How to Choose an Operating Model with Investors

Óscar Raynaud· Head of Living, UrbanPay9 Oct 20265 min

Every living operator eventually sits across the table from an asset owner and has to answer one question: who carries the risk if the building does not fill? The answer decides the operating model, and the operating model decides almost everything else, from your margin to your reporting obligations.

Most operators do not own their buildings. An Everything Coliving review of the sector estimates that 75% of coliving operators globally do not own their properties. So the operating agreement, not the deed, is the real foundation of most living businesses.

The four models at a glance

Model	Who carries occupancy risk	How the operator earns	Capital the operator needs
Lease (master lease)	Operator	Revenue minus fixed rent and costs	Fit-out, deposit, working capital
Management contract	Owner	Fee on revenue plus performance incentive	Team and systems only
Hybrid lease	Shared	Revenue after a lower base rent, with a profit share to the owner	Moderate
Joint venture	Shared, by ownership share	Share of profits plus management fees	Co-investment in the equity

The lease: highest upside, highest risk

In a lease, the operator rents the whole building and sublets to residents. The arrangement usually works in two layers. Lawyers in Luxembourg describe a main lease between owner and operator, then contracts between operator and residents, and in many jurisdictions the first layer is treated as a commercial lease.

The operator keeps everything above the rent, which is attractive in a strong market. The risk is that the rent is due whatever the occupancy. Fixed rent combined with too much debt is the pattern behind several of the sector's best-known failures, as I noted in how to scale a coliving portfolio.

The management contract: capital-light, fee-driven

Under a management contract, the owner keeps the income and the risk and pays the operator a fee, typically a percentage of revenue plus an incentive tied to performance. Lawyers at Osborne Clarke have argued that property management agreements suit coliving because they reward the operator for running the building well.

For a young operator this is the fastest way to scale without capital. The trade-off is a ceiling on returns and a heavy reporting burden. The owner will want to see occupancy, collections and costs as often as monthly, in detail.

The hybrid lease: the middle ground

A hybrid lease combines a lower base rent with a profit share above an agreed threshold. Risk is shared, and both sides benefit when the building performs. The model has spread fastest in flexible offices. Savills expects management agreements and hybrid leases to keep gaining share, above 70% in 2026, as the preferred growth model for European flex office operators. Living is moving the same way.

The joint venture: a seat at the table

In a joint venture, the operator co-invests alongside a capital partner and also manages the assets. Cushman & Wakefield expects joint ventures and stabilised acquisitions to stay the most common routes to market for living investors over the next few years.

The September 2026 joint venture between Colonial and Vita Group is a clear example. Ownership is split 50/50, across more than 2,200 student and flex beds in Madrid, with an estimated stabilised value of around €1 billion. The operator gets real upside, at the price of real capital.

How to choose

Work through these questions before your first term sheet:

How much capital can you commit? If the answer is close to none, a management contract is your starting point.
How predictable is demand in this location? The less predictable it is, the less fixed rent you should accept.
What does the owner want? Insurers and pension funds often prefer fixed income from a lease. Opportunistic funds often prefer to keep the upside under a management contract.
Can you report at institutional standard? Every model except a pure lease requires detailed, frequent reporting.
What happens at exit? A management contract usually survives a sale of the building. A lease may be renegotiated.

Many operators end up running a mix, with leases in markets they know well and management contracts in new cities.

Whatever the model, the owner will ask for data

Across every model, the owner, the lender or the joint venture partner will ask how rent is collected, reconciled and reported per building. UrbanPay keeps that clean. Account-to-account collection reconciles automatically to each unit and each legal entity, identity verification and e-signed contracts sit in the same record, and role-based access lets you decide who sees what. For the capital side, see how to raise capital for a living platform.

FAQ

What is the difference between a master lease and a management contract?

Under a master lease the operator pays fixed rent and keeps the operating profit and the risk. Under a management contract the owner keeps both and pays the operator a fee.

Which operating model is best for a new coliving operator?

Usually a management contract or a hybrid lease, because they need little capital and limit exposure while the operator builds a track record.

Do joint ventures require the operator to invest?

Yes. The operator co-invests in the equity, which is why joint ventures tend to come after an operator has proven its model and raised platform capital.

Talk to Óscar

If you run a coliving, flex living or student housing operation and want to see how collection, verification and contract signing fit together on your volumes, book 20 minutes with me or write directly.

Book 20 minutes with Óscar · [email protected] · Contact UrbanPay