207. A Chicago Landlord, Marc Blum, shares how Spaces went bankrupt in his building after 6 months and Adam Showalter helped him survive to tell the story

Resources mentioned in this podcast:

Podcasts episodes with related content:

Michael Abrams on Management Agreements

Jamie Hodari, CEO of Industrious, on Management Agreements

Everything Coworking Featured Resources:

TRANSCRIPTION

207. A Chicago Landlord, Marc Blum, shares how Spaces went bankrupt in his building after 6 months and Adam Showalter helped him survive to tell the story.

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 coworking podcast. This is your host. Jamie Russo. Thank you for joining me today. I am really looking forward to sharing this conversation with you.

00:00:37 I had to do a little bit of stalking to get Adam and mark on the calendar. They have busy schedules, biggie busy travel calendars, and I was really interested in telling their story. So I kept sending emails, looking for times that we could get together. And they were probably like, who is this woman trying to, you know, make us do this podcast,

00:01:02 but you'll see when you listened to our conversation, this is one of those partnerships that is really at the forefront of what's happening in commercial real estate. It's one of those scenarios that we sort of talk about intellectually, but we don't have a lot of case studies around them actually happening. So mark shares well into our discussion that he had a real mindset shift to work on in the project that they did,

00:01:32 which we'll go into detail about in terms of creating a brand for his building. And if any of you were, who are listening, we're at the GWA conference in Austin a few years ago, three years ago. Now Anthony slumbers was our keynote speaker. And this was, you know, essentially the topic of his talk. And again, we hear folks talk about this as a concept,

00:01:56 but we don't get to see it in play very often. So this isn't really special case study, and I'm grateful that Adam and mark shared the details about how they're working together and what they hope to accomplish in this building. So mark real estate firm owns an asset at six 20 north LaSalle in Chicago. For those of you listening, you have been long-term listeners.

00:02:20 You may know I lived in Chicago for 15 years. I still, you know, love the city. I owned a coworking space there for three years in the west loop. So Chicago is near and dear to my heart. And I can picture this building when it was a sport Mart and then got converted to a sports authority. And then after that,

00:02:39 the next tenant, after a complete gut renovation was a spaces which is a Regis brand owned by, I shouldn't say Redis, it's an IWG brand. It's kind of a hipper trendier version of a Regis. Not every market has them, but spaces went into that location took over 80,000 square feet across eight floors. And then that location was part of their bankruptcy coming out of 2020.

00:03:08 So mark, the, one of the partners in the real estate firm had to figure out what to do with this space, which is another hot topic in the media, right? Asset owner, coworking space leaves. What do they do with that space, which is kind of uniquely set up for that particular use. So that's where Adam comes in. So Adam is the managing partner for stream Realty and they have an offering a service called rapid and they work with owners like mark to help them run their own flexible asset in a true partnership.

00:03:43 So they share a lot of details about how the decision was made to keep the building flexible, what their partnership looks like. Some of their, you know, mindset shifts, what they see happening in the future, what kind of staff they have running the building, et cetera. So lots of super interesting details about what they're up to. Again, I love it because it's really a true life case study about what we all think is happening somewhere down the line,

00:04:10 but it takes, you know, true entrepreneurial folks like Adam and mark to put this into practice and actually make it happen. So I think you're really going to enjoy this discussion real quick. Since we're talking a little bit here about branding, you know, I've been talking about websites and customer acquisition and all the things we need to do to make this model work.

00:04:30 Ruben Lau hosted. He was an guest on the podcast, several episodes back, and he also hosted a training for our community manager university programs. So I'm not sharing the whole training. That's just for the folks in the group, but we created a cheat sheet for that training on SEO that we want to share with you. We had it created. It's fantastic.

00:04:52 And I thought, I really want to want to share this with folks. You can basically use it as a checklist, go through there's about a page for each sort of concept that you need to implement around SEO. And you can work with somebody externally to do that, or some of these things you can do on your own and make sure your SEO is in order so that the folks trying to find you can find you.

