187. A 2021 Coworking Market Preview with Giovanni Palavicini, Principal in the Flexible Office practice at Avison Young

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187. A 2021 Coworking Market Preview with Giovanni Palavicini, Principal in the Flexible Office practice at Avison Young

Welcome to the everything co-working podcast, where you learn what 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 your host. Jamie Russo. Thank you for joining me today. I am pleased to bring you my guests today, Giovanni Pella vaccinia and we will spell his name for you in the show notes.

So you can reach out to him. If you have questions. I reached out to Giovanni because I wanted to do kind of a preview into 2021. And Giovanni is one of the handful of folks out there that really kind of have a good macro view of what's happening in the marketplace. Due to his role, Giovanni works in the flexible office practice for Avison young and has deep experience in the real estate industry,

which he talks about, including some very specific experience in the shared office, flexible workspace industry. So I always enjoy hearing his perspective because he's so tapped into what's happening out there between upgraders landlords enterprise users. So I asked him to come share his outlook for 2021 with you. So I will introduce him momentarily real quick. Before we dive in, I want to say thank you to Kim Lee for leaving a review on the podcast.

Huge. Thank you. Kim has been a guest on the podcast and has a fantastic podcast of her own called building Birmingham together. I think I've got that right. So Kim, thank you for leaving that review. They're so important to helping people find our resources and a couple of quick opportunities to share with you today. If you're working on opening a coworking space,

I want to invite you to join me for my free masterclass three behind the scenes secrets to opening a coworking space. If you're working on starting a space, I want to share three decisions that I've seen successful operators make when they're creating their coworking business. Giovanni, and I talk about that in our discussion today, about how this model, this business looks so simple,

and yet there are so many mistakes that can be made and I want you to be set up for success and at least be aware of those decisions. The masterclass totally free. It's about an hour. If you'd like to join me, you can register@everythingcoworking.com forward slash masterclass. If you already have a coworking space and you are managing a community manager and thinking about how to be a better leader,

how to optimize that role, I've created a private podcast. It sounds fancy. It just means it's not public on iTunes or Spotify. It's private. You have to subscribe to it, but it'll show up in your podcast player. So I am passionate about the community manager role and decided to start a podcast talking about that role, how to hire, how to optimize so you can subscribe and get those new episodes@everythingcoworking.com

forward slash cm podcast. And before we dive in, I want to mention that all of the contact info for her Giovanni and the links I just mentioned are in the show notes, which you can find if you go to everything, coworking.com, click on podcast and find the episode. So without further ado, here's my conversation with Giovanni, okay. I am here today with another special guest Giovanni Pella Vicini he is a principal for the flexible office solutions practice at Avison young.

And he has a deep, real estate background, which we'll dive into in a minute. Geo is in, are you in, where are you in Texas? I'm in Dallas. You're in Dallas. Okay. I thought Dallas. And then for some reason I was getting confused and he isn't a coworking space. He doesn't have the branding sign behind him,

but, but we're recording on video. If you are watching any of our clips, you'll admire his trendy wooden wall behind him. We were just talking about how important it is to get out of the house at work, both for mental health reasons. Giovanni, I can't tell you like I'm at home most of the time and this morning, because I'm doing podcasts today.

Like you said, my internet at home. So we're in a smaller town. We're in Tahoe waiting for some snow and the internet at home can handle one zoom, not three zooms. So the podcaster plus the two dogs and you know, the asking the kid and the husband to be quiet. So here I am. But also I was like, I'm putting on an outfit.

I'm going into the coworking space. I'm having a day instead of being at home, you know, so that you're at a coworking space, probably feeling a little bit the same way, although you've been out and about, I mean, I think that's the other thing, right? Some of us like to do business need to be out and about it's time.

Anyway, I'll stop talking. Thank you for joining. I'm excited for our conversation today. I invited Giovanni because he has just one of those kind of unique perspectives and access to what's happening in the flexible office space. If you're not following Giovanni on LinkedIn, he is generally my industry news source. So make sure you find him there. So Giovanni, thank you for joining me today.

No, my pleasure. Thank you so much for having me. It's always great. Getting together with you and talking shop. Totally. We were just talking shop and I was like, wait, wait, let me hit record because I don't want you to have to say everything twice. So I said, did you have on your list of questions you started like diving in.

So let's, well, let's talk a little bit more about you. So tell us a little set the context a little bit. You have a long history in the industry. Yeah. Tell us about your work history. You've got, Tell us, you know, little, some, some personal nuggets so we can get to know you. Yeah, no for sure.

I appreciate it. So for me, it's really interesting because I have a pretty diverse real estate background. Like you said, when people ask me what I do, essentially, I'm a real estate strategist and that's really based on the retail side. So the first 10 years of my career, I represented Brinker garden, Buffalo, wild wings, a lot of retail type foundation,

which is a big part of what our industry is from a flex standpoint, the things that matter within retail, which are things like parking, visibility, access, the deal structure, signage. I mean, those things are all huge part. Yeah. They're all part of what makes one of our coworking spaces successful. So that retail background that I have is great.

