Written by: Toomaj Freydouny
How did CoLiving emerge? Contrary to popular belief, CoLiving is much older than a decade. CoLiving in the modern form actually started in the late 19th century with Tenement and Boarding houses. The industrial revolution can be seen as the main reason for the emergence of new professions and specializations. Competitive markets emerged in large cities and the rise of specialization led to rapid urbanization.
Industries and markets have a direct and profound effect on the lifestyle of a society. As the markets get bigger, the competition gets more intense. To be present and survive in the competition, industries and economic enterprises have no choice except to focus on one or more limited areas, and as a result, the demand for expert personnel is increasing every day. With the change in lifestyle and the expansion of the desire to being comfortable and accordingly the centralization of the economy, the education and health system in the metropolises and industrial and commercial cities, the rate of urbanization is expanding every day more than ever.
The direct relationship between industrialization and the reduction of purchasing power is undeniable, and this relationship is reflected in the fact that the poor are getting poorer and the rich are getting richer every day! On the other hand, the ineffectiveness of policymakers and politicians, wars, epidemics, population aging and natural disasters also have a direct and negative impact on people’s purchasing power. That is why the demand in the market of CoLiving and shared apartments has been growing significantly since after the financial crisis of 2008 until today.
Why do so many property owners lease their properties to CoLiving companies?
I am the CEO of KUMMUNI. Our company is a real estate startup that rents fully furnished shared apartments to students and young professionals. KUMMUNI, like other companies active in this field, does not own the apartments, but leases these apartments from private owners or companies for a certain period of time and rents them to applicants after renovating and furnishing them.
What I know for sure as an activist in this field is that the owners of our company's contract are very interested in working with our company or any other company that operates in this field for the following reasons:
The need for direct communication between the resident and the owner is completely eliminated
The owner always collects his monthly rent in full and at the agreed time.
The owner does not need to deal with legal problems such as sublet without an agreement, excessive energy consumption, not emptying the property, etc.
The party to the contract is the owner of a company and not an individual, and in this way, many tenant laws that are sometimes abused by the tenant do not include the lease contract.
At the same time, our company is composed of other companies and different departments. For example, KUMMUNI provides facility services to its tenants directly and free of charge. This greatly reduces the costs of the owners.
In a country like Germany, if an apartment is uninhabited for a certain period of time, the owner is required to pay heavy fines.
Our company rents its apartments for a period of at least 6 months. However, not only sometimes some laws do not allow the owners to enter this area, the owners usually want to rent their apartments unfurnished. For this reason, they have no choice but to enter into a long-term or unlimited lease agreement with the tenant.
Who are more inclined to rent shared apartments and CoLiving spaces?
Since I have a better understanding of the German market, I would like this debate be focused on the German furnished apartment market.
The existence of discrimination in the German rental apartment market is not a secret, and many academic and media studies have been conducted in this area, which indicates the existence of discrimination against potential tenants who do not have a German name. Let's not forget that the word "foreigner" is often used in Germany to refer to immigrants and those who were even born in Germany to an immigrant family. From the point of view of the common people, what makes someone a foreigner in Germany is their appearance (skin color), religion, mother tongue and surname.
On the other hand, although many owners are not discriminating, they often fear that the language barrier is a problem, and contrary to public belief, thinking that the vast majority of the German population is fluent in English, the reality is otherwise.
All these issues go hand in hand so that a, quote on quote, foreign expert, who is considered to be foreign based on the definition of the majority of the society, would have less income than a native person and in some respects, face higher expenses at the same time.
In general, the vast majority of KUMMUNI tenants are similar to the majority of tenants of similar companies in these few cases:
The majority do not speak German
hey have chosen Germany as a new destination for continuing education or employment as a professional workforce
Their names are unusual for German society
They often have a darker skin color than the German natives
Their origin does not go back to North America, Central and Northern Europe
The common people refer to their country of origin as the third world
Foreign students usually have a very limited monthly budget, and therefore it is not possible for them to provide for their well-being and to cover their education and living expenses at the same time. This group always has much less financial capacity for housing. The other group is the workforce, which is divided into two categories:
Those whose family is in their country of origin
Those who come to Germany with their spouses and children
Those whose families are in the country of origin send a significant amount of their monthly income to the family in most scenarios. Those who migrate with their families will be the sole breadwinner for a significant period of time since only one person is permitted to work. Family traditions, the spouse's mastery of another language, as well as work expertise also play a significant role in this respect.
