162. Casey Godwin on the outlook of the Commercial Real Estate Market for Coworking Space Operators

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162. Casey Godwin on the outlook of the Commercial Real Estate Market for Coworking Space Operators

00:00:01 Welcome to the everything Coworking podcast, where you learn, You need to know about how the world wants to work. And now your host coworking space owner and trend expert. Jamie Russo, Welcome to the everything coworking podcast. This is Jamie Russo. I have a special returning guest today. Casey Godwin is my guest. He is the president of flex space advisors,

00:00:39 and he has been on the show a couple of times. He goes back to episode 118, where we talk about best practices for your coworking space. Search. Casey is a commercial real estate brokers specializing in helping coworking space operators find their first base, find their second space. He has a lot of experience with management agreement, as much as most people in this market have.

00:01:09 And that, um, continues to grow as landlord appetites for creative deals grow in case. He's going to talk about that today. He's also on episode number 130, where he does a deep dive on how to, um, think through the details of the proposal process for a commercial lease. So if you're getting ready to find space, this is a great episode to have a listen to so that you are prepared well prepared for how the process works.

00:01:40 So this episode today is important because Casey is active in the real estate market right now and brings us his insights on what is happening out there in terms of current market trends, the landlord appetite for entrepreneurial deals, current opportunities with landlords with better terms, second generation space, et cetera. He's also sharing some potential pitfalls that he sees in the market today.

00:02:12 So if you are thinking about opening a coworking space or expanding, this is a great episode for you. If you're just curious about kind of what's, you know, what's the pulse on the market. He is on the street and you know, is active in lots of deals around the country. He works nationwide also. So he provides his perspective on what's happening out there.

00:02:36 So I think you're gonna enjoy, um, getting sort of the behind the scenes look. So before we dive into Casey, this episode is brought to you by my masterclass three behind the scenes secrets to opening a coworking space. If you're working on starting a coworking space, I want to share with you three decisions that I have seen successful make when they're designing their coworking space.

00:03:02 And these insights come from my role as an operator for eight years, my role over the last two years in helping dozens of operators start their own spaces. So you're my coworking startup school. And then all the business models I see for my other roles in the industry, this master class is totally free. It's about an hour, which includes Q and a time.

00:03:22 So if you'd like to join me, and this is really for folks who are just opening their first space, I have lots of people register for this, that already have a space. I think it might be helpful if you're sort of second guessing and feel like you didn't get the model, right. Quite, quite right. Sorry, but if you already have a space,

00:03:39 then these are probably not a hundred percent new insights for you. So this is really targeted for those who are starting their first space. You can register at www dot everything, coworking.com forward slash masterclass. Okay. Now I hope you enjoy my conversation today with Casey. I am here with Casey Godwin and we are going to have a realistic chat about the state of the real estate market,

00:04:08 specifically for coworking space operators. Casey's been on the podcast a couple of times, Casey, I should have pulled up your episode numbers. Um, but all episodes with Casey are super educational. People love listening to his perspective. He tends to get very detailed and share as much as he can to help us learn about how to navigate real estate decisions when it comes to selecting a coworking space.

00:04:33 So I always love having you on Casey. Thanks for joining me. Thank you for having me. This is one of my favorite things to do. Uh, I'm always on the phone trying to talk to landlords, talking to talk to clients about decisions. It's a kind of a breath of fresh air to kind of talk to our friends in the coworking industry.

00:04:50 I kind of share my thoughts and, um, yeah. Any way to kind of further the cause and help, uh, the industry as a whole. I love doing it. So, uh, thanks for having me Is he, I had a, not on the list question. How did you get into real estate from the beginning? What did you major in an undergrad?

00:05:08 Uh, finance, uh, okay. That's why your, your magical with the spreadsheets May, maybe so, uh, so I was either thinking of doing, you know, stock trading or I maybe can go into real estate. Now. Most colleges don't have great, uh, I mean a couple have really great real estate programs. The one I went to had a great business school,

00:05:29 uh, but just nothing too specific for real estate. And, uh, I had one of my friends, it was just one of those overachievers graduated in three years. And, uh, he graduated ahead of me and said, Hey, why don't you, um, you know, come and look into commercial real estate. And so, uh, I met with his,

00:05:47 um, his boss and kind of did a couple of interviews and his insight. I really liked it. And so I said, yeah, I'd give that a try. And it seems much more, uh, funding trying to hound by family, friends for money for stocks. Totally. Yeah. So I kinda got into it, um, is 2007,

00:06:07 2008. So it was, uh, 2007 was a great year. Uh, I was running with a lot of large companies and I was like, this is a great decision. And 2008, I was thinking, what did I do? And so is Ashley. We got married in 2008 at the same time. So a month into, I saw cha transitioned to another company that was kind of had a large transactional background.

00:06:34 And so they had group those growing like crazy during a recession. So I was like, all right, I'm new at this. This is going to be great for me to learn, makes the money in the meantime support family. So it was a great transition for me at that time. And then I have a theory. So Casey ended up working on a coworking deal at some point,

00:06:53 and then now he specializes in coworking and he's one of the few, you know, commercial real estate folks that I know that specializes in coworking. I have a theory about why you were drawn to coworking, which is, I think you are such a good person that you realized how much trouble coworking operators can get into working with a broker who didn't understand the model that they,

00:07:19 you, you're one of those unique people that was like, I'm not going to mess with these people. I'm going to get my spreadsheets out and help them. And I'm going to devote my life to this. Right. And so I think you're onto something there. So I, you know, when I, my first clients were mostly publicly traded, you know,

00:07:38 I had four or 500 locations. They had teams of staff, they were doing the financial spreadsheets and, uh, the performance and, uh, all the projections of what they need, they had the access to capital. And so I didn't necessarily have to step into those roles, but then as a women to coworking, you know, access to capital may or may not be there,

00:07:58 uh, the, uh, business activation for how to run the performer may or may not be there. And so helping them kind of educate them along those, uh, those ways and that, you know, for me, I kind of got in and learned a little bit more myself as well, you know, because I was more focused on the real estate side.

