platform

Website - Integrating Concepts

264

266

Summary The website is very much still in full swing of development and design. Like every other design project, it will be an iterative process. As long as Halcyon can achieve a finished product that at once inspires the heart and creates trust â&#x20AC;&#x201C; the company is bound to be successful. There are competitors out there doing the exact same thing as Halcyon is planning to do, most recently Bedly which just raised a seed round. That being said, their brand lacks the global vision and platform concept that Halcyon will ultimately execute. Although this is a small difference in the eyes of some, it is fundamental to development of brand awareness and perception â&#x20AC;&#x201C; which is everything in this business. WeWork was not the only CoWorking company in existence, but with their clear vision, well branded platform, and inspirational pathos; they were able to

Platform

grow into the 10+ Billion dollar company they are now.

Haclyon is more than just a subletting site â&#x20AC;&#x201C; it is a way of life, engendering adventurous millennials to live their lives how they have always wanted, eager to see what the world has to offer. Halcyon makes living their dreams possible, and brings a large

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Halcyon Brand Development

world just a little closer together.

268

1.

Limitless Potential

2.

Works Cited

Conclusion

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Conclusion

Networked Globally...

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Conclusion

270

272

Limitless Potential...

This section contains a pitch deck for the Halcyon start-up concept and a narrative of the presentation slide by slide. It is frequently said that today, in a frothy venture capital environment, that the ‘pitch is king”. It is not uncommon for investors to throw hundreds of thousands of dollars at a young startup due to a convincing deck and charismatic team. Although many people cite this as a real issue in industry, it is a reality nonetheless and therefore they pitch deck has to be adequately built out to be able to pursue an idea that needs any capital upfront, as does Halcyon.

The deck must be different than the business plan and the rest of the research that

S S E

has gone into creating the idea of Halcyon. Over the course of this past semester I have spent time listening and learning from lectures from some of the most influential

R G grounds and have offered individual reference O point - but all have personally invested R in hundreds of companies and as such all had similar themes that would arise in their P presentations.

IN NGincluded Sam Altman, founder of YC combinator who has I A selection of T speakers I1,200 start-ups representing over 75 billion of total market value; Michael funded over R Wangel investor; Michael Goguen of Sequioia Capital, representing over 1.2 trillion Skok, Venture Capitalists in industry. Each has hailed from unique firms, with distinct back-

of combined market value; and Guarav Jain founder of Founder Collective to name a few.

Major themes that these speakers had in common when recommending ho to build ‘the perfect pitch’ was to be simple, tell a story, demonstrate how you are uniquely

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Conclusion

positioned to execute, to be passionate, and to want to change the world.

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Conclusion

274

276

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All Rights Reserved Anthony Stahl 2016

Spring 2016

Inflated New York Efficient markets are dead in New York City real estate. Speculation soars, there is little regulation, and power is held in the hands of just a few. The result is a market where rigging is commonplace, purchase and sale is shrouded in secrecy, and pricing is not tied to real value.

Unlike most alternative asset marketplaces, the economic effects of this broken system impact New Yorkers on a day to day basis – most poignantly in their cost of living. Rent growth has drastically outpaced inflation stretching renter’s budgets to the point where many spend well more than 50% of their income on rent. Even young, highly educated, qualified professionals making multiples of the national salary average squeeze 2-3 people in tiny apartments – well into their late thirties – due to inflated rent prices. The purpose of this paper is to understand why.

Many analysts suggest that lack of supply is the issue. I argue in my thesis that the problem is exceedingly more multidimensional, consisting of a number of variables that magnify rent inflation systematically. This paper contends that shifts in demand profiles, lack of market-measuring tools, contrived regulatory programs, and the absence of adaptation in the marketplace have led to a highly inefficient housing landscape laden with fundamental issues.

Specifically focusing on mid-market millennial renter patterns, this paper seeks to expose why housing is so difficult to afford and why there are so few tools to identify reasonable alternatives of living. The goal is to quantify and understand variables creating the inefficiency in order to better develop solutions in the future.

The silver lining is that these issues create opportunity for the keen-eyed investor. This study concludes with a potential solution, one that could radically change how we live in urban places.

Anthony Stahl

Final Thesis Harvard Graduate School of Design Master of Design Studies Real Estate and the Built Environment

Cover photographs by Zak Bush / Saturdays Surf 2014