After struggling to drum up tenants and raise venture capital, executives of co-living startup HubHaus have begun to take steps towards shutting down the company, according to a new report published on Friday.
The venture capital-backed startup that manages shared homes has been unsuccessful in attracting a potential buyer in recent weeks, and also sought out emergency funding, according to a report from The Information. According to individuals familiar with the matter, investors said they expect the company to shut down, and last week the company let go of its seven remaining employees, all of whom had focused on growth and property acquisition.
The cuts were the second HubHaus made to employee ranks this year. In February, the company laid off approximately 15 employees.
In a climate where casually living with a number of roommates may seem like an impractical risk for many during a pandemic, it’s no wonder that players in the co-living space, like HubHaus, are having trouble attracting business and investors. Over the past few weeks, about 30 percent of HubHaus rooms were vacant, according to The Information’s sources. One source also noted that about 75 percent of the company’s properties weren’t profitable.
HubHaus did not immediately respond to a request for comment from Inman on Monday.
HubHaus was founded in 2016 by former medical school student Shruti Merchant, whose aim was to create affordable living spaces to medical students and young professionals while fostering a sense of community. The company raised about $11 million over the years from investors like General Catalyst and Social Capital, and its most recent valuation was at $40 million.
HubHaus stated on its website that the company generated more than $20 million per year from members in 25 cities. In recent years, its managed almost 300 homes across San Francisco, Los Angeles and Washington, D.C., alone.
One of the company’s growth strategies was to accept tenants with poor credit scores, according to former employees. However, the company failed to hit growth goals last year, deterring potential investors. Then, matters were made worse when HubHaus had to evict around 100 tenants last year because they didn’t pay rent, according to a former employee.
“We made a series of bad bets,” Merchant told employees at the time of the cuts made in February, according to an individual present. Merchant stepped down from the company several weeks later.
During its prime, HubHaus had about 30 full-time employees at its Bay Area headquarters, as well as approximately 50 to 60 contractors across the country to show houses to prospective tenants. The company also employed a customer service team in Southeast Asia.
Multiple companies akin to HubHaus have also taken a hit during the pandemic. Airbnb-backed companies Zeus Living (a corporate travel startup) and Lyric (a short-term rental startup) have both struggled through the spring. Zeus Living laid off most of its staff and took a valuation cut, while Lyric relinquished most of its locations to landlords as co-founder and president Joe Fraiman departed the company at the beginning of July.
Tacoma, Washington-based property management startup Stay Alfred also shut down this spring. All three companies saw drops in revenue while owing lease payments.