00:08:16 I didn't have to know my client's business as much because most of the time it wasn't focused too much on the real estate, real estate. Anything else? Entirely different, like Chuck E cheese, right? Yeah. Chucky cheese, JP Morgan chase, you know, it's more about, this is a place where they're going to work and they're making their money in other ways.

00:08:38 So then I was thinking, okay, my clients are actually making money on this space. So I should know their business model in order to help them make more money. Uh, and tell them with the decision making process of, is this a space that's going to make money for me? Or should I go to another one? It's not just about negotiating terms and negotiating rent down.

00:08:57 There's a real purpose behind it. Because at the end of the day, we can negotiate 20% for rent. And that would normally feel like a huge win, but at the end, but if you still can't be profitable, then I haven't had my finance. Yeah. I'd be doing a time service. So yeah, I do very much care. Um,

00:09:16 you know, when my first clients a matter of in, uh, in California who, you know, well, uh, you know, I love the fact that he was transitioning from careers and he was wanting to put his heart and soul into this new industry. And so I was like, look, he's taken a huge leap of faith. I can't let him down.

00:09:35 I feel a lot of personal responsibility on this. So, you know, when we get into negotiating personal liabilities, it's all like that might, I'm going to do everything I can to protect your family's assets, because it's not like you're a, you know, a one to $2 billion corporation that this is all your family's money. So It's just a regular guy with a lovely wife and a couple of kids now,

00:09:58 three Just great people. And I'm like, I cannot, uh, let, let them fail. Uh, so, um, we, we got a bit great space and he's done a really, really successful things. And so I'm really proud of those, but they, more than anything, I enjoy the friendship part aspect of it. My clients are not just clients,

00:10:17 they're their friends. I want to be, uh, work with people that I enjoy the him with and I can grow with and, you know, see their families grow and see their businesses grow. Uh, so that's really what my joys in this line of business is. Cause a lot of times they're transitioning from something else into this, so I'm helping educate them on the business Totally.

00:10:37 On their entrepreneurial journey. Yeah. Yeah. I'm, you're, I'm your, I'm your partner with this? So yeah, Yeah, yeah. I feel that way a lot about my, um, startup school students in Casey, um, supports that program as well. He did a Q and a for us the other day is right. We get to be a part of that transition.

00:10:56 It's really, you know, when you get to know them on a human level and that's one of my favorite parts about it too. Yeah. Right. Yep. Uh, yeah, so much on the corporate level, you don't get to know people very well on a personal basis. It's a very, um, very, uh, I guess stiff conversations.

00:11:15 We didn't do a lot of video conferencing, so it's all, you know, uh, phones and, and, you know, a lot of times clients were at different parts of the country. So it's just very difficult to kind of get a read on people. Uh, but yeah, I had a lot of the personal aspects of this. Um,

00:11:29 and I think so many of your students have great ambitions and they're good people. And I think that a lot of them won't, it will do really, really well. Uh, once they get their kind of ideas kind of fully thought through and the concepts firmed up and then, you know, find that space for them. So it's, it's really fun.

00:11:48 It's almost like working in an incubator if you will, and you may have an idea, a concept and you see it kind of come to yeah. Shape it and launch it. Right. Yeah. And speaking of clients all around the country, you've been, I know Jody said you did a, some FaceTime tours with her. And she was like,

00:12:05 I didn't know how it goes. She's like it wisdom amazing. She's like he could still see things that I can see. And she was like, I'm so thankful. I think people, when they haven't gone through the process, don't realize what they don't know. Right. Like obviously she appreciated you, but even after those tours, she was like,

00:12:22 just so many things that I would never have thought of. Thank goodness I have Casey, but also just the fact that the FaceTime worked, you know? Yeah. And, uh, you know, I was crossing my fingers that it would work. Like I thought we were going to have good reception in these buildings. Um Oh, right. You never know.

00:12:40 Yeah. That's right. Complete, completely evolution of my industry. It's never been like that. I've always had to be in person on, on tours. Uh, there's this, uh, kind of, uh, concept that if your broker's not there, then they're not really representing you that well, or they don't care. Uh, and so this was really the first time I was like,

00:12:59 well, I do care, but I can't physically be there. Um, and so let's try this out and see how it works. Uh, and in, so it worked well, uh, and we had good reception at all the spaces and for my business, I loved it because I'm typically, you know, have two to three days of downtime between travel,

00:13:19 uh, airports and all this dead time that I can't be doing anything else or it can't be, do it very well or efficiently. Uh, and then for me, I can say, okay, I can be with my client on the tour. I can actually serve them better because I can core back everything from my computer. Uh, you know,

00:13:38 HQ command over here on the next brokers that have it everything's. So I'm a little bit easier because I'm disconnected. Um, that I was like, wow, this is really efficient. I could be with my client for half a day for the tour and then be back at, at business as usual with my other clients. I don't have that disconnect.

00:13:56 And so that's one of the areas where I, I do wish that, that there's a continuation of this in the future. You know, I want to be on as many tours as I can. Um, but there is still a limitation of how many can you do at one time? And, um, sometimes it's just one building, it just came up,

00:14:15 come up. So it doesn't make sense to just, yeah, I'm on a plane to see one. Yeah, Totally. And so it really worked out. Uh, and so since that, um, toward the initial tour, I've done like 10 other virtual tours and all of them I've worked seamlessly. So I'm really happy with that. Um, I'm hoping that that's going to be a mainstay going forward,

00:14:36 uh, because uh, clients really had didn't have any issue with it. It was really efficient for me, w we get the same effect and in my opinion of, of what a normal tour would be, um, you can't replace per in-person and being face to face, uh, for just client contact. But yeah, as far as missing things during the tour,

00:14:57 it was seamless as long as you're in good reception area. Yeah. Right. Good point. Yeah. There was one tour I will admit there was one tour, uh, that, well, my clients, uh, were in Beverly Hills and the building at horrible reception. And so I could see the, uh, see the people, but then I could hear like every third word and so Oh,

