Bay Area co-living startup HubHaus implodes, stranding renters and homeowners

HubHaus, a venture-backed startup in the burgeoning new field of “dorms for grownups,” has imploded, stranding hundreds of renters and homeowners, mainly in the Bay Area.

The 4-year-old Los Altos company, which had raised $13.4 million, is undergoing “a closure and liquidation process, commencing Sept. 23, 2020,” it wrote in emails to homeowners and tenants. It’s laid off all employees, the letter said, blaming the coronavirus pandemic’s severe impact on housing. Several renters and landlords provided copies of the emails to The Chronicle.

“The company is unable to pay October rent,” the emails said, suggesting that landlords use security deposits to cover it. The emails said that tenants’ leases were being transferred to the homeowners.

HubHaus, like several other “co-living” startups, corporatized the long-standing tradition of group houses. It leased large houses, furnished the common areas, and then sublet bedrooms to young professionals in the Bay Area, Los Angeles and Washington, D.C. It had several hundred homes, the majority in the Bay Area.

Its pitch to homeowners was that it was a trusted property manager providing reliable income. To tenants, it promoted the idea of affordable living space where they could find friends, handle repairs and problems via its online tools, and have amenities such as a cleaning service and reliable Wi-Fi.

“It seemed like a cool way to meet new people,” said Zack Tobin, who moved into a Redwood City HubHaus two years ago and then transferred to one in San Jose called Magellan Haus. “That can be a little challenging in the Bay Area sometime because people are really into their careers here.”

Many landlords who had rented their homes to HubHaus said in interviews and on a Facebook group that it had already slashed the rent it was paying them in recent months, leaving them tens of thousands of dollars in the hole. Several said they were stunned to discover that it had also stopped paying utilities months ago. (Because of the pandemic, utility companies are not cutting off service for nonpayment.)

 Bay Area co living startup HubHaus implodes, stranding renters and homeowners

Meanwhile, tenants were taken aback, although some had noticed recent changes, such as the end of housecleaning services — even though they were still paying for them — and increasingly slow responses to maintenance issues.

“I don’t know where to go from here, who to talk to, how this could affect my credit score,” said Chang Lee, who pays $1,130 for a room in the Loge Haus in San Jose. “It seems as if all tenants and homeowners have been left to fend for themselves.”

“It’s been one of the most nightmarish experiences I’ve had,” said Stephen Wolfe, who was paying $1,580 a month for a large room in a Victorian-style home in the Oakland hills. He doesn’t know whether the home’s owners, who live in Australia, will allow him and his four housemates to continue renting.

HubHaus tenants said they signed yearlong leases, which started at varying times, and paid security deposits of about one month’s rent. The emails said the deposits will be used for October rent. If there is any excess, it said the homeowners would give them credit for it.

The emails to tenants and lawyers said HubHaus is now run by Diablo Management Group, whose website says it helps “troubled corporations … increase the value of (their) assets.” Diablo, as well as several former HubHaus board members and investors, did not reply to requests for comments. Shruti Merchant, who co-founded HubHaus and was CEO until March, declined to comment.

Rachel Borego, who pays about $1,400 for a room in a San Francisco HubHaus, said she discovered her landlord has been receiving only a quarter of the rent. As a pet owner, she has trouble finding affordable housing, but only two of the house’s five bedrooms are currently occupied, “so my last roommate and I have to find at least two new people soon, or else move, as the landlord doesn’t want to rent the rooms individually,” she said.

There is similar dismay among landlords.

In November 2019, Oakland resident Darcey O’Callaghan leased HubHaus her former residence in Washington, where the company had recently expanded. It now owes her $19,000 in back rent, she said.

“While COVID amplified the problems, HubHaus failed because of poor management,” O’Callaghan said. “Everything was weird about the interactions.” For instance, HubHaus tried to change a signed contract, and it charged her for repairs but didn’t perform them, she said.

 Bay Area co living startup HubHaus implodes, stranding renters and homeowners

Tobin, the San Jose HubHaus tenant, said the company seemed to run “in panic mode.” He started working for it part time in May 2018 to give prospective renters tours of its Bay Area houses, making $40 per tour and $50 if the renter moved in.

