191. Myth or Fact Lightning Round on Coworking Management Agreements
Resources Mentioned in this Podcast:
Everything Coworking Featured Resources:
Masterclass: 3 Behind-the-Scenes Secrets to Opening a Coworking Space
Creative Coworking Partnerships: How to negotiate and structure management agreements from the landlord and operator perspective
TRANSCRIPTION
191. Myth or Fact Lightning Round on Coworking Management Agreements
00:00:01 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 co-working podcast. This is episode number 191. This is a bit of a different format. It's a lightning round on myths and facts related to coworking management agreements.
00:00:44 And this is popping up now because I'm working with Michael Abrams, who was on the podcast in episode number 168. If you miss that one and you're interested in management agreements, go back and have a listen. He is, has been a landlord, a developer, and he's worked extensively on co-working management agreements for various operators. So he's super, he's just an expert and a great resource.
00:01:09 And I have been interviewing him and we're developing our course and all of our handouts. We've scheduled our Q and a calls. We have a great beta group. That's already registered. We have a few more slots that we're opening up for the beta group, which starts the week of March 15th. So if you're interested, you can learn more at everything. coworking.com
00:01:33 forward slash management agreements. We'll put the link in the show notes, if you are driving and can't write that link down. So you can always find the show notes. If you go to the everything coworking site and scroll down, you'll see the latest podcasts and the show notes. If you just click on the latest podcasts, that's where you find the show notes.
00:01:55 So it's a short one today because we are deep into wrapping up the content and wanted to get that out a lot going on, but it's a really fantastic resource that has been a long time coming for the industry. So I'm really excited about it. And I know everybody always wants as much free content that they can get about managing agreements to understand how they work.
00:02:21 So I thought we'd do this quick Q and a session. And if you're considering a management agreement, check out the details on the course beta group, again, launches March 15th. If you're in a country and you have an exchange rate issue, send us an email@teamateverythingcoworking.com. We can help with that. So we're diving right in here is a quick myth or fact session with Michael Abrams.
00:02:50 Welcome. I'm here with Michael Abrams and we are doing a myth or fact speed round on coworking management agreements. Michael and I are working on finalizing we're. We're rounding the corner here on a creative coworking partnerships course that we're launching in a couple of weeks, the week of March 15th. So we're busy recording, creating all the handouts, et cetera, and it's going to be fantastic.
00:03:23 So co because management agreements are constantly on our mind, we thought we would dive in and do a myth or fact sesh session just to kind of get you thinking if you're interested in management agreements. So Michael myth or fact as an operator, you have to have a large footprint with multiple locations before you can work with a landlord on a management agreement, myth or fact,
00:03:49 and tell us why I would say that's a myth because in reality, you really have to have the right business plan. You need to understand the components and what you're bringing to the table. I truly believe you have to start somewhere and it's about selling. I always tell the story about how Adam Newman got started coming out of the last recession. He was charismatic.
00:04:20 He knew how to sell. He had his concept down. He had renderings of what the space was going to look like. He did his homework and he sold it. So I truly believe while it would be awesome to have operated at least one location. And I don't believe you even have to have a location because somebody has to start from scratch. Michael.
00:04:46 I think the, we work first location was like 5,000 square feet. So goes to show you. Now they'll take down 90,000 square feet pre pandemic. We'll see how that goes in the future, but you don't have to be a, we work or an industrious. Michael, I know, you know, you and flex space advisors or advisors are working on some discussions with smaller spaces.
00:05:08 We do talk in the class, we go through some sample proformas, some sample models for doing a management agreement and the numbers work better as you get a larger, but that doesn't mean you can't use this opportunity when you're negotiating a management agreement to flip into a larger space with your current landlord, because once they see the numbers and they get bought into the concept,
00:05:33 they may say, Oh yeah, let's take down 20,000, 25,000, you know, and instead of the five that you're in right now to make these numbers really hum. So I think it's important. You want to know what you're getting into and you want to be, I think you probably should have operated one space to start with, but we talk in the course about how it works and you can have the conversations and if you can sell dream,
00:05:57 then, then go for it. Michael, my next myth or fact as a landlord, you should always try to run a coworking space yourself before partnering myth or fact That is a myth that is because we know that, you know what landlords have on their mind. It's about income. How do I generate income in typical fashion? For the beginning of time,
00:06:26 they generate income through signing leases and they get tenants to pay them rent on a monthly basis. Coworking is a little different in prior to the pandemic, we saw a lot of leases signed, but during the pandemic, we were exposed to the vulnerability of coworking and members just fleeing, especially the urban cities and coming out to the suburbs. So do I think a landlord needs to operate one to make it work?