00:05:14 So you can grab that@everythingcoworking.com forward slash S E O cheat sheet. You can also grab that on the show notes, which is linked up right in your podcast player. Just look at the, the notes on the episode in your podcast player, and you can grab that link. Okay. Onto my discussion with mark and Adam. Thank you for joining me today.

00:05:35 I have a couple of special guests. I don't typically do dual interviews. So I'm excited for this one today. Mark Blom is next Realty's president and COO and Adam show. Walter is the managing director for stream Realty and runs their rapid business. I'll let them give some details. They're both joining me from Chicago or the suburbs of Chicago. And I sort of stalked them a little bit too to get this interview because I really wanted to share their story.

00:06:08 And we'll dive into the details. In a minute, I had seen one of their posts about their new co-working flex office space at six 20 north LaSalle in Chicago. I can picture that building when it was before it was the sports authority. You'll have to tell me what it was. So it's undergone a major renovation. If you're in Chicago, I know you're going to be excited to hear the story.

00:06:28 If you've ever been downtown, you might be able to picture the asset. So mark and Adam, thank you for joining me today. I'll let you guys kind of take over and just give a little more detail on your roles and your background. And then we'll dive in and talk about what you've done with this building. Sure. So I'll go first,

00:06:47 mark Bluhm then with next Realty now almost 20 years with the same partner, we're a boutique real estate firm in Chicago. We own assets, parking assets, office assets, retail, assets, apartments. We own it all. We're opportunistic investors. And this actually used to be the more images building back in the day in the sixties and seventies. And then it went to sport Mart and then sport Mart was purchased by sports authority until they went bankrupt in August of 16.

00:07:20 So this building was actually the very first building, my partner and I purchased as a partnership back in oh two together. So it's got a little bit of history with us, a little bit of drama, I guess. Interesting. You know, we have one tenant in there for what, 20 years paying their rent. They went sideways And the dream,

00:07:40 right. Which I think plays, you know, really interestingly into yeah. Into kind of what's happened. But anyway, I'll let you finish telling a little bit about yourself. I've been doing Real estate for my goodness. Every time I say 30 years, I say, no, that's not enough. And you know, with a wide variety of experience and have the pleasure to have met Adam and working with him on this asset.

00:08:01 So Adam, yeah. Well, first off, Jamie, thanks for stalking us down and congrats on the success of your podcast and your business. I am excited about the opportunity to talk about coworking. It's something as mark knows, we've been exploring for just about two years now, starting in the summer of 2019, but quick about me. I'm a born and bred Chicago and have been here my whole life,

00:08:29 love this city and have been in real estate for about 15 years. I joined stream Realty partners in 2019 to help open the downtown Chicago office stream Realty partners is a full service commercial real estate firm that does leasing management, construction management, investment development in 14 markets across the country and founded in 1996 by two farmer Trammell principals and have grown from two people to almost a thousand employees nationally here today in Chicago,

00:09:02 we have an office downtown and an office in Rosemont with about 30 employees here locally. We focus primarily on office industrial and data center. And as of two years ago, we're in the flexible office space world as well, which we're excited to talk about today. So thank you. So Adam, I would just tack on a follow up there to set context for the story about this particular asset.

00:09:30 Can you talk a little bit about stream's interest in flexible office? So you're kind of full service, like tell, tell me the story of, of how the firm decided to get into flexible office. Sure. What your role is in that space. I Hope like any good idea. This came from real life experience. And so when we opened the downtown Chicago office,

00:09:55 we actually opened it and industrious at 500 west Madison. So we lived in breeze coworking for 13 months and then my partner in Atlanta actually was on the other end. And we had partnered with, we work on a ground up development there and got a lot of interesting insight into, we were X business model. We were in, on customer in Chicago.

00:10:17 And so we came together and basically said, you know, the traditional way of leasing has been working well for decades, if not a century. And this coworking has kind of upended an opportunity in the marketplace. And we really saw it as an opportunity for us to innovate and adopt some of the principles and strategies that the coworking operators had mastered quite honestly.