Also, like I said, the deal structure, I mean, part of what makes some of these operators successful is the fact that we need ramp up time, right? It takes us time to get going. So those things are really important. As I talk to landlords, that's part of the discussion is I'm able to roll all that experience into one conversation of,

you know, I know enough from the retail side and the deal structure side, then I decided to go in house somewhere and started talking to my retail clients and got a call from a recruiter that said Regis executive suites was hiring. So I ended up in house at Regis for four and a half years, did 55 deals for them across the country was part of some acquisitions was part of the front end of spaces and seeing that whole evolution with the,

we work of the world and how everyone responded to their coming to the market. And so that was super beneficial. And then eventually I stepped out and what I do today is I tell people, I, I put piece of the puzzle together. I help operators and landlords figure out who fits where and what does it look like because there's brands popping up all over the place,

you know? Well, you've had your own part of your involvement with not only the operator community, but also the enterprise users and even the vendors as they're growing. And so it's so interesting because I tell people all the time is we're quickly coming, like becoming like the hotel industry. So, you know, if you're going somewhere on business, you pick one brand to stay at.

If you're going with your family and you're looking for entertainment and a cool pool spot, and you're going to somewhere else and it, you know, and then you've got the luxury side of it. So where are you? Where are you falling is as business professional. And so the same thing's happening with our industry is we're seeing different brands with different layouts,

different hospitality types, different offerings. And so that's the interesting part is having these conversations with people like you and others, that, that are seeing some of these things. Yeah. And the right, the putting the puzzle piece together. So I love chatting with you cause you see kind of, especially through Avison young kind of that broad scope of enterprise operator and landlord,

you know, what everybody's thinking and what the perspectives are. So let's dive in, waiting in Dallas is your home. You have a dog, I have a dog, I do have a dog. And I called Dallas. My, you and I were just talking about that. So even through COVID I was on the last half of the year, I was on 30 flights and last year,

over 70 nights and hotel, even through, through a pandemic. So that's part of it is back to what you were talking about. We just have to get out. And for me, this industry and just business as a whole is about relationships and getting to sit in front of people and understand what are you trying to achieve? Why are you trying to achieve it?

Those are all the questions that I build that real estate foundation around, regardless of what I'm dealing with. And so I'd love the fact that I get to travel the country and see different friends and interact with people in different cultures, in different environments. I mean, I was just sharing with you that through my travels at the end of last year, it's just so interesting how everyone looks at this pandemic differently and how they interact with it and what it looks like.

And when they see us coming out of this thing and so much so I'm, I'm excited to, to be pulling through this first quarter and into the second and third, which is where I think we're going to start seeing a major uptick from the enterprise side, from the operator side and just, just an overall comfort level. Hopefully we can hang in there until then.

So since you are out and about, and seeing kind of what you've had, like an anthropology anthropological study this year of different cultures in the United States and how they're handling, I know I'm in California, which is, you know, probably a different experience than, than Texas. So in terms of recovery, who's starting to recover. And who do you think we'll see the recovery sooner than others?

Yeah. I mean, let's look at it from a macro level. I mean, from a macro level, I would say it's the lifestyle markets, markets, where people are continuing to flock. I mean, I'm going to use Texas in general because you know, Austin, Dallas, Houston, I mean, it's crazy how many people are flocking. I think half of San Francisco moved to Austin.

Yeah, yeah. Yeah. And, and we're seeing the same thing from the Northeast. And so, I mean, and it's not just at one point, it was, all of Austin was exciting and hot. Then it became Dallas with the, what they call the $5 billion corridor or one, one 21 in the toll way that ended up with Toyota and JP Morgan and Boeing and all kinds of stuff.

And we're continue to see more flock. But even the latest Houston has HP just announced that they're moving there. And so that's a huge loss for California, but at the same time, California is still going to keep a portion of their portfolio. There. HP is, I mean, Tesla is another big one. That's announced here. Apple's open a big campus in Austin,

Facebook and, and others. And then you go up to Denver. I mean, Denver is a market that continues growing. I mean, Boulder is super hot. Then you've got the entire panhandle of Florida. Everything's continuing to go. Well there, you know, the coworking groups are just crushing it up there. Atlanta is doing well. Nashville's another lifestyle market,

Phoenix, salt Lake city. I mean, so, so that's a big part of it is where people are going. They've realized that life is short, right? So let's go somewhere where I enjoy living, where I can truly live life with the exception of Texas right here in Texas. You can't get to the mountains and you can't get to the beach,

but your cost of living is cheap enough. You're in the middle of the country. You can afford to get on a plane. Yeah. That's a big part of it is people are going places where they enjoy living, right? Because we have more of this flexibility and things that allow for us to have those dynamics. And so that's kind of from a macro level,

from a micro level it's as you go into some of these markets, I mean the suburbs are doing two to three times better than the urban core. And when I say that, I mean, from the operator standpoint, I mean, you've got a market like Nashville and operators in the urban core, which is super awesome, right? We've seen the Gulch and all this cool stuff popped up downtown Nashville,

but those operators are running 20 to 30, maybe 40%, as opposed to you go down to Franklin and other parts and they're, they're running 60, 70%, you know, great example. Another one is the outskirts of New York, right? Won't necessarily call Connecticut New Jersey, the suburbs of New Jersey, New York. But it really is, you know, I was doing some work for an operator.

