San Francisco-based "co-living platform" HubHaus has collapsed, saying it has no funds, leaving people using its platform to rent rooms in the Bay Area, Los Angeles, and Washington DC, in limbo.
HubHaus' business model seemed simple enough: lease large, single-family units and then cut them up into as many rooms as possible in order to sublet each room. Upon closer examination, however, there seem to have been numerous red flags.
In interviews with tenants, the San Francisco Chronicle found that they were still being charged for services (e.g. housekeeping) that were no longer provided and some were charged double their rent after setting up auto-pay. Landlords told the Chronicle that HubHaus stopped paying for utilities and slashed its leasing payments to them. One former employee also reported that the company consistently paid him less than he earned or would pay him late, causing financial hardship that led him to quit.
In a September 30 letter sent to homeowners and tenants, and obtained by the Chronicle, HubHaus owner Diablo Management Group said "HubHaus is completing a liquidation and closure of the company." As part of that process, an analysis by Diablo found there were "no funds available to pay the claims of unsecured creditors (e.g., claims by landlords, tenants, trade creditors, or contractors)."
Months before, Mission Local had reported that homeowners were not getting paid full rent by HubHaus—even if their tenants were paying in full and on time, raising the question of where all this money went. One homeowner, angry the company blamed COVID-19 for suddenly shutting down, told Mission Local that "They are a venture-funded company that should have business interruption insurance, access to small business assistance, credit lines, etc."
HubHaus is not remarkable in its business plan, nor in its failure to realize sustainable revenue and profits.
As rental and housing prices have priced out younger generations, “co-living” has emerged as a stopgap measure that also happens to let savvy companies maximize profits by pushing more people into tinier spaces sharing (or renting) more amenities. If this sounds familiar, it should: this was WeWork’s business model.
Coincidentally, one of the largest major co-living start-ups—The Collective—saw itself as taking on WeWork and its burgeoning dreams of commodified communal living via an offshoot called WeLive. WeWork’s corporate communal working model was never going to work, so it’s no surprise that corporate communal living is failing too.
Nor is HubHaus remarkable in how egregiously it skirts legal regulations. Lawyers told the Chronicle last year that on top of artificially inflating its rents, tenants were evicted for packing into a split house that was zoned for single families, which HubHaus should have known about. Former HubHaus CEO Shruti Merchant told Mission Local that she attempted to appeal San Francisco’s legal definition of a "family" and laid the blame there for the evictions. A group of evicted tenants are exploring legal options.
If anything, what is spectacular is how well the start-up has managed to shield itself from any liability for shady business practices.
Take the fact that it was through emails and letters in late September that tenants, lawyers, and landlords learned the company was now owned by Diablo Management Group. On its website, the firm proudly claims a "sole mission to increase the value of its clients' assets" as they seek to expand operations, lay off workers, liquidate assets, or close operations.
Diablo claims that after taking over HubHaus, it found there "are no funds available" to pay "claims by landlords, tenants, trade creditors, or contractors." One artist on Twitter claimed that HubHaus tenants were now being sued by landlords for rent after the start-up’s failure to pay owners shortly before liquidating.
All this leaves a question mark around why HubHaus was charging above-market rents, overcharging tenants on amenities, charging for discontinued services, but still failing to pay full rent or utilities payments to homeowners whose properties it leased, or paying its employees their full earnings on time.
HubHaus and Diablo did not respond to Motherboard’s request for comment.