00:15:17 weird. Yeah. Hear me perfectly. So trying to have that communication was very difficult, so I would talk, and then there would be like, blah, blah, blah, blah, blah, blah, blah. And I'm like, I can't do it. I was like, okay, well, I'll talk to the client afterwards and try and get,

00:15:31 understanding what you said. Right. So, but the one, you know, a silver lining to that is now, you know, the building has really bad reception. Yeah. They'd have to manage that, you know? Yeah. I don't, I don't necessarily need to hear all the, uh, answers to things, but as long as they can hear my questions of like,

00:15:50 Hey, what's this, or are those sprinklers turned down or are they up? Or, you know, where's this I'm coming into the building. Those are just things I can help my clients ask those questions. And I think that's the main fear of tour without brokers. I don't know what questions to ask Exactly. Right. You can listen to the questions and take notes,

00:16:09 but no idea. Right. Looks good to me. I totally, I was thinking about when I, you know, to word space, it's like, you just go in so blind and you're just like, sure. Looks great. I have no idea what to look for sprinkling. Oh, so many surprises. Exactly. Yep. So let's talk about the,

00:16:30 the state of the world. Um, some of the realities and some of the opportunities and just to kind of kick it off. Casey and I were talking before we hit record and just kind of each, you know, digging into like what's really happening out there and there's a lot of uncertainty. So I think that's a reality, you know, we certainly don't want to talk around a lot of uncertainty around when our folks,

00:16:53 you know, coming back to the office. And I was telling Casey, I go to LinkedIn all the time and it's like sunshine and rainbows and, you know, coworking and the office is dead, but flexible spaces here to save us, you know? And I think, you know, I'll let Casey talk. Like, I, I believe that 100% the thing we're having trouble predicting is when is that going to happen?

00:17:14 You know, when is everybody going to feel comfortable and, you know, run for the forward for the front door and right. The kids back in school and run for the workspace. So Casey's kind of out there and yeah, I'll let you talk about your perspective and some of the things you're seeing and opportunities, right? Yeah. So, um,

00:17:33 you know, I kind of, uh, the news is it's difficult and I have a difficult relationship with the news. I'm addicted to the news, but then it either leaves me depressed or overly optimistic. Um, so that could be on a political basis or it could be the industry and the news. Um, but you want, you feel this optimism,

00:17:53 but then, you know, if your existing operator, you also had this realism that it's tough, uh, and you know, you may have seen a reduction in your membership. You may have as, you know, large production, your revenue that you're receiving. And so you have that in your mindset, like, okay, we're going to weather the storm,

00:18:11 but we don't know how long the storm is and there's opportunities out there, but how do I capture some of those opportunities were run out and just trying to make ends meet, just to get through this a little pier time that no one knows no one predicted. So it's not in our playbook. Everyone is pivoting as best they can. So it's very,

00:18:32 very challenging times. Um, you know, I think that we're seeing, uh, a market that doesn't know what's going to happen next 30 days let alone 90 or 120 days. Um, so we assume that it's going to get better, but with co uh, you know, numbers keep on increasing and different areas, your projections could be completely off,

00:18:56 uh, in a moment's notice. So the white now I'm kind of advise my clients is, um, look there's opportunities out there. Uh, we have a lot of landlords that are willing and able to, um, pivot their space and use it as a flexible office instead of the traditional space. Um, one things we saw pre COVID was a landlord's would consider,

00:19:19 okay, do I do a deal with a coworking space? Uh, I know the advantages of providing them into the building, uh, but there's always this risk element of, they don't have the financials of this large corporate and state. Um, and so they always had the background of a booming economy. I could potentially get, um, a really large,

00:19:39 uh, you know, that's a Google text, my space then, um, you know, at, um, maybe I'll wait, uh, that's kind of off the table. Uh, we don't have these large corporate entities moving around, especially on a large scale. You may see contractions, uh, and, but you're not seeing them taking large chunks of space,

00:19:56 um, you know, prevalent across the country. So, um, that's off the table, landlords are saying, okay, I need to be creative. And so, you know, maybe there's an opportunity where I have 20,000 square feet. Well, there's nine 20,000 square foot tenants out there, but there's a lot of individuals. There's a lot of small companies that still need space.

00:20:16 Uh, and so there's a really great opportunity for coaching groups, especially on the sublease market or like dark space, which is a space that a corporation will hold onto for future use. They may not be using it today, but it's extinction space. And so that doesn't show up on any market analytics of how much the vacancies out there, but it's coming back because,

00:20:40 uh, you know, when you see oil and gas, you see a couple of other industries that have hold held onto, it goes at a moments, moments, notice they could switch and they could need that space immediately. But right now, I mean, especially when with gas, they don't need it for the poor Siebel feature. So that dark space is coming back to the market.

00:20:57 Yeah. And they are, they need to unload it. Right. Casey, can you mention really quickly before we talk about kind of the supply side, um, you mentioned when we first started chatting a couple of stats from a Gensler study about, can you just mention that? Cause that kind of goes to our plates, to our optimism about the demand side,

00:21:17 right? So there was a Kinzer study about 2300 respondents across a bunch of different industry industries back in may. And they had a very interesting response rate at 12% of the respondents wanting to work from home full time. And then the remaining 88% were split 44 and 44, 44% went to work from home part of the time, you know, let's say two or three days.

00:21:42 And then the remaining 40% did not want to work from home at all. So the thing I took from is the majority of the workforce wants to work from home at some point in the, uh, the workweek, uh, you know, I saw another report that said that productivity is actually increased, but there's a, there's a plateau at 15.1 hours per week of the work from home productivity gains versus the losses you get from the,

00:22:11 um, isolation and depression that you get from working from home. Yes. That whole productivity number. I just don't know if I'm buying it. I get like less commute time, but ma and maybe it's gender skewed a little bit, like for all the whichever parent is in charge of the kids at home. So coming from a person that has a home office,

00:22:37 as well as an office in a coworking space, I can tell you that when I'm at my home office, I typically hijack the office. And, um, my wife who runs a part time business as she's left to kind of work in is odd times because I'm on zoom calls all day. And she's like, okay, when do I get to kind of have my time?