And so I called on the region in Newark. And at one point there was one window office in all of new work for Regis as portfolio. Why was that? Because everyone that lived out in New Jersey and Connecticut, weren't making the commute into New York. And quite frankly, I don't think they are yet either. And so a lot of those people that are looking for somewhere to land there and be able to pop into the city whenever they can,

but that's the case in cities throughout the country. And so I think we're going to continue to see the suburban markets flourished through this. I tell people, you know, having traveled internationally and being Mexican, Italian, everything, it's the first time that I feel like this world has seen, or this world, this country has seen a work-life balance because people are not having to make the 30,

45 minutes hour, two hour commute into the office in the morning and the evening. So they're getting time to do things that they wouldn't otherwise get to do, whether it be, you know, their morning workouts or reading in the morning or Bible studies or having breakfast with their family and kids, all kinds of stuff. I mean, you're a, CrossFitter you get it?

I mean, for me, if I don't get my workout in at 6:00 AM, I'm dragging to get it done in the evening because it's been a long day, I've eaten, I'm tired. And so that's what we're seeing is this work-life balance. I don't think people are going to be eager to give that up as quickly as, as some people think that people are just going to go back now.

And to me, it's the pandemic and the health side is very important, right? The safety capacity, but it's also the, the life that people have gotten used to living. I mean, so I walk in your kids every day to school and then all of a sudden tell them, Hey, dad's not going to walk you to school anymore. Or,

you know, mommy's not going to be here when you get home or whatever. And so family is such a big proponent of that, but also it's just overall enjoyment and quality of life. Yeah. It's super interesting. We rent a house in Tahoe and we almost never spend time here. And this year, my daughter's still remote learning still. So,

but the upside Is we're here. The downside is the internet can't handle it, the three of us. But yesterday at lunch we went cross country skiing, right? Like a, I'd almost never take a break at lunch. And so even for me as an entrepreneur, like, I'm always like, it is never done. Right. Never done. And I feel like this year,

it took some time, but I'm starting to get to that point where right. I sort of maybe, I don't know if entitled the right word, but like more comfortable with more balance, which I love, you know, I love, I love spending more time with my daughter and the fact that like we got out and got some fresh air and some exercise,

you know, at noon. And it's like, we would never have done that. And I am already lamenting. I'm like, Oh, next, year's going to be back to normal and she's going to school and I'll be stuck in rush hour trying to, you know, get to the, get, get away for the weekend. So there are some things to enjoy about the way we're thinking about things.

For sure. Yeah. And I think that's part of what's going to shift is the ability of not, everyone's going to go back to that. There's a lot of people that have the choices. I mean, you have that choice, right. And there's some people that don't, but a lot of people do. And part of the discussion we were just having is it was so interesting that pre pandemic,

we shifted from a C level executive and a real estate executive making decisions on real estate to all of a sudden you had an HR director trying to make decisions because retaining talent is one of the most expensive costs. If not the most expensive costs, secondary to probably real estate or equivalent. And so those two have to come hand in hand. And so now you've got a CIO or some type of computer information type of level executive involved,

right? Because now we, you and I both said it we're sitting in a co-working space, Matt just cause we like it. And we got to dress up and everything else, but because we needed to from an overall technology standpoint and make sure that we had the bandwidth that we needed and there wasn't gamers in the house, or there wasn't someone else on a zoom call or anything else.

And so I think that's part of it is people are going to make these choices and enterprises and overall corporations are going to give people the ability to do that. If you're trying to retain talent or Maine or even find it, the easiest way to do that is to give them flexibility, right? If you want to live in Tahoe. And so you can cross country ski during the day or hike on the weekends or any time during the spring or summer,

I mean, you're going to have the ability to do that. And companies are going to have to realize that in order to get the good people. I mean, that's why Boulder and Phoenix and national, some of these markets are so hot because it's so easy to do those things. I mean, that's why we call them the lifestyle market is, you know,

you, you get to enjoy life and that's, what's been great traditionally about California, right? Is you can be in the mountains or the, or the ocean pretty pretty quickly. And so, I mean, people are finding other that are like that. And sometimes they're a little more inviting for them from a corporate standpoint. And so I think that's what we're seeing.

Corporations still maintain a presence in California, but find somewhere else to drop a regional office or even a headquarters and then California be regional. And so I think enterprise users are going to continue figuring that side out. So I'm curious about your kind of your ear to the ground on the enterprise. We were starting to talk about that because a lot of the discussion we've heard is,

you know, enterprise users see like trying to figure this out, but they're really risk averse about the liability of having people in third spaces. Do you, are you seeing that shift? It feels positive that there's a CIO or a CTO or whatever involved as if that's like, okay, we need to make this happen. Let's get the people involved. Tell me about your outlook on their shift to allowing people to use third spaces or using them as yeah,

No. Yeah, yeah. Absolutely. Enterprise users are going to have to make that shift. Right. And it's so interesting because I mean, again, using the international globe, I mean, we're, we're last to get here, right? If you go to Europe or Asia to a certain extent or even Canada, I mean, they they've caught up to that side of it.

And so I think there's going to be a lot of shift and transition into that side of things. And so they're becoming more and more comfortable. The problem we're at is most of these enterprise users have signed long-term lease, right? They've got a corporate campus that they either own or they lease and they're going and what do we do with our remaining real estate during this time?

What do we do? How do we get out of it? Do we sublease it? Do we sell the campus and do a lease back on a portion of it? So we're seeing a lot of these big real estate decisions. Again, real estate is one of the most expensive costs. So it's, it's multiple things. One they've got commitments in place.