It may not be in vain if we say that a significant number of those who go to CoLiving is not because of their desire to experience new things and meet different people, but desperation plays an important role in this. Of course, let's not forget that population growth plays an important role in this, but population growth has not yet become a key influencing factor in the German shared apartments market.
How can CoLiving impact the real estate market?
My experience in real estate started in 2021. Everything I had experienced before was mostly in the IT, automotive and mining industries. This is how I see the difference between real estate and any other industry:
Although real estate and any other industry is ultimately looking for profit, in other industries everything revolves around the amount of revenue, while in real estate asset value plays the main role. This is why cash flow is the main concern of those working in the real estate! For a significant number of people in the field of real estate, the payback period is important in investments, while in other industries Net Present Value is the determining factor for investment.
In real estate, the term “bubble” has been used many times, but few people have asked themselves what causes real estate bubbles. What many have forgotten in real estate is that the purchasing power of money today is greater than the purchasing power of the same amount of money in the future. Regardless of which currency we are talking about, all units will lose their value in the future. The rise in inflation and prices always go a few steps beyond the consumer's pocket. Although our calculations may show that a certain property becomes n times more valuable on a certain date, the question is how many percent of the society will be able to buy the property?
The importance of location in real estate investment is undeniable. In fact, location is everything in this sector. Now, what if you invest in a place today that is considered a smart investment, whether by payback period or net present value criteria, but in the near future, exactly when you plan to sell your property, the conditions and quality of the location will change?!
In the previous section (Who are more inclined to rent shared apartments and CoLiving spaces?), we mentioned recognizing the tenants who are interested in shared apartments. It was also said that discrimination marginalizes them, not only in the rental apartments market, but also in the labor market.
A country like Germany, which is one of the top 5 super-aged countries, has no choice but to open its doors to foreigners in order to keep its industries and economy alive. This is at a time when it has been significantly opened to both immigrants who are considered refugees and students and working professionals. In contrast to the fact that the import of young potential labor force has greatly accelerated, the compatibility and co-existence between natives and non-natives in Germany has not changed significantly, and the isolation rate of the foreign population in Germany is still at a high level. Social isolates, who emerge due to differences in their appearances, religions and languages, are the main factor in the formation of communities.
Arab community, Indian community, Turkish community, and African and Asian communities are the largest communities in Germany. What CoLiving companies and those who rent shared apartments do is that they try to rent their apartments to them by delivering their marketing messages among these communities.
In order to reduce costs, ease of work, and also disconnect foreign and local tenants in order to avoid any potential stress, these companies lease the buildings all together and rent them to their target market. With the increasing expansion of CoLiving companies and their impressive reception by those communities, although these companies have helped the most vulnerable group in society, they are creating what the common people refer to as ghettos. The difference between such ghettos and what I had seen formerly is that it is not just an area and neighborhood which people call a ghetto, but they may even call an alley a ghetto.
In areas that have been assigned to the minority group either by force or under social conditions, poverty will appear and spread over time, and crime will increase in the same proportion. Prestigious businesses are known to avoid such places, restaurants often serve food from one or a limited number of specific cultures, the possibility of such areas being touristic is greatly reduced. Moreover, in the long run, those who take the name of an area into account as a decision-making factor in renting and purchasing a property, will not want to be in such areas.
We all know that health, public transport, education and urban furniture play a key role in increasing the value of a property. Assigning a specific area to a specific group will not result in anything other than reducing the value of the property or slowing down the process of the rise of the property value.