00:22:57 So yes, there's this bartering for, you know, or really the struggles between when do I get to work. And so productivity, I think if you're talking about the most gains is probably after the kids go to sleep. I'm not sure we all look like that. Right. There's which is maybe why you're talking about the tradeoffs with the mental health and sure we can get it done,

00:23:18 but yeah. Not, we're not designing our day for ideal. Yeah, Exactly. So, so I think that we're seeing this and this trend of corporations are trying to reduce their capital liabilities. And so if they can reduce some of their footprint further leased space and notice that, okay, let's say at least 50% of my workforce is going to be this transitional of,

00:23:44 um, work from home part time, let's say two days a week. And then, uh, that's until like group a and group B is an office for those two days, and then they switch. So in those, uh, in those opportunities, you could be more efficient. You could have like a hot desking or hotelling, whatever you want to call it,

00:24:02 uh, for these flexible spaces, as long as they're within their kind of, uh, respective neighborhoods. And so I really like this, uh, analogy though that this report said, you know, the, the work from home is that's your pro productivity time. That's when you're, you're getting your heads down work. And then when you're in the office,

00:24:20 it's no longer it that's when you're doing your heads down work, that's where creative, uh, collaboration, when you need to get with your teams and, you know, think about new ideas that, and that some things you can't relate through a zoom call. And so being in person for those little type, a spontaneous conversations that spark up, so there's gonna be this pivot in design,

00:24:40 where you're not going to have just as much head down work for private space, you're going to see more, um, uh, collision zones. So you can have small seating areas and say, Hey, let's have a conversation. Let's sit down and talk about it for a little bit, um, you know, more, um, meeting room space.

00:24:56 And so I like that idea of, you know, you're coming to the office because you're wanting to collaborate. You want to get things done and in a really meaningful way. Um, and then you go home and do your work there, or your coworking space. Yeah. Yup. And go working spaces may eventually play that role too. I mean,

00:25:15 I think, you know, on your list, just talking about meeting rooms and there may be, you know, just kind of some uncertainty about safety in the short term, but what it feels like is like, work's gonna, they're going to be places you go, depending on what you want to get done. And it will happen that home is not good for either of those things.

00:25:33 Most of the time, sometimes it's useful to me, but Trade off there. There's a, you know, my I'm one of the biggest, um, you know, candidates for this. I, I, my commute was an hour each way. Uh, and my other coworkers thought I was crazy, but no, I want, I didn't want to send my kids to private school.

00:25:52 I wanted to have a great public school and, and have a kind of a different environment for my kids. So I was willing to, to make that, um, compromise, but then I lost one hour each way. So that's two hours per day. Uh, that's one day per week of lost productivity. Uh, so when actually did I move out of a traditional space into a coworking space?

00:26:13 I was like, wow, I'm I get four extra days a month of productivity. Plus I don't have my nagging coworker who keeps on stopping my desk and talk about his weekend, which I don't care about. I just want to get my work done. Uh, so, uh, yes, there are huge productivity gains. And so I think that's why,

00:26:31 uh, that not only are you going to see this hot desk toe hoteling model within the corporate model, but then they're also, uh, allow those teams, uh, or neighborhoods, if you will, to have offshoots, you don't have to come into the physical corporate space. If your team is in one central somewhere, kids say, okay, why don't y'all get a coworking space there and y'all can meet up there and have your meetings.

00:26:57 It's more central. It's what works for you. And then you can eat it with a home command, whatever you want. Um, but I think there's going to be this push outside of the big CBDs, uh, urban areas where that many of the corporations are, and now pushing out and saying, okay, stay in the suburbs, you know,

00:27:16 take away your commute time and find something that's convenient for your team that your team likes, and can't go and go from there. And I think you're going to see a lot of productivity and creativity gains from that aspect. Yeah. So it's coming. We just don't know when exactly, So I could talk about this all day long, but then I'm,

00:27:36 we're, we're seeing trickles of it and come in, we're seeing signs of, you know, ones and twos and, uh, of teams coming in, but it's not this floodgate yet. And so, um, you know, it's, it's very, very difficult. I think we would have seen more had the, uh, have we seen a more flattening of the curve with the COVID cases,

00:27:57 but as it's starting to come back up, I think that increased uncertainty. And so people are saying, okay, maybe it's a too risky and you need to stay, stay home. And so I think, um, a lot of cohort groups are doing great at marketing, what they're doing to promote safety and wellness in their space, uh, by improving their,

00:28:17 you know, HVC ventilation, they're improving their cleanest. Um, and they're improving, um, putting them safety barriers. So there's a lot of, uh, these protocols that are being put in place. Uh, I know I sit in 25 in coworking space and they're doing an amazing job. Um, they put barriers, the community managers walk around with a mask on,

00:28:39 um, there's, um, you know, they put it in these strips on the door handles. And so, uh, there's less, uh, contact. Um, so I think you're going to see a large push towards these. Um, and you know, I mentioned it today. So from going to the space today, I touch one door coming into this space from a garage.

00:28:59 Um, I came to my office, which has sliding doors. That's one more door outside of that. I was able to go to, uh, throughout the space, um, go to the printer without touching anything, uh, except for other printer. And they go to the restroom, the kitchen, and, uh, that so many automated things like the water fountain was automated.