00:10:43 And we felt like we had all the infrastructure internally with our leasing agents and our property managers and all our technology and resources and accounting to deliver a similar level of service in-house. And so when we started exploring the idea in summer of 2019, but we really looked at it was, is flexible office in our world was just easy office. I in delivering a seamless,

00:11:06 fast, painless real estate transaction, that was pretty atypical for a traditional leasing company. And so rapid office to us was really born out of the idea that we could deliver similar level of service that some of the co-working agents out there could at a much more cost-effective price for the end user and ultimately the landlords that were supplying this fit. So did that look like smaller floor plates,

00:11:37 shorter term leases? Yeah, I mean, obviously a lot's changed in the last 14 months when we started out in the summer of 19, it was really in fully furnished spec suites. We did not have a business plan to go compete with coworking. We felt like and had them as tenants and a lot of our buildings that they were really good operators and they had brand loyalty and Goodwill.

00:12:01 And so we had a bunch of flat flexible office setups through our spec suite programs across the country and said, Hey, if a landlord is willing to do a short-term lease willing to accept credit card payment and willing to do shorter term leases, then maybe five years that the traditional, you know, 10 year deal, then we could do flexible office. And so what started out as really flexible office in our fully furnished spec suites over the last 14 months,

00:12:27 as you can imagine in some of our projects and specifically six 20 north of sale, we expanded that offering into existing or previous coworking spaces. Yep. Okay. So yeah, he went, so Lisa Picard has spoken at our GWA conference before, and I think she used the phrase like fast, flexible and fun. She uses the fun word, but right.

00:12:51 Yeah. Make it easier to get into spaces. Right. And to your point, like faster leads process, all the things that just have always traditionally been painful about signing a lease. So that makes perfect sense. So mark, tell us the story at six 20 kind of the story of what you found, the situation you found yourself in and somehow you and Adam connected and decided to see what you could do with this building.

00:13:17 Tell us about, yeah. About the building who was in it kind of the full, sorry. Well, Let, let's start. You know, in 2002, we bought this building in river, north very different world than it was today. And we had a tenant in there, sport Mart and that a short-term lease. We were fortunate. We had a good rapport with the actually tenant themselves.

00:13:35 We extended their lease. Life is good. Triple net lease river north, Hey, not a bad investment. So fast forward, August of 16, or really maybe January of 16 sports authority files for bankruptcy. And we're bumbling along for about six, eight months. And in August of 16, they reject the lease. So they bank it here we are.

00:13:54 We have a build eight story building probably hadn't been touched physically in 30 years from the windows to the facade, to the HPAC, to the two person, elevator, all kinds of old stuff. We spent the next six to eight months with various architects designing all different types of uses, knocking the building down. How high can we go up adding an addition?

00:14:19 Is it going to be residential? Is it going to be a hospitality? Is it going to be quite frankly, a fast food, chicken joint, given its high price, high profile location. And we have a Portillo's, you know, block away, everybody lines up with a Portillo's chocolate cake and one in the morning on the ride out of town.

00:14:39 So, you know, we bounced that around, but what we ultimately had was a gorgeous timber loft, eight story building that really could be reused. So we decided based in early 17, we need to start gut rehabbing this property. And that's what we did. We hired a general contractor, well, had an architect, got our building permits started to go cause we needed everything.

00:15:03 Mechanical systems, vertical transportation. I think the entire building had 300 amps of power. So if you can get your house or your apartment may have the same amount of power that's right. So we spent the next 12 months gut rehabbing the property into office. We knew that if we built it, they would come. We had a broker open house that summer cause we got one floor prep demoed out,

00:15:27 opened up because each of the floors were actually divided into three long elongated shoe boxes. If you could picture that. So we went in and we blew out all the walls. So it was wide open space. Only with columns shortly thereafter, Regis comes along and says, they're rolling out this program spaces, which is the hipper, you know, funkier appealing to all the young people.