“As an employee, it was really rough,” he said. “They would routinely pay me less than what I’d earned, or pay it late. I’d call and they’d be like, ‘Sorry, it won’t happen again.’” Eventually this happened almost every week, he said, so he gave up the job after a year.

There were similar financial problems with rent. Tobin said that he and other tenants who had auto-pay set up saw double rent taken from their accounts in January. “That put a lot of people in a spot; they couldn’t get gas or groceries,” he said. HubHaus apologized and refunded the money.

HubHaus sent O’Callaghan and other landlords a letter in late March saying it needed to defer rents “based on hardship due to the coronavirus …. (because) the livelihoods of some rent-paying tenants have been significantly impacted.” It referred to legislation to safeguard housing during the pandemic. Several landlords provided copies of the letter.

But she — as well as other landlords interviewed — heard from her tenants that they were still paying their full rent to HubHaus. “The emergency legislation was put in place to protect renters who lost their jobs — not to save companies that are suffering from bad management,” she said.

Ryan Hernandez rented his family’s Oakland home to HubHaus when they moved to Montreal two years ago. “They started underpaying the rent back in May,” he said. “It’s been touch and go since then; they owe a bit over $15,000 in rent.”

On top of that, he soon discovered “thousands of dollars in unpaid utilities” that he could be liable for. In addition, the company stopped having the house cleaned months ago.

He wants to ensure the tenants aren’t left high and dry, although at the same time he’s racking up losses on the house.

HubHaus asked landlords last month to sign an agreement that they would assume the subtenants’ leases. It included numerous clauses that they would not pursue HubHaus for any damages.

“I read it, and my jaw dropped,” Hernandez said. “They’re asking us to sign off on a complete release of all past and future responsibility.” He will not sign it, and said other landlords he’s talked to agreed.

 Bay Area co living startup HubHaus implodes, stranding renters and homeowners

Jim Lucey, a tenants’ attorney at Tobener Ravenscroft in San Francisco, said that neither tenants nor landlords are likely to recover losses.

“The property owners are in a no-win situation,” he said. “Their claims would be based on contract law, which won’t be covered by insurance.”

As for tenants, HubHaus’ emails said they are not being evicted. “If they’re not being kicked out, but turned over to the owner, I don’t think there’s an actionable claim to be made,” he said.

Lucey pursued HubHaus a year ago on behalf of tenants in a San Francisco house whom it evicted with little notice or communication. The company’s commercial insurance policy covered a settlement, he said.

Clara Arroyave, who founded and was CEO of a smaller co-living startup in Boston called PlaceMe, shed some light on what may have happened during the pandemic.

“Similar to everyone else (who runs corporate group homes), in the middle of March, we saw 40% of our revenue disappear in a matter of five days,” she said, as renters who were now working from home left the city.

The drain continued. “By the middle of June 60% of people had left, which was not enough for us to cover obligations,” she said. Arroyave’s company returned some properties to landlords and turned others over to a management firm to run.

Bungalow, a San Francisco co-living startup with $118 million in backing and properties in the Bay Area, San Francisco, New York and Washington, is also struggling, as the Information first reported.

“We have seen substantial declines in the residential real estate market in our major cities,” Bungalow CEO and co-founder Andrew Collins said in an email. “Rents are down between 15% and 25%. … We are asking a majority of homeowners to reformat our leases in a way that enables us to get through these difficult times together and provides additional upside for landlords once the markets rebound.”

Still, Collins implied that Bungalow will continue, saying it is “in a meaningfully better position than HubHaus today.”

O’Callaghan, the Oakland owner of the Washington home, plans to file in small claims court, where the damage limit is $10,000, half what she’s owed.

“I honestly don’t think I’ll see a penny, but I really wanted some sort of legal record of what they did,” she said. “It needs to be addressed more broadly when a company goes under that has millions in venture backing from millionaires and billionaires. I don’t even have a job right now.”

Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid

Article source: https://www.sfchronicle.com/business/article/Bay-Area-co-living-startup-HubHaus-implodes-15617470.php

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