And so they've got to figure out what to do with that too. They've got to get a strategy in place as to what this looks like. And part of what I was sharing with you is I think traditionally people look at a hub and spoke model is there's a hub, that's a larger location, call it a corporate headquarters. Then there's smaller spokes.

In my opinion, I think it's going to be a smaller hub and larger spoke, right? And so the hub is really a way to, to maintain culture and have team building and just overall a place for C level executives to go. But, but again, the suburbs is really where most of your workforce lives. And so I think those spokes are going to be larger.

I mean, the example I always use as law firms, typically, most law firms have a really robust urban core location and their partners and associates are coming in from the suburbs. Well, I think a lot of these partners have realized, you know, what, I don't want to make that commute and I don't need to, right. I can build a team around me in the suburb where I live.

And so like here in Dallas, I mean, you can probably drop four or five spokes around the urban core, which is where the partners are gonna live. And it's the same way with the enterprise users is, I mean, that's a big side of why a lot of these corporate enterprises are moving to places like Texas, right. Is the executive can sell his multimillion dollar home,

buy the same home here for 30% and there's no state income tax. Right. And so that, that was already happening pre pandemic. And I think even more so going into this or back to the point you just made about Tahoe is there's executives are going, you know what? I enjoyed doing that stuff. I know my team enjoys those. Those are the people type of people that we are targeting Boulder,

for example, and why they're seeing the huge growth they're seeing is because a lot of the companies that are going there is because they have teams that enjoy that environment. Yeah. Mark Gilbreath had mentioned some point. He said he lives in sun Valley and he said, they're like sold out no houses, no spots in the schools. No co-working spaces. That's a small place that probably fills up quickly.

But yeah, it's interesting. So in terms of the enterprise user, like really acting on using flex office as a strategy, any crystal ball on timing on that? Yeah. No. So we were seeing it pre pandemic and we're just seeing it further evolve. I mean, there is a large oil and gas in Houston. Yeah. There was, there was a huge oil and gas firm in Houston.

It was looking to renew, you know, a hundred thousand square feet. And ultimately it got to the point where like, well, why don't we just take 60? And then we have overflow into the coworking space within the building. And so we're going to see in our scene a lot more of that is landlords realizing that they need to have flexibility for these enterprise users.

So there is spillover, right? Is they're not going to take down a hundred percent, 10 year leases. They may take down 60%, 70% long-term and then have overflow into a white label, coworking brand or a partner. You know what it depends on whether it's the landlord and the operator playing hand in hand and management type deal, or in some cases it's just overall,

some of these enterprises are starting to build relationships with coworking groups in which they're going, Hey, we'll take 50,000 feet, but we need you to at least 20,000 to X, Y, and Z, because they have that working relationship. That's one side of it. The other side of it is we're starting to see a lot of these landlords realize that the overall print center facility using legal firms again,

I mean, you go back and I still remember back in the day, law firms were basically putting in huge boardrooms with all these breakout huddle rooms everywhere. And they were paying for space. They use 40% of the time. And so now they're getting smart and going into buildings that have conference facilities, whether it be the, the buildings or whether it be within a co-working facility in which they can tie the two together and pay as they go,

rather than having a huge liability and having to build out the space. Curious about a couple of things you a pretty unique perspective on what's possible, and maybe what makes sense in terms of example, you just gave of donate a hundred thousand square feet. Let's take 60. Let's do overflow. Is that, do you think those conversations are starting to happen broadly?

Or is that with a few people like yourself? Who really, No. I think it's happening at every enterprise level, fortune 500. I mean every single CEO and C level real estate team is having these conversations of what do we do, right? Because again, the horrible part about this pandemic is the fact that it's made us all work from home,

locked down, whatever word we want to use. Right. There's depends on who you talk to, but ultimately the value that came out of it is we have validated and confirmed that people can be efficient, can be productive and enjoy working remotely. Do they enjoy doing it from home all the time? No, because again, you've got all those distractions that we've mentioned already,

but it's also, you know, I think people long to be around other people right back to the mental health side of stuff is interacting with others and, you know, getting a chance to get outside your home and enjoy something other than your four walls. And so I think that it's already happening at every level, because again, there's people that are saying,

you know what, I won't go back to work in the way I worked before. And I don't care if that's an executive level or all the way down to an administrative level and everything in between. And so, you know, there's companies trying to figure out what does that look like? Is it, you know, it was a hundred percent remote from work,

is it, you know, you go into a corporate environment a couple of days a week or you go into, you have a remote option. And so those were all things that are happening. I mean, I'll give you a great example that I had the discussion with someone the other day is someone did a study on asking their workers that they wanted to go and they'd rather have their own office and work from the office most of the week and still have some remote work options.