00:15:51 That's where they want to lease. We didn't know anything about it. We knew certainly about WeWorks and we knew about old school Regis. So my other, my two partners and I flew up to Ontario, I'm sorry. Toronto walked the spaces in Toronto. And it was, it was well done well executed. So they, they agreed to build that here.

00:16:12 We signed a very long-term lease with them in the building in March of 19. Am I getting my dates wrong? I think March of 19, they, we turned over the building and then in September, October 19, they opened up to the public enemies. They were doing. There were feet is the total building, 80,000 square feet. And they took 80,000 for Your model.

00:16:39 Yes. Okay. They wanted to control the entire building, including the retail. They were going to put a coffee shop in there to service upstairs, which all sounded great. So throughout 20, you know, this is a new business for us. We were on the peripheral just trying to understand what they were doing and you know, everything we started to read about and unraveling of the sweater,

00:17:02 it just kind of went and in the summer of 20, the guarantor on my building, as well as I think 180 other locations filed bankruptcy, all right. You know, they're, they're confident they're coming out. And then all of a sudden they start rejecting lease. After lease, after lease, after lease and in our location, we, we push them really hard to the old proverbial,

00:17:27 step up and run the place or get out and through the bankruptcy process, they ultimately rejected their lease and vacated in January of 21. So, so we saw that handwriting on the wall, call it Thanksgiving of 20. And Adam, my guess is that's when you and I started talking end of the third quarter, beginning of the fourth quarter of 20,

00:17:49 Hey, this may be happening. What should we be doing? And we walked the building with a bunch of companies. Adam's berm was one of them stream. And then we walked the buildings as well as with CVRE, with traditional mainline building. We also met with industrious who w one or two of the other coworking firms who there's a woman's name. I forget,

00:18:13 I think CVRE launched it. We, what was it called? Their brand is Hannah Honda. That's right. So they wouldn't even tour. It was w I was my first zoom tour. Oh, literally. You know, I've heard a zoom tours, the rest residential houses, but here I am 80,000 square feet zooming with people on a cell phone.

00:18:34 And, you know, as we talked internally, we wanted to, you know, our goal was to lease the building traditionally 10, 15 years. Right. It checked for, I pay the lease and commission that cashflow life is good, but we, we also have this opportunity for this. Build-out where someone spent north of $12 million building out the interior of the building.

00:18:55 And we thought that there was definitely a market to activate. If we had a firm who knew what they were doing, and we thought hiring stream on a two prong approach, traditional leasing as well as flexible because they had both platforms. None of the other operators have both platforms. And that's what confer was concerning. I said, if I signed a management agreement with industrious or hon or one of the other guys that it would just go on and I wouldn't be,

00:19:25 I'd have to pass on a lease that someone wanted, at least my entire building. So we wanted that flexibility. So we, over the years, my partners and I we've run parking garages in the past. And I equate this to like a parking garage. It's really, it's an operating business just happens to be housed inside real estate. The real estate is an afterthought,

00:19:45 you know? And the parking, is it secure? Do you have the gates in place? Are there lights all the same things here? Do we have private offices? Do we have internet? Do we have furniture? Do we have a concierge? These were all things we can put in place with Adam's help. And we did that inside 30 days.

00:20:04 So a Regis vacated into January on March 1st, Adam opened up his doors and we actually had a bunch of tenants who the prior tenant forced out. They liked the building so much that they wanted to come back. They were in one of their other locations and for a dozen reasons, they didn't like it. And here we are now running it. Ourselves technology has made it much easier because everything many things can be done remotely from,

00:20:31 you know, setting up your own network for each individual tenant access with the Salto key system, the exterior Salto, thanks to you for the, the plug. Yeah. So that was great. So we didn't know anything about it until we bought the building and we actually owned a bunch of residential and we use a system called latch, which by the way is very expensive.

