Diane Paraphrasing your question: "is it better to start small...OR...lock in a good rate now"?
Let me offer a third approach: work with a property owner to craft a solution that does both. First the big picture: The real estate world has changed. Commercial real estate vacancies in the US are in excess of 20% and many, many buildings are sitting 100% empty. This situation is likely to get even worse before it gets better. Contrary to what a commercial broker may tell you, there are not an abundance of potential tenants chasing after a limited amount of great spaces. I presume that the market situation in Springfield MO is not unlike most other mid size and large metro areas across the west. Boise ID where I have operated a CoWork facility is also ~250,000.) So, (write this in big letters on a post it on your monitor) if you are in a position to occupy space in a building, with an interesting new business, you are a VERY VALUABLE resource to a building owner. Your potential value to the landlord goes beyond just the potential to pay rent. The very nature of a CoWork operations creates additional value for the buildings and the immediate communities in which they resides. CoWork spaces create buzz and activity. They drive physical traffic... meetings, events, day to day workflow. CoWork facilities spawn new businesses that themselves may seek new/more space in the same building or nearby over time. CoWork facilities generate news and press releases. They capture the interest of local politicians, chambers of commerce and assorted non-profits. ALL of these impacts can be positioned as beneficial to the landlord. Many landlords will be deaf to this. But not all. The right landlord for your facility, is one who will share in your excitement about the concept, and will see that your presence has many other benefits for him/her. So what could this mean? Well, going back to your original question: "start small or committ to more upfront. In general with any startup or early stage company, you want to limit your fixed economic commitments until you have confirmed the needs of the market. So ideally, for your CoWork space, you'd like to start small ECONOMICALLY, AND have the space to grow as the needs of your business grow. (this is no different that the situation faced by your future CoWork members who will be considering you as their home, because of the community that you provide AND because of the economic flexibility that you provide). Here are a couple non-standard ideas/models that worked for us that you could explore with t*he right* motivated landlord. 1) Participating lease - this is a well established model, popular in the restaurant industry, and also being used by large serviced office providers like Regus. Basically, you and the landlord reach an agreement to have a lower Base Rent (could even be $0) and to share in the proceeds of the business (this could be a % of the top line revenue... your membership fees for example, or could be a % of your operating profit). In this model you are asking the landlord to share in the risk. You take on the risk of business operations. The landlord takes on the risk of the building. Why would the landlord consider this? a) They are desperate for any cost recovery in their building b) You've done a great job of presenting the case for your CoWork and all of the other benefits that the landlord may enjoy. 2) Find a building with room to grow and secure terms in your lease that allow you the first right to take more space. Here you are presenting a very optimistic picture to the landlord (who is desperate for anything the least bit optimistic). "I'm starting this exciting new CoWork business. It will be the first in Springfield. The phenomena is spreading worldwide and I believe it will be a great success here as well. I expect to grow, but I want to do in a careful smart way. I'd like to start with this first space xx ft and then add additional space as our membership grows. It would be better to be able to stay with you long term than to have to seek new space to grow." 3) Enlist the support of the local muni government and or Chamber. We had great success launching a Grant program, funded by our local City to actually pay the membership fees for new startups that located in our facility. ANY endorsement or programmatic support that you can enlist from the public sector should be presented to the potential landlord as evidence of how your business will prosper and add value to his/her building. (I'd be happy to share more details on the "Meridian Green Grant Fund" that we launched if you like). 4) IF you sign a lease, try to include an early out option, in the terms. For example, if you were to go with a 3 yr lease, pursue an early termination option at 12 or 18 months. This equips you with the flexibility to adjust the space or move elsewhere depending on the status of your CoWork business. 5) Free rent or Tenant Improvement $s. Most landlords lack the capital today to provide the TI incentives to prospective tenants that they would have 2+ years ago. In lieu of that, purse an extended period of free rent. You could also combine this with the Participating Rent structure. For example: First 6 months $0 rent. Mos 7-18 Base rent of $1/ft. Mos 18-36 Participating rent, landlord gets 10% of gross revenue. Mos 36+ Base rent $1.60 + participating rent of 5%. There are lots of ways that you can package this. Sorry this has turned into a ramble. My bottom line advice would be: * In todays market, in any landlord partnership, you are bringing substantial value. * Do everything you can to limit your economic commitments and maximize the flexibility and scalability of your operation. Happy to elaborate further or brainstorm with you if you like. Best Mark Gilbreath On Thu, Jun 3, 2010 at 10:51 PM, DeeDee <[email protected]> wrote: > Hi, everyone! Just like a lot of other people, I have been watching > this group for a long time and have finally decided to jump in. I > have been researching coworking for about a year now and am now > seriously considering opening a space. > > I live in Springfield, MO (area population about 250,000) and as far > as I have been able to determine there are no other coworking places > open here. My background is taxes and bookkeeping so I've spent a lot > of time in offices! But just in my own family, I have found a real > need for coworking (built-in customers, right?). And just discussing > this with family members who are in networking groups, I think there > is a real need here. > > I have started building a budget and looking at property for lease. I > have found 3 properties of various sizes in an area that I think would > work well. Here is my dilema: Prop 1 - decent size, smallest of the > three but not a lot of room for expansion, all inclusive lease, no > long term lease required. Prop 2 - larger space, triple NNN 3-5 yr > lease. Prop 3 - even larger space, won't use all of it to start, so > have room to grow, all inclusive lease, 3 yr min with some free rent > for longer lease. All three spaces have comparable sq footage rates > and can get in with minimal expense and time delay. > > Question: Is it better to start smaller, keeping expenses to a > minimum, then expand by opening a second location in another area of > town OR lock in good rent rate now on bigger space and expand there > rather than opening a second location? > > I have knocked the pros and cons around on this for a few days now; > but wanted to see what you all thought. > > Thanks in advance for your help! > Diane > > -- > You received this message because you are subscribed to the Google Groups > "Coworking" group. > To post to this group, send email to [email protected]. > To unsubscribe from this group, send email to > [email protected]<coworking%[email protected]> > . > For more options, visit this group at > http://groups.google.com/group/coworking?hl=en. > > -- Mark Gilbreath PO Box 2830 Ketchum, ID 83340 mobile 208-720-8107 skype mfgilbreath twitter markgilbreath -- You received this message because you are subscribed to the Google Groups "Coworking" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/coworking?hl=en.
