Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
A few weeks ago, it was brought to the public’s attention that flexible workspace provider, Bar Works, was facing ‘banking difficulties’. The situation raised many questions about Bar Works’ operating scheme and its relationship with investors. Particularly REDD-Monitor questioned whether their so called ‘bullet-proof’ model was indeed as legit as the company claimed it to be.
A few days ago, REDD-Monitor published another article questioning the legitimacy of Bar Works’ operating model. This time, reporting specific concern for Bar Works’ supposed CEO, Renwick Haddow.
You can read all about why Renwick Haddow is bad news for Bar Works’ investors here.
What we at Allwork are mostly concerned about is how Bar Works’ situation could potentially harm the entire flexible workspace industry.
First, let’s take a look at how REDD-Monitor sums up Bar Works’ MO:
“Investors hand over US$25,000. This is ostensibly to lease a desk in one of Bar Works’ co-working offices. Investors have no security. The desk in itself is worthless. Bar Works can do whatever they like with the money. The investment is unregulated. It looks a lot like another collective investment scheme.
The financial Conduct Authority defines a collective investment scheme as follows:
A collective investment scheme (CIS), which is sometimes referred to as a ‘pooled investment’, is a fund that several people contribute to.”
The lease-holder (i.e. the investor) then enters into a sub-lease with Bar Works Inc, which promises to pay US$292 per month.”
You can find a copy of Bar Works’ lease and sublease contract agreements here.
Now, the ‘red-flags’.
Unlike most flexible workspace operators that offer ‘service or membership agreements’, Bar Works is offering ‘lease’ and ‘sublease agreements’. Leases typically come with more legal obligations and rights, which is why this is outside of the norm of our industry.
Additionally, Bar Works is asking for $25,000 up front for a ‘desk rental’ for a term of 10 years. This is basically like paying a normal lease 10 years in advance.
Wait, but there’s more.
If you look at their termination clause: “The Landlord (Bar Works) will retain the right to terminate this Lease after the second yearly anniversary from the Effective Date only upon the payment of $31,250 to the Lease Holder (the investor).”
The termination right seems to define a return on investment. Basically, it seems like a financing scheme where the landlord (Bar Works) gets the center up and running, and then buys back the investors’ lease position at a profit to the investor.
Where’s the harm to the industry you’re asking?
Let’s consider the fact that in order to do the type of agreements that Bar Works is offering, one would need the approval of the overall landlord (the owner of the building/property). This is actually one of the main reasons why most serviced workspace providers use ‘service agreements’ as opposed to ‘sublease agreements’.
If Bar Works is doing this without the landlord’s full knowledge and consent, then they are breaking a number of common lease covenants which could potentially cast a doubting light on the credibility and accountability of operators towards their landlords. The concern here is that should any trouble come out of this situation, then landlords might become skeptical of partnering and working on management deals with flexible workspace operators overall. This would make it harder for operators to expand their footprint, therefore hindering the growth of the flexible workspace industry as a whole.
Any time a bad apple gets into the an industry it easily taints the entire industry. Other workspace center operators have done so in the past, and caused a ripple effect that limited landlords wanting to deal with our industry in the aftermath.
Because the coworking industry is still fairly young, and most coworking operators are small and have limited cash and credit, a small ripple like this can cause a big problem and hinder the growth of the industry.
There’s no denying coworking is ‘hot’ right now. WeWork’s valuation makes the industry even more appealing than it used to be. In other words, there’s significant interest in the industry, which was made it easy for Bar Works to continuously raise money and to continue with their current MO.
However, it seems like Bar Works is going through somewhat of a rough patch. As REDD-Monitor wrote: the workspace provider is ‘already making excuses’ for not being able to pay back the agreed $292 per month.
Only time will tell how this all works out, but it bears watching and seeing how it might impact your own plans for expansion, and those of the industry overall.