In a country like Germany, where a person is called a “foreigner” only because of their differences, or is not called a compatriot, the location where these foreigners or non-compatriots live is not as financially valuable as the native-dwelling neighborhoods. Besides, the value and the Intrinsic value of the property in those areas do not grow at the speed or extent of the native-dwelling neighborhoods.
This was exactly the point that I noticed as a foreigner in Germany from the very first day at KUMMUNI. I neither like marginalizing the minority, nor making money by further marginalizing them is moral for me. On the other hand, we should not forget that business leaders and every business should feel responsible not only for their industry but also for society.
At KUMMUNI, we follow a principle which we call “trusting others”. In our CoLivings, we have placed different tenants with different tendencies next to each other, and they all live well together.
KUMMUNI manages a little fewer than 500 apartments, but there are other Coliving companies that manage far more properties than we have. The total number of properties managed by all of the CoLiving companies is much more than you think. Now the question is, do other companies pay attention to these small but important points or are they reducing the value of your property in the not-too-distant future? Property owners should ask themselves if all the reasons they have to lease their properties to CoLiving companies are worth it or not!
The Last Word
The way to deal with this impending challenge is not as difficult as it seems. My advice to both owners and leaders of CoLiving companies is to do the same as my company:
Avoid leasing a building altogether.
Give this opportunity to natives and non-natives to be neighbors with each other.
Although you respect the culture of the tenants' origin country, act according to the culture of the current country.
Don't profile the tenants because of their religious, sexual, and different cultures, and let them live together.
Give enough training to your tenants so that they are well aware of the differences and different routines of the present country.
Definitely, cultural differences between your tenants and other neighbors will cause challenges at the beginning. Every time you encounter an objection, check the facts without bias or favoritism.
If you work in a non-English-speaking country, try to attach a translated version to English for them every time you correspond with non-native tenants, even if you write the original letter in the official language of the present country, so that they can communicate more with the current culture.
Since one of your colleagues is fluent in another language such as Arabic, you are not supposed to correspond in Arabic for your Arab-speaking tenants. Because it is unlikely that other people in your company are fluent in that language. Communicating in more than two different languages can cause confusion and misunderstandings for your tenants, apart from the fact that this causes different communities to be formed again based on language, culture, religions and such other factors. Remember that unlike the media, which makes more money by highlighting differences and problems, a CoLiving company will both spend less and make more money by celebrating and respecting differences.
Do not base your predictions on media stereotypes. In KUMMUNI CoLivings, Jews and Muslims, Indians and Pakistanis, homosexuals and Catholics live together, and our community manager has not received any complaints for these reasons.
Promote your company culture in the community. If we don't have a problem with the point in 9, it's because that's exactly how things work in our company. Although maintaining a balance is always challenging, it is possible. Not only are the leaders and managers of our company both native and non-native, but these positions are not appointed based on gender. More importantly, nationality and gender do not affect the basis of rights and benefits. In our company, atheists work side by side with Muslims and Muslims with Christians and Hindus for the development of the company and a common philosophy. Experience has proven to us that your tenants always look at your methods and make decisions based on them.
The last point, which is certainly not the least important, is that most of the properties you manage are not your property. You have leased them from an owner. Consider their property as an asset for your company in every respect. By not following the above 10 points, you will not only purposefully damage the value of their property, but they will also show the least desire to extend the lease or lease new properties to you. More importantly, soon they will talk to others about the damage that has been done to them, and soon fewer people will come to your company.
About the author:
Toomaj Freydouny is an originally Iranian marketing consultant and scholar and serial entrepreneur from Berlin who has been encouraged by many other experts & academics on four continents. Tom is an ex-corporate consultant and served more than 60 well-known brands such as NICO, Toyota, Hyundai, Silicon Power, and Irancell MTN. In 2013, Trade World Magazine- Iran titled Tom “the most capable marketing person in the Middle East.” In 2014, Al Ries addressed him as “one of the few marketing people who have a complete understanding of marketing.” Currently, Toomaj is the CEO of KUMMUNI. KUMMUNI is a Berlin-based real estate Tech startup. The company with the help of technology, not only have overcome discrimination.