00:20:54 So now we know where we're going next. All of our residential, we're going to put salt on it, flip it over. Yeah, exactly. So, and we have the ability to isolate the elevators. So you can only get to your floor. It actually works out very well. It's very convenient. So here we are. I mean, inside 90 days,

00:21:09 Adam has brought the rent roll up from zero to something we're very happy with to allow us to cover some of the day-to-day operating expenses. And we're open-minded whether this building turns into a mostly co-working flexible office building, or Adam takes down a 60, 70, 80,000 foot tenant for long-term. So yes, I have many questions. So Adam, we'll, we'll jump to you in a second here.

00:21:33 So mark, when you, you know, saw the bankruptcy coming, you were kind of open. You're like, well, we have this pretty specific layout. What do we do with this? Do we write, do it ourselves, ourselves kind of went through the full spectrum management agreement. Did you, did you start having a preference for kind of lease?

00:21:56 How did you feel about the management agreement opportunity? That's a big, hot topic in our industry these Days. Well, I will tell you, so next Realty we manage and lease our own properties. Typically, unless it's out of state, we hire a local boots on the ground. So I didn't need someone in the full service management agreement. Everybody wanted to give me their own engineer and their own property manager who was allocated to 10 properties and all 10 properties were charged 20,000 a month.

00:22:25 I'm like, wow, that person's making $200,000. That's great for that person. So we had the resources to do all that. And most of these guys, it was, we need to do full term full, full turn key, et cetera, or not, or not. So that was difficult with the management. And they also wanted a long-term commitment from us.

00:22:44 Even if they get nobody, they wanted me to sign a long-term agreement, agree to pay them their fees and maybe, maybe to work. And maybe it wouldn't. So for us being in the real estate business, that was difficult for us to swallow quite frankly. No, it's always really helpful to hear from an asset owner, right? Your perspective on what does that model look like?

00:23:05 Cause it's, it's getting done, right. And there are a lot there reasons to do it and a lot of risk and reward too. Right? If we were an institutional owner, I could see why a third-party management with CVRE or CW or one of the other guys is safe and it's straightforward. But for us giving we're very entrepreneurial we're local we're hands-on we saw more downside than upside with a straight third-party manager management agreement,

00:23:34 80,000 square feet, not to mention the capital investment to put into 80,000 square feet. So you know of it and flip into another brand, is that correct? Yeah. Someone had to buy furniture. Someone had to buy the wiring that was removed by the prior tenant and reprogram when they, when the guts of the, of the Salto system were removed and putting it,

00:23:57 you know, and whatever someone had to do all that. Yep. So were with, with stream and rapid, we made the decision where we, as the owner made the investment in three floors, we activated the ground floor, which is the common area concierge conference rooms. And basically your open desk, open hoteling for lack of a better word. And then the second and third floor had your traditional offices all built out.

00:24:24 Right? One of the things that we got lucky with is when space is built out their space, it wasn't like your traditional, we work from two years ago where it was wide open. We don't have much of that. We have mostly offices from one person to person up to, I guess, a seven floors wide open, but shorter that we,

00:24:43 we have 20 person offices. And we're finding that that's appealing to a large variety of users. Yep. So Adam saw the asset kind of the product mix, the layout, and you said, okay, let's, you know, we're going to try this and very quickly it turned it on. Yeah. And in the still really coming out of COVID right.

00:25:04 I mean, the industry as a whole is still emerging and particularly in markets like Chicago with a lot of, you know, restrictions and, and, you know, things still still being lifted. I'm sure things are not a hundred percent, you know, rosy yet. Tell us yeah. How your model works. What does rapid think about when you're looking at an asset like this and say,

00:25:27 okay, what, what makes sense? What's, what's your approach to how to, how to tackle it? Sure. You know, so I think, I guess just to give you a little history, but you know, traditional leasing in Chicago, which I'm familiar with in our 13 other markets, you know, 90% of it for its entire existence has been a B2B model where typically transacting through brokers,

00:25:57 whether they're our own brokers or whether they're partnership brokers. And I think what Regis has done really well for a long time and what we work and industrious and the others alike have done is they've captured that 10% B to C that traditional Traditional Brokerage companies don't have access to or don't invest time in. And I think the age old reason for that has been,

00:26:23 it's not as profitable, smaller deals. We get paid typically on term. So shorter terms, and it wasn't a good profit model for some of these large, mostly publicly traded companies. And so at stream given are privately held and we're agile and flexible and nimble. We saw an to potentially capture that 10% market share that we weren't and really launched rapid as a way to do that through we built a website,

00:26:51 we created a short form lease with DLA Piper. We trained our management and leasing staff on how to deliver flexible office space. And now obviously over the last 14 months coworking space and really saw it as a way to expand and innovate our traditional business and to deliver a much more profitable and partnership type of agreement for people like next Realty. We don't charge a management fee.