Or if they'd rather share an office with someone and trade off during the week, most people said they'd rather have their own office, which was surprising to me. But again, I think that's part of what happened when we saw the shift to this open collaborative work, in an open setting. A lot of people are going, Hey, I kind of like my privacy,

right? And there's people that do enjoy it to whatever extent, but there's something about making something your own, where you have your family picture up and you have your diploma, or you have your favorite mug. Right. And not that someone that, I mean, not that someone else that comes in is going to use your favorite mother, but at the same time,

there's something to be said, this is my space as the way I've left it. Especially as we get more comfortable in this post pandemic world, who's gotten the vaccine who hasn't, you know, how comfortable are you with the overall way you interact with others? And so I think we're going to continue to see that shift, but I think that's a perfect example of where I think people long to go back to an office environment that doesn't necessarily mean that corporate headquarters hub as we've been calling it,

but they just longed to have something of their own. So I was talking to an operator in Australia, Fiona and her, I think it's thrive. Workspace is the name of her space. So they're, you know, an Island and they haven't let anybody in and they've been super conservative and now they're back. Like they can go to the office and not wear a mask.

I'm like, Whoa, like I wanted to ask her like a thousand questions about right. Like, will, are people nervous? Are people like, what does it look like? Do they right. Is, you know, all the like, details about how people are interacting. But she mentioned that the Australian government's kind of promoting this like 20 minutes city,

like the idea that you'd create, create these sort of hubs where everybody can work, live and play within 20 minutes. And she said it was, you know, it was kind of in the background before the pandemic and now they're like going all out on it. But, and she did say, that's why, you know, again, I wanted to ask her like all about the behavior,

but she said, yeah, people are pretty interested in getting out. And so you've got your sort of early, early adopters coming back and just really anxious to be with other humans. So they're a good indicator, you know, of, of what, what will happen when we get there? Yeah, no, for sure. And like I said,

back to my travels is I get to see it all the time. I mean, there are spaces that I walk into and it's like, unreason for my mask. And people look at me like, what, what are you doing? And so then I feel like a weirdo for trying to put a mask on. And then there's other markets where I walk up to the door and they're like,

they make sure that you have a mask on before you walk in. And so even if I sit in this space, I've been seeing people walk by and I'd say it's about 50 50, and they have mass signs up and they've got the hand sanitizer and everything. But again, I'm in the suburbs of a really conservative market, like a Dallas market.

You know, now I go to Albuquerque or anywhere throughout New Mexico and super, super strong. And you have to wear it even on the outdoors and they chase you down if you're not wearing it out doors. And you know, and it was so interesting, but Atlanta is another one very much like Dallas, where if you're in the urban core, people are wearing masks,

even outdoors. But then, you know, I go out to the suburbs and people aren't even carrying a mask. And so, you know, it's, it's just even funny. Like I do a lot of driving like between Dallas and Houston or Dallas and Austin. And it's so funny, no one wears a mask in between the two cities. Right.

So if I stop at gas up or get a bite to eat or use the restroom or whatever I walk in, and it's so funny because you can see who the travelers are, you know, who, who are the people that are traveling from a to B because they're all mapped out and then you have all the right and then you have all the country,

people, everyone that's comfortable with whatever they're comfortable with. Not, not to say it's right wrong or whatever, but they don't care. They walk right by. And you know, they're respectful about walking by people that have concerns and everything. And I think that's, what's happening in these overall operations is we're going to, we're going to have to figure out operationally how to make people feel comfortable,

that aren't And yeah. Yeah. And some of those people are going to have to make decisions, right. Is, you know what, this isn't a setting that I'm comfortable with back to the hotel setting, right. Is we've all stayed at hotels that were going, Hey, you know what? It was nice, but I wouldn't go back there.

Whether it be a full service, it'd be a limited service or even extended stay or any of those things. And so this industry is very much going to continue playing out that way is, you know, as, as we've seen with how people laid out their spaces, I mean, some people, you know, have what I call fishbowl environments, where you can see through the entire space you're gone.

There's no privacy here. You know, how can a attorney private equity for a counselor, people that need that privacy could never office here. Right? And then there's other environments. You walk into Regis and you know, the traditional Regis and it looks like a hotel hallway and you're going, how can I know the office here? But if you are running counseling sessions,

your divorce attorney, you're dealing With high, high Touch. Yeah. And so that's, that's part of it is people are going to have to find where they fit in. And same thing goes back to putting the pieces of the puzzle together. Right? It's what's the landlord looking for? What are they trying to achieve with the operator they've got, are you trying to make money with it?

Are you trying to break even, are you trying to just have it be an amenity? And then the operator has to do the same thing? Who are you targeting? And I'm sure you have these conversations too, especially with your school is people come in. They're like, I want to open a coworking space. Okay. So who are you targeting people that need enough?

It matters exactly what you're saying. You have to know who they are, right? Privacy, no privacy, you know, all sorts of things about how they want to office or how do they, how they want to work. It matters. It matters a lot, but hopefully there's more of them. So the segmenting will be healthy, but you have to be yeah.

Have to be specific and know who you're serving and who you're not and speak to them. Yep. Because that's how you build community, which is such a vital part of what makes each of these operators unique is how does, how do you build that community? What does the community look like? How do they interact with each other? I mean, because there's people that,

again, going back to a traditional Regis type executive suite location, there's people that just want to go in and close their door and plug in and do what they need to do. Walk out, get their lunch, to go back to the office and then go home at the end of the day, don't want to be bothered. And then there's people that are like,

okay, who do I talk to? What do I do? What do I do? And so we've gotta be able to touch all those people and put them in the right place. And I think that's where I see operators struggle sometimes is they're trying to be all things to everyone. And you just can't, you just can't, that's not true. There's not enough people.