00:29:19 You go into the bathroom, it was automated, everything is automated. You didn't have to touch one thing. Uh, the door had a stop where you put your foot on it and pull, so it didn't have to touch anything. So I think those are kind of the design mainstays that are going to be trending going forward. And it takes a look a little bit of time and money,

00:29:38 but I think the members are going to feel abortion for safe. You know, I feel safe coming to the space back to sell my wife that it's safe as well, because no longer is it just about my health. It's got my wife's self and her family and my family. So you have this big responsibility and burden. So you have to be able to,

00:29:57 um, can't portray to you to your members that this is a safe space and here's all of the safety protocols we went through. So, Yeah. Okay. Tell us what you're seeing in the market. Yup. Okay. So I am seeing virtual tours, like we talked about are more prevalent. Uh, commercial real estate is a very traditional type of,

00:30:18 um, industry. And so you are seeing, um, more, uh, virtual tours being placed online. So there be video walkthroughs, or you can do a, you could schedule a walkthrough with the broker and the broker will have a video for you, um, at the leasing agent, um, or the clients, if you're in different areas from your broker and you can do,

00:30:39 um, you know, FaceTime tours and that's really, really helpful. Um, so that's a mainstay, um, hopefully going forward. Um, I see there, there is a realistic, uh, decrease in memberships, um, you know, especially in the open areas, um, and these and furthermore in the open flex space. Um, so,

00:31:01 uh, those are, uh, we're seeing some, um, you know, really harsh, uh, kind of pushed down and demand. Uh, but then you're seeing designate desks that are fixed desks, if you will. Those are seeing a nice uptick because it increases two things, one, uh, safety and security that you don't have to clean every space plus,

00:31:20 you know, no one else has sat in your seat. So that, that's a nice addition. Uh, the cost, uh, is a nice price point for many who, who may be doing this on their own and the corporations that they work for is not reimbursing them. So it's a very manageable expense. Uh, so we're seeing some, um,

00:31:37 some increases there. Um, and I think that some groups, uh, in particular like Haven, um, coworking in Connecticut, um, they have a large presence, uh, with these after hours meetings or meetups and, and they'd have speakers, uh, and they've done an amazing job on their social, uh, membership aspects of getting people to connect in a meaningful way.

00:32:01 That seems, uh, not just a burden to take part of your day and time of your day to, to kind of connect with other people and make it bond and, and, uh, and feel connected with the community. So they're seeing a huge uptick and those social memberships, uh, and it's funny because it's only virtual. It's usually you think of social media.

00:32:20 Yeah, no, Felicia has done a great job and, um, yeah, total side note, but I think that that's an interesting marketing opportunity for operators like Felicia who are really good at programming and building community to say it doesn't have to be physical, you know, it can, but, so I know I keep bugging Felicia. I'm like, we have to talk about how to,

00:32:42 you know, how to make that more of a revenue stream for you. Cause she does a great job at it. Yeah, no, I mean, I've seen her numbers is really impressive. So, um, well, things like that, I I'd like to encourage other groups to kind of consider or look into cause, uh, you have to make it interesting.

00:33:00 You have to think outside the box and make it a meaningful content that would really make it attractive for, uh, so, so someone could say, okay, I'm going to be part of this instead of being with the kids in the other room for a little bit. So it, um, it's definitely a trail, but great opportunity there. Um,

00:33:18 and then I think I'd mentioned before the landlords are, are getting really creative and there's a couple of things that are pushing that one we talked about was the corporations are not moving as much. And so there's this lack of demand for traditional office space. Uh, number two is bank rates are historic lows. And so if, if, uh, many of the landlords are refinancing and so if you can take spend,

00:33:44 so at least space that reduces their vacancy. And so they get preferential terms, um, based on that. So it's a win, win if you can get in and take space from them, but then they can take your package that you need, uh, your temperate and package, put that into the refinance loan and then package that together. So great opportunities right there.

00:34:06 The timing everything's about timing here. So, um, They can get better rates from the bank. They can do better on their refinancing if they have that space leased, but then they have the cash to help with the build out. Is that yeah. Okay. Yep. Um, so, so great opportunities on that side. And then I think I talked about too,

00:34:27 so there's a lot of space coming back. And so one of the greatest opportunities is finding space that is in great condition. Uh, there's no reason people aren't just leaving these old tired spaces anymore. They may be leaving a really beautiful space, uh, that, uh, they have great furniture, great artwork, great, uh, great, um,

00:34:47 you know, offices in glass. So those are really good opportunities where you don't have to put a lot of capital into this space. You made it at a, to make a couple changes and, um, you know, design changes to make it your own. But, uh, the bones, uh, some of these, uh, ours called the bones,

00:35:02 but the structural elements of the space with the physical barriers with the walls, if you could, uh, you know, take advantage of some of those spaces, you drastically reduce the capitalists required and to open a space that could either Linde, if you have capital today, you could other land you to do a traditional lease and, and be able to take very little risk,

00:35:23 or you could, uh, opens the door for advanced agreements or hybrid leases with the landlords where they're saying, okay, well, I'm not having to build a full space. I'm we want to do some work to it, but almost every traditional lease, you do no corporations the same. So they're going to make want to make their changes anyways. So at that point,

00:35:41 and they're, they're willing to make the money that invest the money and then participate in the equity side. Yeah. I love that. And I mean, the second generation space is as you call it, I learned that term from you becoming so much more attractive to your point. It's not the space from the eighties that you barely want. Anyway, I was buying Casey and Casey made it make a phone call for a space that I'd seen.

00:36:07 That was like, like literally they got up and left it. I mean, the furniture's there. It's like there's books on the shelves. It's like really eerie, but it doesn't have enough offices, but it's stunning and you just can picture, like we can just move right in. It's amazing colors. Exactly. So there's more of that coming. And I think,

00:36:28 do you, do you get a sense that this has people keep using the term accelerated, but for a long time there were landlords, you still didn't, didn't quite, you know, sort of get the demand and are they seeing coworking tenants as being more compelling? And do they understand a little bit more sort of this idea of like, we're going to break up the space?

00:36:49 Yeah. So some landlords I'm talking today don't even care about the, the argument of the kumbaya community aspect of it. They're more, the practical aspect of flexibility is great. That's the trend going? They understand that they wrap their head around. Okay. Yeah. Because corporate tenant and tenants are, they used to want 10 years. And then they kind of went down to seven and five.