00:27:21 We don't have some long-term pay us first. And then you get paid in the, in the end, this is a true partnership to its name. And that we take a traditional leasing fee, a traditional management fee for our people. And then all of the profits are passed on to the landlord in this case, next Realty. And so for us,

00:27:41 when we saw, you know, six, 20 north LaSalle, it was like, okay, the infrastructure is there. The physical asset is set up for coworking and with a good landlord that has some time and money, we can get this going pretty quickly. And as evidenced by what mark said, his team and our team did a really good job.

00:28:01 I'm really proud of everyone on our team that did this in 30 days and delivered what we think is one of the best co-working options in the entire city at a really, really reasonable cost, because we don't have all that overhead. What do you w how do you think the full building will play out? Do you think it'll be a mix of kind of smaller users,

00:28:23 or do you think, you know, seventh floor I'll go to it. Do you have any predictions on that or is it, yeah, I mean, I think it was one of the first questions mark asked me when we signed this up to move forward Earlier. And I think again today, Adam, on the leasing call, Right, right. I get asked it a lot.

00:28:40 You know, my desk still is about half of it will be coworking and half of that will be traditional leasing. You mentioned it earlier in this podcast, Jamie, the traditional leasing world is slowly coming back. Unfortunately we're not in Texas or Florida where it's kind of fully back, but we're in Chicago. And as restrictions have loosened as the weather has turned,

00:29:02 as you remember, as a former Chicago and people come out of their hibernation, we have started to see a significant increase in traditional leasing. The coworking as mark alluded to has been ex excellent. We've signed 12 leases in 90 days, we have two to three tours a week ranging from a single office to a 20 person office. And so we're very,

00:29:26 very optimistic on the coworking side that we'll continue to be successful there on floors two and three, and then potentially expand up to four and five. But on the traditional leasing front tour activity has picked up inquiries affect up. And so we're hopeful through this, that transactions will start happening again and get back to, you know, I guess pre COVID type of activity and a very large market that's typically very active.

00:29:52 Yeah. And so the building may end up being 50, 50, 80,000 square feet. So a lot to take down for flex. I mean, it depends on what's happening in the market, like the scales nice to have, and yet it can, it can be a lot depending on the location. What about the spec suite product? Is that in the building?

00:30:10 Is that coming into play or It's a great question. We've explored it a little bit. And obviously given the investment we've made on the coworking, we're kind of waiting to see what the market bears before we make that additional investment, the floors are single tenants out of now. So the investment would be putting in common, our corridors and demising walls. And so it's a pretty significant investment from a capital standpoint.

00:30:36 But I think that, you know, ultimately this is a 80,000 foot bill. Well then, but it feels like a boutique building. And so we're confident that we'll be able to find single floor users, which is about 10,000 square feet and potentially go at it on one tenant per floor, potentially one tenant on multiple floors. Yeah. So I'm curious,

00:30:58 did you make any structural changes to the first three floors besides kind of swapping out technology and whatnot? Or did you sort of leave the mics in place? Well, we, we left it with the existing configuration. We just invested in technology and furniture to reactivate it. You know, during the construction process, we work closely with Regis in layout and leaving exposed brick.

00:31:24 There was one iteration where they wanted a sheet rock over everything. And I wrote a, I wrote a pretty intense email early in our relationship. And I said, guys, this is not what we signed up for. The brick stays Exposed brick everywhere. They did drop a ceiling in the entire building, mostly, which I think works in many areas,

00:31:46 but maybe not in others really for sound issues. It does. I know. Well, I told you I had the 18 foot ceilings in the west loop and I had to do, I had to do some ceiling dropping, which is hard to hard to keep the integrity of the space, but the sound issues in a model like this, it was pretty critical.

