Venture-backed co-living startup HubHaus has shut down, confusing tenants and leaving landlords unpaid

• Co-living startup HubHaus is shutting down leaving its tenants, who rented bedrooms through the company, unsure of the status of their existing leases, according to multiple reports.
• Clients have been complaining about HubHaus for months, with tenants saying they were paying for housecleaning services that stopped being provided and landlords complaining that the comany fell behind on rent and utilities.
• Former medical school student Shruti Merchant founded HubHaus in 2016 with the goal of helping young professionals find both affordable accommodation and a chance to build new living communities. Merchant left the CEO role in March.
• At one point, the company managed nearly 300 homes around San Francisco, Los Angeles, and Washington, D.C.

For months, the co-living, venture-backed startup HubHaus was not making full payments to homeowners while also charging tenants for services that it later failed to deliver, according to reports from multiple outlets.

Now the company — which leased large houses and sublet the bedrooms to young professionals — is officially terminating its business, according to emails obtained by multiple news outlets. HubHaus did not respond to Business Insider's request for comment, nor did it comment to other media outlets.

HubHaus members learned of the decision last month, when they were informed via email that the company was completing a formal "closure and liquidation process" through Diablo Management Group, according to a copy of the email posted by Mission Local reporter Joe Eskenazi.

It's a move that leaves hundreds of tenants and homeowners in limbo over the future of their leasing agreements, which were once set by HubHaus. Some tenants are unsure of whether they can continue renting from their home's owners and there are discussions about potential legal protections against eviction on Reddit and Facebook.

For many clients, the news follows months of difficult dealings from HubHaus. Some landlords who had rented their homes to the third-party platform told the San Francisco Chronicle that the company had cut monthly rental payments earlier this year in the wake of the pandemic, leaving them snubbed of tens of thousands of dollars. And tenants were noticing that amenities like housecleaning services offered by the company were not being completed, even though they were still paying for them.

Founded in 2016 by former medical student Shruti Merchant, HubHaus sought to distinguish itself from competitors by focusing on building community among fellow tenants — with the added perk of setting them up in luxurious, multimillion-dollar houses. The company raised around $11 million since 2016, drawing in big-shot investors like General Catalyst and Social Capital.

Over the past few years, HubHaus managed nearly 300 homes around San Francisco, Los Angeles, and Washington, D.C. The company rented rooms to as many as ten people in a single-family home — a business tactic that violated zoning rules in San Francisco and led to the eviction of seven tenants living in a home in Monterey Heights, Mission Local reported.

The pandemic exacted a sharp toll on co-living companies, as rental costs in major cities plummeted and people became reluctant to live with strangers. Stay Alfred, a Washington-based property management startup, shut down this spring, and Airbnb-backed corporate startup Zeus Living laid off most of its staff in the spring. Around 30% of HubHaus rooms were vacant towards the end of summer, The Information reported last month.

The company, however, was in trouble even before coronavirus shut down the U.S. economy this March, landlords told the San Francisco Chronical's Carolyn Said. It struggled to hit its growth goals in 2019 and failed to raise an additional round of funding that year, the Information's Cory Weinberg reported. In February, the company laid off 16 U.S.-based employees.

"We made a series of bad bets," HubHaus founder Shruti Merchant then told laid-off employees, weeks before exiting the company, the Information reported. Merchant was succeeded as CEO by Jamie Wilson, who stepped down this September as the company was taken over by Diablo.

In a recent letter sent to HubHaus creditors and shareholders, posted in full by Mission Local, Diablo noted that HubHaus had "no funds available to pay the claims of unsecured creditors (e.g. claims by landlords, tenants, trade creditors or contractors)."