To rent an apartment on LoftSmart, a website for college students looking for off-campus housing, users browse listings, take a virtual tour, and read reviews from current or past tenants. If they find a place they like, they can put in an application, sign a lease, and pay their security deposit—all online.
That makes the website highly unusual in the online real estate industry, where most listing services direct apartment hunters to get in touch with a broker if they like a listing. It also offers a clue to the way technology is changing the process of finding an apartment for a wider universe of renters. A college student whose first housing transaction takes place entirely online may not be so quick to accept the stressful, time-consuming open houses of traditional renting during their next search.
“This demographic is a really interesting testing ground for the future of real estate,” Sam Bernstein, the startup’s 23-year-old chief executive officer and co-founder, said. “They’re untarnished by cumbersome legacy institutions.”
Bernstein started building LoftSmart in 2015 as a sophomore at the University of Virginia, intending to create a Yelp-like product to help his classmates avoid landlords known for shirking basic repairs or withholding security deposits. By the following fall, he had dropped out of college to work on the company full-time. He moved to Austin, Texas, and on his first night in town struck up a random conversation with an engineer named Sundeep Kumar, who would go on to become a co-founder.
Soon the pair realized that the real opportunity wasn’t in warning college students away from crummy rental houses but in helping big property managers market their apartments.
Even big campuses are small worlds. In many cases students will be familiar with a given apartment building, either by reputation or because they’ve already been on site to visit a friend or go to a party. In some markets, Bernstein said, 70 percent of students sign leases for housing without attending an open house or scheduling a viewing. A virtual tour suffices.
Over the past two decades, an industry has sprung up to develop off-campus apartment complexes geared to college students, featuring by-the-bed leases and, often, upscale amenities. Even in its early days, this held obvious appeal for investors. College enrollments were rising, but schools weren’t building dorms to keep pace with them, giving the off-campus-dorm developers a captive audience.
Student housing looked even better after the Great Recession, when apartments were leased readily, even as other rental landlords struggled to fill units. The operating theory is that college enrollments tend to rise in a down economy, because it’s even harder to get a job with less education and because people don’t need to give up as much opportunity to pursue a degree.
Developers have added more than 350,000 new beds in off-campus student housing since 2010, according to Axiometrics, a real estate data firm. Investors spent $9.6 billion last year acquiring student housing properties, triple what they spent in 2014. The resulting competition has led landlords to spend more on marketing and created an impetus to lease units online. Across the industry, landlords have spent heavily to stand out, buying local television spots or holding expensive raffles, according to Bernstein. (Sign a lease and be entered for a chance to win a Vespa.)
LoftSmart makes money by charging property managers a fee, typically from 4 percent to 8 percent, on transactions that close via its website. The company currently operates in 27 student housing markets across the U.S. and lists 250,000 apartments that can be leased through its site. Earlier this summer, Bernstein was awarded a Thiel Fellowship, a $100,000 grant for young entrepreneurs who work on their businesses instead of going to college.
Will today’s college students take along the habit of renting sight (and site) unseen when they leave campus?
Bernstein points to Airbnb, which has taught millions of users to choose an apartment based on photographs and user reviews. Of course, those stays can be as short as a day, while apartment leases typically run at least a year. Yet some people are even buying homes without setting foot in them, relying on 3D photography and smartphone-wielding brokers to conduct virtual tours.
Loftsmart just closed a new round of funding led by Tribeca Venture Partners, bringing its total funding to $5 million. Its additional investors include the venture arms of such real estate firms as Corigin Real Estate Group and Sterling Equities. If the company can build loyalty with first-time renters, it might one day seek to expand beyond college markets.
“Folks are feeling more and more comfortable, year-over-year,” Bernstein said. “There’s definitely been an evolution.”