00:37:15 And now in today's market, they're saying I want a one to three year lease just because there's so much uncertainty. Well, that uncertainty is normal and a small business because we'd never know what's going to happen in one to three years. So now they get that aspect of, if I provide the flexibility will, will become more attractive. However, the next big barrier is you have this big space is too big for some of these groups.

00:37:42 So what do you do? So I it'd be great if I could chop it up into smaller units. Um, and having, we talked about this with your, um, with your sharp school, you see some landlords that are doing this, okay, I'm gonna, um, I'm gonna chop out this space, uh, that was a 20,000 square foot floor plate and sell off these individual offices.

00:38:02 I'll put in some pink carpet and essentially it's a large spec space with some common areas, but then, you know, without a, a community manager, without that community aspect, you're really lacking what coworking space is at its core. And so you're not seeing the multiples that you would typically predict in a corn space. You know, we talked about a typical range of multiples is whatever the market is for a traditional office space.

00:38:32 Take that times two or three, and where your range is for revenue on a coworking space with a great, uh, you know, community manager with a thriving community who liked to connect with each other. When you take out the community manager, when you take out some of these community aspects, it's just the physical form of the space. You're much closer to that.

00:38:54 One X you're not selling it as multiple. You're really just telling it faster. It's a convenient option and you're not putting the liability of the buildout on the tenants, the tennis like that, but they're just not willing to pay for those other things Multiples for it. Totally. You know what? I had never thought of it that way. And when you framed it that way,

00:39:15 you, you, uh, made it into the newsletter today, I quoted exactly that, you know, sort of multiple argument. So I don't know if you're on the mailing list, I'll send it to you if you're not, but because the podcast this week was about community managers and you basically made this argument, like they create a multiple, you know,

00:39:34 and it is, it also just goes with the whole argument that I think is hard for landlords to understand that the coworking environment, isn't always just about space. You know, there are, there's a segment of people who are coming because they want to be with other entrepreneurs and they, they want, you know, to sort of transform how they think of their business and think of themselves and their network.

00:39:54 And that's worth a lot, you know, versus a spec suite. And so, yeah, I love that. I think about it this way. So, uh, people, a potential member, uh, walking into a space, they're going to see the space they're going to sign on to space. Probably I'd say the majority of reason is because they think it's beautiful and it works for them.

00:40:16 And they could see themselves in this space. The reason why members stay is because they're connective, uh, to the market, uh, or to the member community as well as the community manager. So that's your stickiness, uh, that you have. So if you're, if you don't have that, you just create this commodity. So all your members are gonna leave.

00:40:37 And that set a scenario where there's no connectivity, why would I stay? So I think, you know, you look at spaces that are physically closed, but members are still paying, why are they paying because they want to stay connected that community. So I think even now it's it really screams of this is really important. So we need to focus on that aspect of it and make sure that we're doing well,

00:40:59 because that's the biggest differentiator between traditional space and the flex office community, And also the argument for, and we may have landlords that are listening, you know, be careful if you're going to create just flexible space, it's not going to get the multiple and partnering with either learning how to do it yourself. And, you know, lots of folks do that.

00:41:18 I've lots to folks go through my program that own their building and decide they want to create this experience. But, um, but yeah, it matters So, right. Um, so there are a couple of pitfalls I was gonna kind of jump into as well. Um, so these are kind of lessons learned. Um, you know, I, I can,

00:41:37 I can, yeah, From the nightmares you still have from 2008, Exactly. Nothing keeps you up at night and then getting engaged to someone that knowing whether you're at the job or completely understand those, uh, that anxiety. Um, but in 2008, we learned very quickly that cashflow is King, uh, that, and that, uh, financial crisis,

00:41:59 the banks really tightened up and they weren't lending as much. I don't think we're seeing that today. Uh, but we are seeing, uh, you know, this very interesting turn towards them viewing office as a risk of, okay, well, you're wanting to this loan, but how do you know that members are going to come? Uh, and so there,

00:42:19 you're starting to see a little bit of pushback from banks on their willingness to provide, you know, operating capital loans and things like that, unless it's tied to a fiscal, you know, collateral like at Bethany or something like that. So, um, I think that that's becoming an increasing trend. And so, you know, I don't think it's as big a problem in today's world,

00:42:38 but it could be something coming down the line. If, you know, right now all the banks are very, very consumed with PPP loans and all that other, uh, components so that less people in the office to actually work on these other type of loans. So I think if you can have access to capital either through private equity or, uh,

00:43:00 you know, raise your own, um, you know, cash flow, that's going to be keen to take advantage of these opportunities or partnering with a landlord that has the capital and has the space and wants to invest it so that there arise that opportunity of a, more of a partnership kind of relationship. Um, and then the biggest one I think right now is,

00:43:22 uh, I, I call it this double ditching, uh, kind of a mentality of, okay, we know that there's gonna be a demand. We know there's going to be a big push into green space, and there's a lot of members that are paused their membership, or that may have, uh, just stopped and working from home. They're going to be the first adopters back into the space.

00:43:42 So we want to be prepared for, to take advantage of that. You see a lot of members too, they get sucked into a space and they just don't ever move because it's a convenience factor. I don't want to be disrupted and my business and start touring again. I'm gonna try to just stay here. So part of the membership community pool as gone home.

00:44:02 And so they're now going to be looking at multiple opportunities. What's the best space for me. And so having a newer fresher design that's geared towards, uh, safety and privacy and all these things that are relevant to today, it's world. I think that you could provide a lot of opportunity to fill up fast. So that's the, that's the, the great pitch.

00:44:28 The biggest fear is you get too early and that, that flood of memberships is not coming in, but you're, you might have this looming burden of my free rent. If I get any, we'll be burning off, you know, so soon. And so I might be having to come out of pocket to pay for expenses when my member revenue is not covering that yet.

