Flexible Workspace Meets CRE: 5 Things Coworking Operators Should Know

Published on June 20, 2018 - By Jo Meunier (née Disney)

• An interactive webinar, ‘Flexible Workspace Meets CRE’, offered best practice tips for coworking operators seeking new lease agreements
• The discussion focused on how to approach landlords and secure a favourable lease agreement for both parties
• The panel featured Giovanni Palavicini of Fronteras Commercial Real Estate, Ryan Hoopes of Colliers International and Frank Bistrian from work well win

Wednesday 19th June, essensys, a software provider to the coworking and serviced office industry, hosted an interactive webinar on ‘Flexible Workspace Meets CRE’.

With the help of three expert panelists, the webinar focused on the challenges and opportunities that exist for flexible workspace operators, including lease structures and best practices when working with landlords.

The panel featured Giovanni Palavicini of Fronteras Commercial Real Estate – formerly the Real Estate Director with Regus U.S.; Ryan Hoopes of Colliers International Workspace Advisory Board; and Frank Bistrian, the Founder and CEO of work well win, who formerly held positions at WeWork and JP Morgan Chase.

Key Highlights:

1. Landlords now favour symbiotic relationships

The session started with a discussion on lease structure, which according to Ryan Hoopes originally focused on traditional lease models but, as coworking has proliferated, “there is now a movement towards symbiotic relationships between landlords and operators.”

This results in an agreement that is more friendly, more creative, and that focuses on achieving goals that the landlord has for that particular building (or “asset”) as opposed to solely focusing on increasing its long-term value.

“We are still seeing leases between landlords and coworking operators, but there are now a lot more joint venture partnerships and management agreements,” says Hoopes. “Landlords are hiring operators to come in and curate a coworking space, from design right through to day-to-day operation. These are the primary structures that we’re seeing now.”

2. Pros and cons of joint venture agreements

Where do these type of lease agreements leave the independent coworking operator? According to Hoopes, pure management agreements tend to expose operators to risk, as the landlord could take the building back.

“It depends on the landlord, as they are fronting all the capital to build out the space. However a JV structure is a happy medium; both sides are coming up with the capital and both the landlord and operator are putting together an entity in which they share the profits. That said, there is still a risk — in this case the landlord might want to bring in another operator if the space is not being run well.”

Frank Bistrian added: “We’ve done several of these with our spaces. We protect ourselves by having a lease, then working on the economics. The landlord is protected with a minimum base lease to cover costs, then we build on that. Our goal is to find the middle ground.”

Giovanni Palavicini noted that landlords understand that flexible space “is the future of business” and as a result, they want to be able to offer everything from coworking memberships and private offices all the way up to lease space.

“They’re trying to figure it out. JVs allow them to learn from operators. But eventually some of the larger ones, like Blackstone, will have their own internal coworking operations.”

3. A strong track record is essential

It takes certain ‘proof’ for a workspace operator to successfully enter into a lease or management agreement with a landlord, especially one that minimises risk to the operator.

“People who can achieve management agreements are strong operators like Frank and companies like Regus, who have a track record of success,” said Palavicini, who has been involved with 70 such transactions. “That’s what landlords are looking for. They want to find operators with a proven track record, so you should keep that in mind.”

4. Taking the first step

Asked for recommendations on how coworking operators can maximise the opportunity to get in front of a building owner, Bistrian advised: “Be confident. Show that you can do it and don’t get into situations that you can’t manage. Don’t burn bridges – that’s the worst thing you could do.

“Be realistic as to what you can handle and work within your abilities. Show the landlord that you have a vision and you can execute it.”

Palavicini advises operators to find a real estate broker, consultant, or a partner with a good track record and who knows both sides of the industry.

“There are a lot of good brokers in the marketplace,” he said. “This is a very specialised niche where office and retail are combined into one. A lot of times, it comes down to having a very strategic real estate plan where your focus is on signage, convenience, visibility. These are not traditional office deals, they’re a lot more like retail, and it’s a lot more complex than the average broker is used to handling. It’s all about experience.”

Hoopes added, “The name of the game is to not waste time. You can waste a lot of time trying to fit your requirement into the traditional mould. Before we even look at a site, we say up front what we’re looking for to make sure the landlord understands the nature of the deal. Only then do we progress.”

5. Don’t fall in love with a space before the deal is done

In many cases, the physical space is the last piece of the puzzle to fall into place.

“9 deals out of 10, I know if it’s going to work before I even walk into the building,” said Bistrian. “The physical pieces are the last things to come together.”

Palavicini noted that he carries out extensive due diligence on behalf of his clients and the deal is usually three quarters done “before they even get on a plane to see the space.”

Hoopes added, “It seems weird to do all this before you even walk through the doors, but it’s the right thing to do. Operators can walk into a space and fall in love with it, then you’re chasing the deal from behind. You need to address all the roadblocks before you start to imagine yourself operating the space.”