So I have to, I have to appeal to everyone. Yeah. Get to that abundance mindset of there. You know, my people are out there. I need to serve them. Well, I'm curious in Terms of, you know, you mentioned kind of operators and working with landlords and kind of popping up and being partners with landlords, are you seeing people always ask me this,

so I'm curious new brands pop up. Like, are we there yet? It feels like people have to, you know, have to be making a bet. Like you said, like back half of the year, are there people out there who were kind of ramping up and getting some funding and going to start going after this, besides the usuals, you know,

that are kind of already in the market that we would know of. You don't have to say names, but I'm just curious about like, Yeah. Yeah. I think more so than new brands popping up, we're seeing existing brands have new offerings, right? Someone that traditionally was just doing their own deals is now out doing management deals, a landlord that,

that previously had their own white label brand. If you will, is now going out and offering their services to other landlords franchises that are going to other franchises and helping franchisees get out of the business because that brand is no longer serving the needs of, of the community. And overall, I mean, I think a big part that we're seeing is we're going to continue to see acquisitions and mergers.

Right. And that's because people are realized and we've, we were saying that pre pandemic, right there would come a point where we would see consolidation. And so we're starting to see a lot of that because quite frankly, I think there's a lot of people that got in his business that thought it was easy. Right. It's the same as running a hotel.

Right. But it's not, I mean, we've all got one of these things and I got a hotels.com. I've got a Marriott. Bonvoy, I've got a Hilton. I mean, so people ask me all the time when I travel somewhat, where are you staying? I'm like, I have no idea because I typically don't know until that night I jumped on bond.

Boy, I don't know what part of town I'm staying. And so that's how I book. We don't have that in our industry. Yeah. It's awesome. What liquid space is doing, what it's an office is doing. What so many of these aggregators are doing is great, but we're still not there yet. Right. Is there's still work to be done.

And so I think there's people that are choosing to get out of the business because it's not what they thought it was or people that have been in the business for a while. The traditional mom and pop executive suites and the industry shifted right. Is no longer you just competing with a Regis type corporation. Now you've got how many other brands that have popped up.

They have different op. And so that's, that's the beauty of what we're seeing is we're, we're starting to see kind of the people that were the brands that were struggling before have to pivot and change, right. And the brands that were doing well to say, you know what, this is our time to grow and take advantage of this time. And so I think one of the craziest stats that I've seen over the last few months and the whole pandemic is the billionaires increased their wealth by $600 billion over this pandemic,

right? Because cash is King. They've got the ability to take advantage of things and step into some of these roles. And that's what we're seeing is some of these brands are closing because you know, we work as no surprise, right? Is they they've had to consolidate and shut down locations. And there's other brands that are picking those locations up to run on a management basis.

And there's other brands that are having to pivot and do the same thing. And it's not that fundamentally there's anything wrong with the brand, but the problem is they're having to pivot and rechange re re shift their overall expectations. And so there's nothing wrong with the brand, but maybe they grew too fast. They opened the wrong locations. They took too much square footage is something I continually see.

You know, I'll tell you, I did a deal here in Dallas, probably seven, eight years ago in downtown. It was 12, 13,000 feet because we needed to be part of the network. And we thought, Hey, you know what? We have to have a downtown presence. Well, one of the big brands is won't be named, but it was,

we work came in and did a deal that was 90,000 square feet. And I'm going, we're struggling to fill up 15 as an international brand. What makes you think you can do 90? And so in situations like that, you gotta ask yourself, what was the brand thinking? What was the landlord thinking? What were the brokers thinking? I mean,

and so that's Bonnie. I know what the broker was thinking. I do too. Again, that's part of where you and I get to help people out and go, Hey, this is not the right thing to do based off of X, Y, and Z. And it's not that we're trying to kill deals. It's not that we're not aggressive or entrepreneurial at the end of the day,

it's going, Hey, we're, we're realists. And we realize that if you're going into a market, that for example has no competition, eventually that competition is going to come. And so you have to prepare yourself for that. Yes, you can be a first mover and everything else, but eventually if you're picking the right real estate, others will come.

And so, I mean, I think that's a big part for us to focus on is there's a lot of what people call clickbait or concern about locations that are closing or foreclosures or bankruptcies or all kinds of stuff. But when, when you really stop and you think about it and you really dig deep and you understand why some of these locations are shutting down or there's bankruptcies,

they're all strategic, right? I mean, no, one's shutting down purely because there's no demand because we know there's a demand. There was a demand before there's a demand now. And the demand is just going to continue growing. The question is, what is the supply need to be to meet that demand? You know, it's what it's tried and true time and time again is the small private office.

Right? You've got everything and they've gotten smaller, right? I mean, when I got in the business nine years ago, the average office size was 125 square feet. Isn't that wild People are doing these 65 square foot micro offices where I'm just like, I'm claustrophobic thinking about office again. I don't know. I love the micro office expensive to build,

but yeah, but when you get creative, right. If you were going to advise on, on product mix, it depends on market, but would you, Would you still be leaning towards like, what's the enterprise user, the work from home going to buy? Are they going to sit in the open space or do you think micro office, one person offices?

Yeah. I still think it's. I tell, I have told my clients since the pre pandemic that 80% of usable square square footage has to be private off. And when I say that, that doesn't mean necessarily it's all 55 to 65 square foot offices. You can have a 250 square foot teamspace that maybe has a conference room in an office within it or whatever.

