‍What has been the Keys Asset Management approach to investing in alternative and innovative real estate assets, and particularly coliving assets?

It has been Keys Asset Management’s approach since its beginning to focus on the end user, and therefore vet the product - aka the real estate product, meaning the experience and use made of the building in essence - in order to vet the financial opportunity.

For the last 10 years, Keys Asset Management has successfully observed and analysed the real estate market, but also deep societal trends that influence what people seek in our buildings. Failing to understand how society evolves would mean failing to understand how the built environment, and therefore the real estate industry, will evolve.

Our analysis is both quantitative and qualitative, and thus allows us to rightfully capture change. This fairly unique posture and outlook on the world around us has enabled us to seize great opportunities in what our field calls “alternative real estate”. And so, we’ve invested in and were the first third-party investor to acquire a coliving property in France. This was at a time when other coliving locations were owned by shareholders, or friends and family of the operators, and when institutional investors were interested in coliving but not yet ready to make an actual transaction. This shows that when we identify an emerging asset class such as coliving, we are able to quickly make up our mind about it with conviction.

So, in short: Keys Asset Management cultivates the right balance of intuition and analysis - and so far, it’s worked well. We grew from a single deal in 2011 to close to EUR1.5 billion in assets under management today. This includes a decent number of “iconic” alternative assets - including coliving as just mentioned - but also, to name a few others: the third place LX Factory in Lisbon, the food market Halles de Bacalan in Bordeaux, lifestyle hotels with the brands MamaShelter, Jo&Joe and Tribe, a participation in the dark kitchen operator Kitch and another coliving operator, Outsite, amongst other innovative real estate assets and ventures.

Keys Asset Management nurtures this right balance of intuition thanks to a series of organisational tools such as Curiosity is Keys - our R&D vehicle that I manage - but also thanks to high-quality partnerships with specialised operators and a strong ESG strategy. For us, the ESG approach is central here. In fact, we have made the integration of strict environmental and social sustainability goals in the design of new housing mandatory for any investment in this sector.

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As a real estate asset manager, what is Keys Asset Management ’s perspective on the coliving market? Has the coliving market reached a maturity where asset managers and investment funds are confident in financing coliving projects? Has the coliving sector reached the maturity needed to match the maturity of the current investment landscape for other alternative residential / commercial assets such as PBSA, Build to Rent and hospitality?

Until now, European investors and real estate developers were looking at coliving as a “cash machine”, if I can be very blunt. But coliving can’t always be the highest-and-best use when compared to hotels or offices in a vibrant market, so residential coliving models were struggling to build their case against those other use classes, and there weren’t a lot of hotel coliving operators until more recently.

Now with COVID-19, on the one hand, people have understood that coliving is primarily a “home” and therefore should be under-written as a residential asset, even if it benefits from an “enhanced” residential model. On the other hand, companies like Outsite and The Student Hotel are growing in Europe, offering operational options for investors looking into hotel-like coliving opportunities.

So let me go back to the residential side of things and answer your question by telling you about our perspective on the overall rental housing sector. Coliving is a very specific sub-segment, but still a sub-segment of the overall multifamily market.

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In France and in Europe, urban residential real estate assets have proven to be resilient throughout time and through the pandemic. And even when housing prices fluctuate a little, rent increases remain fairly stable. Why is that? Certainly because the demand for urban housing has been increasing steadily, as cities keep attracting more and more dwellers. This is commonly called urbanisation: 2/3 of the global population will live in cities by 2050 according to the UN. In Europe, in 2014, almost 3/4 of the EU population was living in urban areas, creating more demand for housing in metropolitan areas that haven’t been able to keep up with the supply of new homes. The resulting tension between this ever increasing demand and the supply shortage puts tension on the market and has led to an unprecedented housing affordability crisis in most large cities of the globe.

For urban newcomers, this makes finding a home at a decent price particularly difficult: Eurostat reports that only 10% or less of capital cities inhabitants find it realistic. Not only are their housing options unaffordable, but they are also no longer adapted to their needs and lifestyles.

According to think tank TerraNova, the average size of a dwelling unit in France - 65m2 - hasn’t evolved for over 25 years; all the while, households have been evolving their needs, lifestyles and budgets. Housing built for ‘families’ is no longer needed as it was before, and there is now more diversity in the sizes of households: 1/3 of European citydwellers are either single or couples (according to Eurostat), 1/2 of the French population is either single or divorced, more women are choosing to live by themselves longer, resulting in different expectations in housing than the traditional family of two parents and two children. For all these people, housing also needs to be more flexible: one needs to be able to easily move in or out, in order to seize a job opportunity elsewhere or to manage a transition in daily life, for instance. According to a YouGov poll conducted by French coliving operator Babel Community, 71% of 18-34 year olds would like to be more mobile and have flexibility between their work and living spaces if the possibilities emerged. Finally, The WHO declared loneliness as one of the top three pre-COVID-19 global health crises.

The stats speak for themselves. That’s why, beyond the need for more affordable homes, Curiosity is Keys has formally identified 3 areas of improvements: modular design, flexible space usages and housing that reinforces human connection, which ultimately all lead to higher quality housing options. That said, as asset managers and investors, would it not make sense to invest in the housing typologies that consider these trends of flexibility, quality and human connection? This is where coliving operators have come in and offered innovative solutions based on the actual needs of many urbanites, both old and new.

