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Urban millennials are flocking to luxury 'adult dorm'-style housing to save money. Meet the two CEOs who've collectively raised over $2 billion from the trend.

Urban millennials are flocking to luxury 'adult dorm'-style housing to save money. Meet the two CEOs who've collectively raised over $2 billion from the trend.

Playing games at The Collective

Courtesy of The Collective

A game room at one of The Collective's co-living buildings.

  • Sharing living space has become an unexpected trend with millennials, and according to the commercial real estate firm Jones Lang LaSalle, global funding for co-living has increased by more than 210% each year since 2015.
  • Reza Merchant is the CEO of The Collective and Gunther Schmidt is the founder and CEO of Quarters, both co-living organizations capitalizing on this new form of real estate.
  • Together, they've raised over $2 billion to fund their companies, and credit their success to properly educating their investors on the market and the value co-living can offer customers.
  • Their advice for aspiring entrepreneurs is to find investors who you trust and get along with, because those strong relationships matter.
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Sharing living space, much like a residential WeWork or "adult dorm," has become an unexpected trend with millennials, sparking the attention of investors in the US and globally.

The movement has disrupted the real estate market exponentially. According to the commercial real estate firm Jones Lang LaSalle (JLL) , global funding for co-living has increased by more than 210% each year since 2015, grossing more than $3.2 billion. Thus far in 2019, $800 million has been secured for co-living companies.

"Co-living is emerging as the affordable and flexible solution to housing, as it gives tenants access to short-term leases with shared common spaces and amenities," Dana Salbak, associate in real estate, market research, and analysis for JLL Middle East North Africa (MENA), explained to Business Insider. "Basically, this gives more people access to the same amount of space (this achieves optimal density in development) and offers convenience, flexibility, and great networking opportunities, all of which are values and experiences sought by millennials and Gen Z."

Quarters Chicago

Courtesy of Quarters

A view of Quarter's Chicago property.

The UN predicts that by 2050, 68% of the world's population will live in urban environments. "It's no secret that there is a housing crisis all over the world," Reza Merchant, CEO of The Collective, told Business Insider. "Ten years from now, [co-living] will be its own housing class, which offers a significant and much-needed solution to a broad swath of the population."

Reza Merchant and Gunther Schmidt, the founder and CEO of Quarters, are two entrepreneurs leading this co-living movement. Schmidt founded Quarters with his childhood friend and business partner, Michael Ambros, and the two have secured two back-to-back funding deals - $300 million for the US and around $1.1 billion for Europe - the largest-ever single investments in co-living for both markets. Merchant has raised more than $850 million in funding.

Business Insider sat down with Schmidt and Merchant to learn more about how they each have raised a billion (or close to it) in funding as they break into this niche market.

Both Schmidt and Merchant got their start in co-living via a need for better (and cheaper) housing options

With a natural knack for entrepreneurship, Schmidt started his first venture at age 14. "I was always interested in starting my own business," he recalled. Convincing his father to drive him to a nearby factory that produced German Bifi salami snacks, Schmidt bought the salamis in bulk and sold them on eBay. The factory manager caught on to what young Schmidt was doing and refused to continue selling to him in bulk, which put an end to his brief stint in the sausage business.

Gunther Schmidt, Founder and CEO Medici Living Group

Courtesy of Quarters

Gunther Schmidt, founder and CEO of The Medici Living Group and their co-living company, Quarters.

Later on, he put aside university to try his hand at entrepreneurship once again. Schmidt and his partner Ambros founded eKomi, a ratings and reviews website. "Backed by Goldman Sachs, eKomi now has more than 15,000 customers and is Europe's largest independent provider of transaction-based reviews and ratings," said Schmidt.

Today, the two run The Medici Living Group, a PropTech company that develops and innovates real estate living concepts, with Schmidt overseeing Quarters, a wing of the company. The Medici Living Group was born out of a need the two partners saw at eKomi. With foreign talent moving to Berlin to work for the company, they realized they needed a better relocation process. They launched a workforce housing offering that took the hassle out of moving to a new city, where employees had their own private bedrooms but shared communal spaces. Though not called co-living then, Schmidt and Ambros had cracked into this niche market and saw the opportunity to create another business.

Reza Merchant

Courtesy of The Collective

Reza Merchant, CEO of The Collective.

Merchant comes from an entrepreneurial family and he, like Schmidt, stumbled into co-living because of a housing need of his own. Like most recent graduates, the London School of Economics alum found rent prices in London to be astronomical. "I felt isolated by it all, and recognized how many of my counterparts felt the same. It was then that I really saw the gap that exists in cities all over the world, and our mission was born: to build and activate spaces that foster human connection and enable people to lead more fulfilling lives."

With some friends, Merchant set up a small business in 2011 against a £1,600 ($2,591) bank overdraft. They let and serviced a four-bedroom houseshare and it quickly and organically grew. Today, that property is their Old Oak property that houses over 500 people in West London, "some of who[m] have lived there since its 2016 opening," he said.