But I definitely see things continue to shift that direction even more so now post pandemic. But again, I don't think any, everyone is pushing that way. Right. I mean, there's operators out there. They're still very much open. They're doing well through this, through this time. I mean, you talk to Sarah over at work bar in Boston and they're continuing to churn and burn and that's what their model is,

but they created a community that that's, they're comfortable with that. Right. And so I think that's a big part. Yeah. She's another example of what you just said, like, know who you serve and how they'll use the space. Not everyone could do what she's done because they're, laser-focused in their sales process in attracting the right people. Yeah.

Except for their downtown location. Yeah, for sure. And again, that's part of it is know who you are and who you're targeting and that, and know your business model, right? I mean, there's, there's groups across the country. I mean, bill a novel being the biggest one is their focus is buying real estate. And then they use their operations in order to drive traffic and value to their own locations.

There's other smaller regional groups that are looking to do the same thing. And so, I mean, I think that's the key is asking the right questions. You know, why, why are we doing what we're doing from a business standpoint? Who are we targeting? And ultimately like, everything else is, what's your exit strategy because you have to have one.

And I don't mean because you're going to fail, but are you ultimately trying to put a bunch of dots on the map to get acquired by someone? Are you trying to play the real estate game and own the real estate and let it appreciate. And so I think that's where so many groups get it wrong again, back to your school, I'm sure you got plenty of people that come in and they just read a great article or they think they can create something cool.

But they haven't thought through a lot of those questions, which is what I love about what you get to do is you get to ask those difficult questions and I'm sure I'd be curious. And I know the number's probably higher than the knot of people that you convinced not to move forward with what they were planning to do. Yeah. I mean, right.

You probably have that experience too, because you care and you went, you know, not the difficult broker who's going to let somebody sign a deal so you can get your commission. But yeah, I look at my job as like show them the framework to make the right decision, to get to their goal. Right. And if they, if there's some part of that process that doesn't work,

Then don't do it, you know, but right. To your point, I get a lot of, not everybody, but my favorite is, you know, Oh, I listened to the, how I built this and that the Miguel, you know, episode and people are like, I want to do that. And they don't know anything about the business model,

you know, which is why I feel honored to play that role. When people make that choice is like, look, let's be realistic and let's make the best decisions possible. And sometimes that's to not do it That I love best is being able to walk through this with people it's not just a real estate transaction, to some extent it's even coaching. Right.

Right. I know<inaudible> yeah. I can picture Doing this. Yeah. And that's, that's the beauty of it because, you know, are you doing this because you're trying to diversify your portfolio, is that you, because you're doing it because you're scared and want to control your future, is it because you think you've, you know, FOMO, you feel like you're missing out on something.

And so, I mean, I think that's a big part of it, but much like you, as I like sleeping at night. So knowing that I help people make the right decision is something that's beneficial to me. Not that I don't enjoy working with the larger corporations, but I mean, it's the individuals that are making life choices with life savings or their families that I think where we get to really make the biggest difference and,

you know, helping those people out. Yeah, Totally agree. So in terms of, we have to talk a little bit about deal structure. I always ask about this management agreements hard to get if you're new, but do you think when you talk about 80% private space, that's an expensive build out. Do you see what's your outlook on management agreements for operators that have some experience?

Yeah, no, I think it's a great way to grow. I mean, it's about telling a story, right? What's your story from an operation standpoint, what's your historical strength? Where have you performed? Well, why have you performed well? What are you trying to, to continue doing? And back to your point on the, on the heavy bill that,

I mean, I'll tell you I've experienced people that are building out spaces, cheapest 60 bucks a foot, which is obviously unheard of in California, but all the way up to 150, right. That's kind of the window. I mean, I'd say probably 90 to 125 is about right. And that's all in with FFNE included. But again, there's people there's operators that have their own GCs,

right. They own the, the general contract side. So they control the costs. There's developers that do the same thing. And then there's the, what, what kind of equipment are you using, right. Or using a dirt wall versus dry wall? Are you using full glass office front? Are you just doing a side panel? Is your door glass,

is it sliding or is it swing open? I mean, there's so many different ways to look at it, which is what affects all those things. And so back to your question on the overall management deal side is I, I think that's how most groups are grown in. Not, I think I know that sound, those groups are growing today with the exception of franchises,

which back to your point, don't really have the experience if you're dealing with a franchisee. So those are tough to get by or the startups, but overall landlords are starting to get open pre pandemic. Their concern was, well, we want to participate on the upside and the premium, but we don't want to participate on the downside. Well, guess what?

You're participating on the downside, whether you like it or not. And we're seeing a lot of that right now with landlords having to give rent, deferment, give more abated rent, give additional money for build out, you know, because a lot of people created these cool open spaces, but at the end of the day, people forgot, this is a per square foot business.

And so you pay per square foot. So you've got to get a return per square foot, so monetize as much as possible. And so I think that's part of where we get to help. Landlords have a lot of these important conversations up front with operators. What do you do? What is your model? Right. It's real easy to put down a bunch of things in an Excel spreadsheet spreadsheet and be like,

Oh, this is what your return is. And it looks great, but you, and I've seen enough of these operations and you've been part of operating one to know it's not always that easy. You know, it, it takes methodical work and understanding. Who's going to take that 65 square foot office and where, and who's going to take the 250 square foot office or their team office or whatever.