00:44:51 So I think it's, it's a very difficult, so that's one of the more challenging conversations that my clients is. Okay. We want to get fully prepared. We want to be in the market. We want to take advantage of these opportunities, identify them. And then from there, let's make sure we cover every single Sacre we can in contract. So we can say,

00:45:12 yes, pull the trigger on the space, but then hopefully there's nothing there that says you're not going to be, um, you know, it's not gonna be a bad decision for you. It's, it's gonna, you're not gonna have a lot of liability, uh, in this situation you're simply UN to, um, you know, come in and you have low rent or free rent,

00:45:29 uh, or might have a clause in there, says, you know, if, uh, there's a shelter in place that, uh, automatically, uh, Bates your rent, um, you know, some landlords were being open to that as some landlords are pushing back, but we're trying to incorporate as many of those safeguards as possible to protect the clients,

00:45:45 because we're saying you do is get them all teed up and then, um, you know, have them in a bad situation with a purse open. Yeah, it's tricky because I think people don't expect the lead time and it, it depends a lot on the state of the space. So if you have second gen space and doing paint and carpet, then you know,

00:46:03 it's going to go a lot faster. If you needed to do construction, there's just a huge lead time even doing a lease take takes months, right. Even if, even if it seems fairly simple and so you don't want to wait too long. So I think, you know, Casey was kind of saying when we were chatting, you know, get teed up and then,

00:46:22 you know, kind of drag it out until we feel like it's time to time to yeah. When you're getting 30 days out from, you know, when you're at contracts and you're working through the attorneys, um, at that point we need to have serious conversations of is today feel right. Um, you know, you don't want to necessarily open in December because that's a historically kind of a bad month to open.

00:46:44 You have a lot of people that are moving into spaces. Um, so November is a great month and then January is a great month. Uh, you know, so December you don't want to hit that month. So it's like, okay, can we do this, uh, permitting and construction to where we get in? Let's say October, November,

00:47:02 if not, let's drag our feet and I'll wait until the first of the year. Yeah, it makes sense. I mean, I guess one silver lining is that we now know to ask landlords for some of these clauses around what happens if people are not allowed to come to my space. I did see, we didn't talk about this. And I don't know if this has happened anywhere else,

00:47:22 but Illinois passed a law recognizing force Missouri for, um, yeah. So it's somebody posted in my, yeah. Yes. So forced measure being like covering COVID essentially for, um, not paying rent. Hmm. So that's, that's really interesting. I would love to. So the, the, the trouble I see is, um, historically it hasn't been,

00:47:51 um, incorporated because there's no physical barrier from you getting into the space. There's no disaster, uh, physically to the space. Um, now, I mean, most of the coworking spaces are being seen as essential businesses because of their mayor, the mail carrier aspect. And so if you could still remain open, should you then be receiving rental relief?

00:48:14 So there's this gray area, right. It's super great. I know I didn't, I need to read the whole article and see what it says. It'll be interesting to see if other States follow suit. I mean, that, who, yeah, that opens a huge can of worms. What if you did pay rent and right now you're bankrupt, you know,

00:48:30 I mean just a lot of challenges. Yep. Yeah. I mean, you get these major disasters and then it will be incorporated into these new policies for the insurance groups. Um, it happened the same thing, but after nine 11, you started to see it high rises, uh, the, uh, these insurance policies for, if there's a plane to hit the building that was never an insurance policy before.

00:48:54 Uh, so also you sort of see this Patriot accidents, like, so is, it will be in there. It's not in there today. So you have to think of a creative way to structure it to where even at the insurance groups do not recognize it. The landlord is going to recognize that you're not paying rent if there's a shelter in place.

00:49:13 Um, but again, more of a reason to have this kind of open partnership with a landlord, because if you could structure that on the front end, we won't be, and be in a situation where we're constantly negotiating rent relief. And, you know, you'll already be set where, Hey, we have a partnership. We understand the revenue is decreased,

00:49:32 but we're not paying rent. Um, our distribution splits are being adjusted a little bit, uh, quarterly, but so we're making less money, but we're not having more expenses. Um, so I think that, uh, that argument becomes more and more. Let me just makes more sense to me. So you mentioned on our call the other day that you were seeing more of that activity.

00:49:55 Talk about that a little bit. Yeah. So, so, um,<inaudible>, you know, I was probably working at any given time around 10 management agreements and across the country, some markets are much more open to managing agreements than others. Um, it's, it kind of depends on the, under, uh, the fundamentals of that market. Um,

00:50:17 you know, LA surprisingly, it hasn't been as open to, uh, banjo agreements. San Francisco has not been passed, but you're looking at their, their rates that they're getting for traditional, you know, commercial rents. They don't really have to. Yeah. I was like, Casey, can you get me a management agreement on this $80, a square foot moving,

00:50:38 ready space? Maybe not that. Yeah. And you'll see these spaces that are, um, you know, posting these incredible, uh, rental rates, but then they'll sit on it for a year and wait until they finally, I get someone to, to, to, you know, hold, they're hoping Google will just say, yes, I don't care about the price,

00:50:58 um, which I can assume that Google is not, you know, they're going to negotiate very well. Um, so I don't see why someone would be willing to pay that high rent, but in the higher markets, the mantra agreements are more difficult where I'm seeing the biggest opportunity for the manager agreements is with these, um, it's still principal markets or secondary markets,

00:51:18 uh, primarily, but with these creative landlords, they're more developers or a more local or regional they're thinking, okay, how can I, uh, kind of monetize this space? Um, you always have to worry about the lenders and whether they're going to be open to a management agreement. Um, so that's a big component of these discussions. When I first started talking to a landlord,

00:51:42 when the first questions I ask is who's your lender and whether their thoughts on management agreements. And if they say they're not willing to do a management agreement, then there's other things that we can do, uh, to set up these, uh, you know, alcohol loopholes, but we can work around that, but we need to know ahead of time,

00:51:59 uh, in order to kind of understand what the limitations or restrictions are. Um, so trying to find spaces that are second drawer generation, or if there's, uh, you know, how to deal with the space that has, um, um, tip, tip money, or they're getting incentives from the government to restore these buildings, they might have capital that they're needing to put into this space,

00:52:28 but they need the company to move in, or maybe they're an underserved area. So they need that new company to come in. That's not the part of the ownership of the building in order to kind of get around those, um, those guidelines. So you can come in as a coworking space and say, okay, I like this transitional area. Um,

00:52:47 I like the landlord, uh, they're they get that are a model. Then you can provide this space. That's not a management agreement, but, um, it may be a traditional lease that looks very, very similar to a management agreement. Um, and that's one of the things I was going to say is I've seen post COVID is there's this blurring of the lines between a traditional lease and a management agreement.

