◼ FINANCE Bloomberg Businessweek September 23, 201928
PHOTO: SIMON DAWSON/BLOOMBERG. DATA: BLS, U.S. CENSUS“We’re investing in this because we have
basically come to believe that there is going to be
a housing crisis again,” says Arjan Shütte, founder
of Core Innovation Capital, a venture capital firm
that’s backing PadSplit. “Ten years ago the crisis
was a financial one. This time it’s a crisis of supply.”
Founded by Atticus LeBlanc, PadSplit instructs
landlords on how to convert properties into
PadSplit-branded lodging and then manages them
for a fee, working inside loopholes in local laws.
For example, although Atlanta doesn’t allow room-
ing houses in single-family-home neighborhoods,
PadSplits are designed so that the tenants meet
the city’s complicated definition of a “single fam-
ily”: up to six unrelated people, plus an additional
four, as long as the latter occupy no more than
two rooms.
PadSplit roomers get a furnished bedroom;
use of bathrooms, kitchen, dining, and laundry
rooms; all utilities; wireless; and a cleaning service
for about $140 a week, which is collected electron-
ically. A typical home has five to eight furnished
bedrooms. PadSplits are deliberately located near
bus stops and look like neighboring homes from
the outside. Inside, they have fresh paint, granite
kitchen countertops, and new laundry equipment.
They have no living rooms. Children are allowed,
but the economics don’t work for families of more
than two people, because they’d need to rent more
than one room. And limited bathroom space means
most rooms have a single occupant.
LeBlanc plans to spread the concept to other
markets; he estimates at least 14 million people in
the U.S. are candidates for PadSplit-type housing.
He says he’s targeting as clients “the thousands of
mom and pop investors out there taking rent.” The
pitch is that owners can see their investment returns
jump to 9%, from 6%, because the PadSplit system
carves up interior space more profitably and installs
energy-saving technology such as controlled ther-
mostats and low-flow toilets. And landlords don’t
end up with an entire vacant unit when a tenant
leaves. A six-bedroom house that stays fully rented
can take in $43,000 in annual revenue.
Traditional SRO lodging became synonymous
with slum housing, and by the 1990s more than
1 million SRO units had disappeared. Many cit-
ies either ban them or limit where they can go.
LeBlanc, who describes his business as mission-
driven, says he’s reviving them as an affordable
option for those at the lowest rungs of the work-
force. Some 40% of PadSplit’s roomers were
homeless and working full time before moving in,
LeBlanc says. “I’m talking security guards, any-
one in food service or hospitality,” he says. “Thequestion is whether the people who serve your
community can live there.”
The concept doesn’t sit well with some in
the majority-black, single-family neighborhoods
where the company started. At one community
meeting in June, Atlanta City Councilwoman
Andrea Boone called for a show of hands merely
to let LeBlanc speak. “We do not appreciate the
fact that we woke up one day and found that a
PadSplit was being advertised in our commu-
nity,” she said. PadSplit’s roomers also lack the
legal protections tenants have. They have no long-
term leases and can be evicted instantly.
Housing experts are divided. Chris Ptomey, direc-
tor of the Urban Land Institute in Washington, says
advocates have been hoping “co-living” arrange-
ments could expand to low-wage workers at a larger
scale. “I think there’s a lot of hope that these kinds of
models could work at a lower price point,” he says.
“I think it’s a great, novel model if it can be additive,
if it can add units that are affordable.”But Georgia State University professor Dan
Immergluck says PadSplit is mainly a testament to
the severity of the housing situation. “It’s kind of a
market solution, I guess, for the affordable housing
crisis, to get one room, on a week-to-week basis,
that really could be yanked out from under you at
any time,” he says. “It’s a logical market response to
a desperate need among single, low-income people.
It’s designed for people earning $10 to $12 per hour.”
One risk is that PadSplits could draw rent-
als out of the more family-friendly Section8 pro-
gram, which provides federal subsidies for renters.
LeBlanc says he’s helping landlords take properties
that would otherwise be flipped and making them
available to low-income renters, instead of gentri-
fiers. “We needed to demonstrate to investors thatMORE HOUSINGTHAN JOBS
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