The two founders together have raised over $2 billion. They credit their drive to educate investors about the co-living space as their key to success.

Quarters is set to expand - and fast. Their 2019 investments were backed by CoreState Capital Holding S.A., the company's partner on their $1.1 billion fundraiser for their European expansion. And the W5 Group, the family of successful European entrepreneur and real estate investor Ralph Winter, is their partner on their $300 million fundraiser for their US expansion.

Quarters bedroom

Courtesy of Quarters

A bedroom at Quarter's Berlin Klara-Franke-Straße property.

Schmidt explained that he didn't have to convince investors to back Quarters per se, but rather had to "educate" them on how shared living helps fill the need of affordable housing in dense urban areas while solving the issue of urban loneliness. "We talk about the desires of millennials and how our product is perfectly suited to their needs and desires," he said.

So, what does a pitch deck look like for a company that has raised over $1 billion? "Keeping it short and addressing the pain points we're committed to solving within the first few slides is essential to capturing a potential investor's attention," said Schmidt. "The rest of our deck is focused on articulating our strong sense of belief in the business and a leadership team that can execute on the vision."

He adds that "at the end of the day, concise, clear, solution-focused content wins. We remain focused on relaying the straightforward 'what,' 'why,' and 'how' of Quarters. We do this by solving the variable equation: lower-than-market rent, product appeal, and technology, and then utilizing our immense passion to curate a community."

For Merchant, raising $850 million was about "being persistent." The company has some of the largest institutional private equity groups, lenders, and pension funds backing it, which include Cheyne Capital, Reditum Capital, and Creandum. In trying to convince investors to back The Collective, he details that they aimed "for a healthy balance of the traditional pitch, showing our returns, and the metrics most investors expect, while putting a high emphasis on baseline education in order to explain the trajectory of the co-living sector, its benefits, and how we differentiate ourselves from other players in the space."

Merchant recalled when Amazon decided not to build its headquarters in Long Island City, a decision that could have affected investors looking to fund The Collective. "In the midst of escalating discourse, we closed on our Long Island City project despite Amazon pulling out of its new HQ plan just weeks prior. Our investors got to see our unwavering passion on full display, not just because the fundamentals of the investment were solid, but because of our commitment to Long Island City's thriving community," he explained.

Quarters kitchen

Courtesy of Quarters

A kitchen at Quarter's Berlin Klara-Franke-Straße property.

One issue Merchant has faced in raising funding, like Schmidt, is educating investors on what co-living is. "It's a relatively new category, nascent in almost every market," he said. "There are a lot of questions tied to whether the concept has proven itself in the market. This was challenging earlier on, but we have grown significantly since our inception in 2010 and we feel we have been able to provide tangible success stories - we currently own and operate the two largest co-living buildings in the world. Investors have been underexposed to this alternative housing class and we have been working hard to bring its value to life."

He adds that building strong relationships has been key to the process. "We're highly conversational and our belief in our product runs deep, so we usually bring investors to all future sites to share our curiosity and enthusiasm around a given neighborhood," he said.

Their advice for aspiring entrepreneurs is to find investors you can trust and get along with

So what's the two real estate mogul's advice for raising funding for your business? "I have learned that raising capital is all about ensuring that you find the right investors that will pair well with your company," said Schmidt. "While potential investors typically come armed with their own set of questions, it's paying attention to the right line of questioning that signifies a fit."

Old Oak - En Suite room

Courtesy of The Collective

An en suite room at The Collective's Old Oak property.

He added that the discussion shouldn't be centered on your idea's merit. "The conversation should focus on evaluating the risk and determining how it can be managed," he explained. "If you need to twist yourself into a pretzel to convince a target of your value, it's likely time to move on to the next."

Merchant agreed that it's key to find true partners in your investors. "It's about finding investors who embrace your vision and who you enjoy spending time with," he said. "Then, it's essential that you do whatever it takes to deliver on the commitments you make. Crucially, you have to show through your own actions that you're willing to put your neck on the line for what you believe in … This is the foundational reputation and track record that will continue to unlock future funding."

While it feels good for both Schmidt and Merchant to have raised plenty of capital, their goals are focused primarily on delivering something that will benefit urban living for all. It's not just about company growth, but about "enabling a state of individual and collective wellbeing for our member base," said Merchant.

Allyson Portee is a tenacious and driven communications consultant and business and fashion contributor. She has written for Harper's Bazaar Arabia, Vogue Arabia, Idealog, EuroNews, CommsMEA, The Diplomatic Courier, the Washington Diplomat, and Propel Women. Having lived in the US, Spain, the UK, Germany, and Lebanon - and having travelled to over 20 countries and many cities - Ally has an international awareness and love of cultures. She has reported on fashion, proptech, Syrian refugees, tech, US politics, and faith - areas in which she is passionate about. With a heart for people, you will often find Ally with a notebook in hand interviewing an inspiring mover and shaker somewhere in the world.


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