00:53:12 There's always this hybrid model, though. It was like, okay, we'll provide some more TEI and we'll provide these other concessions. Um, and we want a piece of the revenue, um, or we want you to add you to pay us back as a alum. That was always kind of, uh, they're pre COVID, but now I'm really surprised at how some of these landlords are saying,

00:53:35 okay, I'll give you incredible, uh, Tia allowance, and I'll give you a line of credit for operating capital or for FFD, some of these things that aren't collateral. Wow. Yeah. And so those may be set up as, as loans, but, you know, as you know, compensation with that, they'll, they'll still receive, uh,

00:53:53 some, some, uh, piece of the business, but then also this liability, you're not seeing the landlords are saying, I want to push all the liability onto the coworking operator. Now they're saying, all right, I'm willing to step back from that. And they're saying, I need to put some money into the space anyways. So they're taking the coworking mentality of let's build it.

00:54:16 I'm not going to put a responsibility on you, but if this does well, you know, we're, we're going to really see the upsides together. So, um, the liability side is, is drastically coming down, uh, in the form of a letter of credits or personal guarantees. Uh, heaven forbid if you have to decide one, um,

00:54:36 you know, it's gotta be a limited. So before we're seeing, uh, these longer, um, personal guarantees, and now we're seeing an accelerated Burnoff over, you know, a couple of years of good performance and, um, so that's really positive. Um, and so, yeah, I think that's, um, I think that's going to be a trend going forward of,

00:54:57 we, we knew manager agreements were really interesting. It allows you the flexibility to, to weather these storms. So the groups that are already in management agreements are doing much better than the groups that are not. Um, but if you're able to do a traditional lease and reduce your liability and allow you to have some flexibility and some of these things, or you might have a variable component of your rent and Tory adjust up and down based on market,

00:55:23 uh, then I think that really sets you apart, uh, to weather the storms. Yep. Super helpful. So I hope I didn't go too much in the weeds. Yeah, no, it's always super, super interesting. And yeah, I can always ask a, a million follow up questions. I was just looking at our list of questions to see if there was anything else I,

00:55:47 um, you know, kind of wanted to dig into. So yeah, I mean, I think you've done a nice job of laying out kind of what the market looks like. And, and I think it, you know, optimistically again, the challenge is the timeline uncertainty, but I like a lot of the other things that you're saying for folks that are,

00:56:06 you know, thinking about getting into the market and taking advantage of that demand, that the, you know, the relationship with the landlord is so key. We've seen that through this challenge, that if you don't have someone who can work with you get really stuck with some liability, that's hard to get out of and it can be detrimental to the business.

00:56:25 And so if you know, upfront, um, to be patient and look for those landlords, because they're not everywhere, right. You're, you're seeing more of it, but not across the board. Right. Yeah. You know, as part of my research, it's not just find the properties. I want to understand who the landlords are and understand they're there,

00:56:45 whether they're conservative or they're a little bit, uh, you know, more entrepreneurs, The preneurial. Yeah. I love that phrase. The entrepreneurial landlord. Yeah. Yeah. Um, so that's a, that's a really important factor of the process now, um, said that maybe we, we saw a little bit before, but in today's world is really important.

00:57:03 So we have a mixture, a mixed bag of, of, uh, you know, sentiment. It's like, we're really optimistic about 20, 21, 2021 is going to be a breakout year. I absolutely had no doubt about that remainder of 2020. It, I, it could be great. It could be a very stagnant because of this uncertainty,

00:57:24 especially if, uh, you know, rates keep on CRA rising for COVID. So, or we don't know if there's going to be a second wave, you know, joining of the forces of the first wave and second wave. I don't know, but that, that creates some uncertainty. And so I'm advising my clients, whether the storm will get positioned 2020 is going to be a breakout year.

00:57:45 So let's get everything kind of bright for that. If we can get in early and get in a way that has very low risk, then let's get in today. If not, let's be positioned for, for Let's be ready. Exactly. Yup. Casey, where can folks learn more about you and, uh, talk to you if they're interested in getting some professional expert help on their real estate search for coworking?

00:58:12 Sure. So, uh, you can find me on LinkedIn, um, uh, flex based advisors.com, uh, or, uh, you can always, uh, try me@kcatflexbasedadvisors.com uh, for my email address. So I love talking to people about these topics. So even if you're in a situation you're like, Hey, I just want an outside opinion.

00:58:33 Always tell people, just, just give me a call. Um, I love helping people brainstorm these really kind of tricky situations. Um, if it helps you get out of it. Great. Uh, but for me, I'm just super nerdy and like that, I like to see a problem and solve it. You know, I'll say this at Aleisha training the other day,

00:58:51 they were talking about how, um, some people aren't great listeners, but they're, um, because they're solvers for me, I'm that person. So it's like, I want to solve it. So not great for at home when my wife's like, just listen to me, give me a glass of wine and just to hear me, I'm like, okay,

00:59:06 what's your problem. I, with this, At least you're aware. Yes. Yes. That's that? Yeah. That's step one. Awesome. And I've put all your contact info in the show notes. So it's easy for people to find you if they're looking for you, Casey, thank you again. And also I'll remind everybody who is still listening that Casey has a couple of other episodes.

00:59:28 If you just do a quick search for Casey and everything, coworking he'll show up. Um, he always shares lots of good detailed info. So thank you for doing the same today. And I look forward. I already look forward to next time. Yeah, me too. All right. Thank you.

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