# HubHaus (2016 – 2020)

- URL: https://girisimcikafasi.com/en/startup-graveyard/hubhaus/
- Sector: Real estate and construction
- Country: United States
- Total funding: $13.4 million
- Cause of closure: Macroeconomic crisis

## What did it do?

HubHaus leased large detached houses from homeowners, furnished the shared spaces and sublet the bedrooms one by one to young professionals. It offered tenants services such as cleaning, internet and maintenance tracking through online tools, while promising homeowners a reliable property manager and steady rental income.

## Why did it shut down?

The company raised $1.4 million led by General Catalyst in 2017 and a $10 million Series A in March 2018, bringing its total to $13.4 million. The model relied on covering long-term lease commitments to homeowners with fluctuating income from rooms. In 2020 homeowners discovered that, while tenants were paying their rent on time, the company had been cutting its payments to them for months and had stopped paying some bills. Co-founder Shruti Merchant stepped down as CEO in March 2020, and management of the company passed to Diablo Management Group, which handles the assets of distressed companies. In the wind-down that began on 23 September 2020 all employees were let go; the company blamed the pandemic and said there was no money left to pay unsecured creditors, including homeowners and tenants.

## The story

HubHaus was founded in 2016 by Shruti Merchant and Kerry Jones. The idea was to offer co-living to young professionals struggling with the high rents of the San Francisco Bay Area. The company leased large detached houses from homeowners on long-term contracts, furnished the shared spaces and sublet the bedrooms one by one. Homeowners were promised a reliable property manager and regular rent; tenants were promised a home where they could make friends, with cleaning and internet included.

Investors believed in the idea. HubHaus raised $1.4 million led by General Catalyst in 2017 and a $10 million Series A in March 2018, taking its total capital to $13.4 million. Headquartered in Los Altos, the company leased houses in Los Angeles as well as the Bay Area, opened in Washington in 2019 and reached a few hundred houses. Tenants cited in news reports were paying roughly $1,100 to $1,600 a month per room.

The company eventually blamed its closure on the pandemic, but homeowners' accounts suggested the problems had started earlier. While tenants were paying their rent on time, the company had been cutting its payments to homeowners for months and had stopped paying the bills at some houses. Tenants kept paying for a cleaning service that was no longer provided. Merchant stepped down as CEO in March 2020, and the company came under the control of Diablo Management Group, which handles the assets of distressed companies.

In the wind-down that began on 23 September 2020, all employees were let go. The company said it could not pay October's rent, suggested that homeowners use tenants' deposits and announced that there was no money left to pay creditors. Hundreds of tenants and homeowners were left in limbo. HubHaus became an example of how fragile co-living models built on rental arbitrage can be at the first serious shock.

## Lessons

- In models that take on long-term lease commitments while running on short-term income, write into the contracts from the outset who bears the loss when income falls.
- In a business that depends on the trust of two sides, such as homeowners and tenants, quietly cutting payments makes a crisis worse; when you are struggling, communicate early and openly.
- In a start-up that grows by leasing physical assets, do not open in new cities without a cash buffer and credit line big enough to see you through a crisis.

## Sources

- [Bay Area co-living startup HubHaus implodes, stranding renters and homeowners](https://www.sfchronicle.com/business/article/Bay-Area-co-living-startup-HubHaus-implodes-15617470.php)
- [Co-living rental platform HubHaus implodes, claims it has 'no funds to pay unsecured claims'](https://missionlocal.org/2020/09/hubhaus-out-of-business/)
- [San Francisco coliving platform HubHaus closes down](https://servicedapartmentnews.com/urban-living-news/san-francisco-coliving-platform-hubhaus-closes-down/)
- [Co-living gets more cash as shared housing developer HubHaus raises $1.4 million](https://techcrunch.com/2017/05/22/co-living-gets-more-cash-as-shared-housing-developer-hubhaus-raises-1-4-million)