00:06:59 No, I don't. As a matter of fact, I truly believe that by a landlord, creating a partnership deal with an operator, as opposed to a lease would be highly beneficial. And personally I would highly recommend it today. Yeah. I love it. And we were in our course that we're launching the week of March 15th. We wear both hats operator and landlord and we walk through how do I identify a landlord partner,
00:07:29 how to identify an operator partner and all the reasons that a landlord might be enticed to do a partnership and why it may make sense for their business. None of those are because they have the competency to do it on their own Michael myth or fact, you can start with a template for a management agreement and get to a deal pretty quickly. Oh, that's a myth.
00:07:54 I know you In the world when you define the word quickly, is that in weeks or months or years, you know, in reality, you know, these are different deal structures and it requires a different mindset. And while we continue to talk about change and developing partnerships with landlords, you know, it requires landlords to change their thinking of creating value.
00:08:27 So I think in, you know, in this case, you know, it requires some give and take, you know, if both parties are willing to make compromises, you can get through the management agreement a lot faster than if you were negotiating a lease. I think that's, I think that's the important aspect. And the great thing about a management agreement that I think all should know is,
00:08:57 you know, a management agreement provides flexibility. It provides flexibility because the landlord still controls the space. Whereas in a tenant with a lease, the tenant controls the space. As a matter of fact, there's provisions where he gets the quiet enjoyment of the space. But you know, on, on the coworking side, landlords need to understand they still control the space.
00:09:21 They have termination rights. And so to negotiate, a management agreement should not be as onerous as if you were negotiating a lease. And the, the part of that myth about starting with a template. I get asked all the time, do you have a template I can use for a management agreement? And this is one of the reasons we're doing this course is because we're both super passionate about the fact that there's so much context to be understood about when does it make sense?
00:09:53 Who's the right partner. And then we get into negotiating the actual terms. And we talk about the terms and we talk about, you know, possible deal structures in the course, we get into all those details, but we really set up setting you up to think strategically about when it's appropriate and how to, to manage the process. So don't, we want to change your mindset from thinking about,
00:10:17 let me just see what someone else did and I'm going to go to my landlord and, and sort of, you know, edit that document. So it can be helpful to start with with some basis, but we really teach you how to think critically about the opportunity and to negotiate the right deal for you. Okay. Next one, myth or fact coworking is a great way to solve vacancies caused by the pandemic.
00:10:42 It's a trick question, Michael. It is. I mean, you could answer it either way. I mean, as we've learned in our course, you know, not every building is suited for coworking and you use that term vacancy. So you did not define is the vacant space 3000 square feet, or is it 30,000 square feet? It makes a huge difference.
00:11:07 So, you know, so that's kind of a trick question. Yep. And where is it located? We spend some time in the course talking about, look, there's a due diligence process for identifying a space where you as an operator, want to be located or were you were as a landlord, want to put co-working and don't give up that due diligence process just to fill a vacancy or to get a deal done.
00:11:32 You still have to go through your checklist and make sure the space is really appropriate. Yep. Myth or fact generally a partnership will be a 50 50 split between the operator and the landlord from day one. That is definitely a myth because as we know in real estate, everything negotiable and depending on the specific circumstances it has to do with size, it has to do with how the space is being delivered.
00:12:05 How much capital does the landlord have to butt in? And, you know, depending on whether this is a class, a building B C it's location, it's going to drive whatever that market rent is. So, you know, there's too many elements involved. That's really going to determine the success. Yeah. So it won't be 50 50 immediately. We go through and talk in detail about what that might look like.
00:12:40 Michael, thank you for doing this lightning round. People are always so curious about anything to do with management agreements. So we appreciate you sharing your expertise and we will in the show notes, put a link to get more information on the show mode, show notes for the podcast. If you're listening, if you're watching on Facebook, we'll drop a link underneath the video.
00:13:04 So you can learn more about our creative partnership course that focuses on management agreements. That's coming out the week of March 15. Thanks, Michael. Thank you.
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