And so even helping these landlords understand what that looks like and how much they should spend, right. Because that's part of the problem is I interact with operators at whether they're taking space or whether they're building out spaces, there's operators out there. They're going well. I mean, I'm not putting any money up. So I might as well try to give it a shot.

And I'm like, I'm not signing my name on that, on that piece of paper. Because at the end of the day, that's just the reality is are youth trying to really serve as the owner, right? And are you really giving this thing the best opportunity to be successful? And you and I both know that there's plenty of operations out there that look beautiful,

but are never going to be able to monetize. And we've seen plenty of those. You walk in and you're like, Oh my gosh, this is incredible, but it's 250 bucks a foot and you will never get back your investment. And a lot of cases, they were built out not efficiently. So you'll never even cover the rent. You're trying to cover much less make money.

And so it's going back to the questions. What are you trying to achieve, Mr. Landlord, Mike dropped. Totally. No. And right. And again, you put, I just, I appreciate having these conversations with you because you and I are totally on the same page of it. The business model looks so simple and yet people make very big mistakes,

like spending 250 bucks a square foot, not being able to get it back. It's yes. Concerning when you're not, when you don't have the right support, like a Giovanni on your side. And I say that because I still think there are so few people out there making the deals happen that understand the business model. And it's so critical because it's different,

you know, and right. People can, can lose their, lose their savings on some of those decisions. Yeah. I mean, I think one of the best points you just made is the small decisions, right. Is my growing up, my mother always said, small leaks sink, big ships. A good example is, is hallways, right?

As I'm looking at one out the door, I mean, you make a hallway of foot too wide and you take it by 25,000 square feet. You just took up a huge chunk of your space. And so, you know, it's simple things like that, that a lot of people don't think about. I mean, the, the width of the hallways that a swinging door versus a sliding door,

yes, that's sliding door is more expensive, but you lose an entire workstation by doing a swinging door, you know, and those are just two small issues that no one ever thinks about. Right. Until you've built the space, you're like, wow, this always really wide. Or maybe the furniture doesn't fit in here the way we wanted to. And so those things are so critical.

I mean the width of an office, right. And you put two desks back to back and still have enough room for both people back up. I've walked it. Totally. I know the details, the details that most people don't think about, don't want to have to think about you need their right. That is a module. Two of my course is getting the right professional team in place to help you avoid those mistakes.

Because when you, you go after it yourself, you're just not going to think about those things or with people who have never done it before. Yeah, no, for sure. And that's where, I mean, I'll tell you designers and architects are some of my biggest headache because they create a really cool space, but then when you, they don't think about the fact you have to monetize it and take advantage of it.

So it's awesome that you create a beautiful wall like this. Right. But we had to understand, Hey, we can afford this because we're, we're charging X, Y, Z for this conference room or for the offices. And so that money has to come from somewhere and there are spaces where you walk in, they have elaborate, finish out and you're going,

ah, this just doesn't work. But at the end of the day, you have someone that's award-winning and done all kinds of cool stuff. But when you do enterprise, yeah, yeah. You're not gonna know when it's for an enterprise and they're not making money off of the space. It's basically a space for people to go work too. It's one thing.

But when you're trying to monetize it, you've gotta be real careful about the investment in the build-out. Yeah, totally, absolutely true. Giovanni, anything else happening out there that we should? Yeah, no. I mean, again, I would just continue saying, look, this, this industry is going to continue growing and evolving. I mean, it's an awesome time to be in this space,

whether you're a landlord and operator and investor, a consultant or teacher like yourself, it's, it's the beauty of it is there is so much runway left as enterprises continue to make the shift and transition as landlords realize flexibility is crucial to their portfolio. As we see the brands, figure it all out, right. And find their place in the market. I mean,

there's, there's a ton of opportunity and I'm just excited to be a part of it. I'm excited to be on this ride with people like you that understand the industry and are out trying to educate people so that we don't have the same hiccups that we've had over the last few years. And you know, this is a great time for people to jump in and,

and participate in the growth of the overall flex industry. Oh, I like ending on a high note. You and I are drinking the Kool-Aid that's for sure. Totally. Well, I look forward to reconnecting at the end of the year and hopefully we can say we're we're on our way. You know, things are turned around. So Giovanni, I follow,

I follow you on LinkedIn. If somebody wants to follow Connect, what's the best way to find you. Yeah. So you can follow me on LinkedIn. I mean, you can email me. It is G I O V a N N I dot P a L a V I C I N i@avisonyoung.com and I'm sure you're going to post that. I will post that.

Yes. If somebody's driving and can write down all those letters, we will post that in the show notes Call, you can always call or text. My cell phone is (214) 566-9546. And I always respond at some point, but it's just a great way to connect and interact with people. So if you've got any questions, feel free to reach out. And if I can't help you,

I'll connect you with the right person that can, I love it. Thank you for joining me today. And I look forward to staying connected and like I said, connecting at the end of the year and hopefully we can, can look back and hopefully we can do it over a glass of wine and not assume I can't wait for that to happen. Thanks To you.

I appreciate your time. Have a great day.

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Jamie Russo1 Comment