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You also lead on Keys Asset Management’s R&D arm, Curiosity is Keys, which showcases real estate innovations such as how the sharing economy influences real estate and other sustainable innovations in the built environment sector. Can you share a bit more about Curiosity is Keys and how it shapes the decisions you make as an asset manager?

First, we believe that the way we design and operate the built environment forever shapes our lives. That makes real estate an asset class like no other: we have a unique opportunity to make a real difference.

Fueled by the desire to seize the opportunity in every transformation, we created Curiosity is Keys, Keys Asset Management’s R&D arm, in 2019. Our three- fold approach - based on free exploration, in-depth market research and prototyping - allows us to identify the future trends and understand how and when to implement change. That’s how we build value for all stakeholders in the real estate value chain, from user to investor.

Curiosity aims at motivating creativity within the company, but its end goal is to articulate our core beliefs for the future of real estate in order to identify, test and validate our new investment strategies.

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As a co-founder of Co-Liv and now Head of R&D+Innovation at Keys Asset Management, we know you have always been driving for innovation and impact within the coliving sector. How are you now helping move the needle forward with Keys Asset Management on impact and sustainability within the real estate sector, and in particular coliving? Does Keys Asset Management have a strategy when it comes to impact investing in real estate assets? Could you tell us a bit more about your thoughts on how best to embed impact and sustainability into coliving as an asset manager?

Keys Asset Management has been implementing socially responsible investment guidelines since 2018, but we have actually started exploring impact frameworks this past year. In learning more about impact investing, we’ve found that housing in general, and coliving - which promotes a more flexible, affordable, accessible and social kind of managed housing - are great products to generate positive impacts on people and on the planet. That is probably because beyond its financial characteristics, coliving is product-driven.
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So you can design an impact investment strategy around this typology that is completely and entirely interconnected with the investment thesis. That is our approach: ensuring a great level of quality and desirability for the products that we invest in directly contributes to optimising the financial performance.

Now let’s dive into the specifics of what this means. If you are not familiar with impact investing, know that it refers to investments “made with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return” (according to the Global Impact Investing Network). So, it’s not philanthropy, and it helps build a case for businesses who want to do good in the world. And in case you were wondering, you do need to prove that the positive impacts you are seeking are indeed considered as “positive” by the international experts community (there needs to be a global consensus), and that you are intentionally generating this impact (that is to say that it is not a side effect of another line of your business, nor the result of somebody else’s actions). It’d be too easy if you could just focus on whatever you are good at, and get away with generating negative impacts in other areas! So when impact investing, one invests in and manages assets which mitigate any potential negative impact on the environment on the one hand, and which maximise positive impact on its users / residents on the other.

As I mentioned earlier, housing is a good candidate for an impact strategy because it is faced with a series of societal problems to solve, which, all together, constitute an investment opportunity. These challenges include:

• An ever-increasing housing shortage, particularly for a middle class which is pushed out of cities and large employment zones;
• The need for housing is multifaceted: there is a need for a lot of different types of homes to adapt to modern households;
• There is an increasingly pressing imperative for healthier homes that promote our general wellbeing.
  
  

In fact, if you read the United Nations’ Sustainable Development Goals, you’ll find that you can pursue a series of positive impacts on people in coliving developments. For instance:

• By providing “quality housing” in professionally managed residential buildings that optimise - ideally, maximise - comfort, quality and flexibility in a way that residents can choose to stay or leave their homes.
• By ensuring affordability for your living product and thus decreasing inequalities in regards to access to quality housing. Your typical coliving monthly bill, which includes traditional rent but also basic utilities and service charges, should help fight the overall increase of housing prices.
• By improving work conditions - who knew? That means housing that is located closer to employment areas, but also work spaces and the necessary digital services (such as WiFi) to improve WFH conditions for all.
• By providing quality shared spaces and services - which help decrease loneliness - and by facilitating everyday chores, this gives time back to people so they can focus on their personal development.

Now, as I mentioned before, when you adopt an “impact investing” philosophy, you also need to mitigate any potential negative impacts on the environment in particular. That’s very hard when your job is to build new housing! This is because new builds have a considerably high negative impact on climate change (up to 19% of the global carbon emissions, according to Citepa). So, in reality, I believe every single coliving investor and operator needs to start implementing strict measures in order to:

• Decrease resources and energy consumption; 
• Adopt a net-zero policy for artificialisation and waterproofing of soils;
• Intensify the “use” of every square meter in every building so we collectively reduce the need for new constructions;
• And offer clean mobility solutions to reduce carbon emissions from transportation.

That was a long answer to a very dense question!
But in short, within Co-Liv, I’ve been arguing that coliving is a positive-impact housing solution for years. Now is the time to prove it, so let’s get to work!

As for your question about the relation between innovation and sustainability, I believe that impact frameworks are a great way to assess the potential of any innovation. It forces you to get a clear perspective on how your solution is going to affect people and the planet, and therefore helps you in understanding its viability in the long run.

Thanks so much Claire for all your insights!
We also agree that embedding these kinds of frameworks into your coliving company is a great way for your brand and the sector as a whole to get serious about it’s long-term sustainable growth and positive impact!

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