00:32:04 Right. So we actually heard that from some of the tenants who moved back into the building when they went to another product out west, you know, in Fulton market. And they said it all of a sudden became almost intolerable to talk on the phone or do what we're doing through our computers because of the noise and the feedback from their neighbor next door.

00:32:24 I like to say in some of those locations, you can hear your neighbor pick their nose. That's funny. It's kind of crass, but yes, totally. So Adam, back to the rapid model you service the so you've hired community managers, or I don't know if you have another name for them to operate the space. Was that part of your model already?

00:32:48 Or did you have to kind of add that to the team? Yeah, that's a good question. You know, we, when we launched this in 19, we looked at potentially multiple specs suites on a single floor or multiple floors. And we always had envisioned a community manager type person or employee. And so what we did is we trained some assistant property managers and a couple of the markets we launched in specifically Atlanta and then Washington DC.

00:33:16 And so, you know, we had the staff, we didn't have to go out and hire that staff. They were, they were playing a role within our company initially. And so it was just adding additional services and training to do that. Thankfully in Chicago, we had a really good office property manager and also a assistant property manager that had filled in at six 20.

00:33:35 And they've done a great job. They're there five days a week, like a traditional community manager and are there is what I like to call customer relations. And Jamie, I think as important on Adam staff is a young, I call him the kid cause he's the same age as my son who graduated college last year. And you know, he's just banging on the telephone,

00:33:58 knocking on doors. He signed his first lease at our building, which was a, you know, a pretty good, pretty nice momentous occasion and that young man's career. And I'm just knocking down one person suites, 10 person suites and learning, learning a lot on the job from Adam and Jess and a few other people at stream. So you're right.

00:34:17 Team is still separate. The woman who's playing the community manager role is, is not doing sort of customer acquisition. You have a leasing agent who does that. I'm glad you, I'm glad you both brought that up. It was one of the interesting things that we saw as a customer at industrious. And that is my partner in Atlanta saw in his partnership with WeWork,

00:34:38 but we've, we saw an opportunity and quite honestly, a disjointed strategy with non real estate people handling real estate transactions, which was always a head-scratcher to us because all of our people are in the real estate industry and deal with real estate. And so when we were exploring this idea and deciding who was going to kind of do the front end work of transacting and showing space,

00:35:03 it was like, well, we have all these leasing agents, so they should be doing that because that's what they do every single day. And so our team consists of really in our world is property management and brokerage. And so our team consists of a property manager or managers and then some brokers. And so we have a three-person brokerage team that works on six 20 north sail myself and two others.

00:35:26 And then we have an onsite community manager, as well as a senior property manager that kind of oversees this asset and a couple of others. And so, you know, our model isn't any than a traditional leasing and management agreement, which is obviously beneficial to our platform and mark here at this asset. Cause there's no additional fees, but they're just doing a lot more than a traditional leasing assignment on the front end and the back end of these transactions.

00:35:55 So if somebody comes in for a 20 person space who tours the leasing agent or the community manager, Typically both. So yeah, we, we, we always have a leasing agent on the tours, but given the experience and the physical nature of our community manager being onsite, we'll, we'll, we'll get them through together. Yep. I asked, because I think this is one of the challenges of bringing of the model that you're running,

00:36:22 right? Like mark, both of you work in entrepreneurial sort of agile, you know, all the things that make sense for you to, to be doing this together. And so, but you wouldn't necessarily have every role or every hat. And so thinking about the role of a community manager, like would mark have had that on his team? No.

00:36:44 So that's where Adam comes in and Adam, you guys have added that, which is right. It's the marrying of real estate and hospitality, right? That's what you're doing, which is not always common. And also teaching your leasing agents. You mentioned this, you know, early on in sort of talking about your competencies, how to translate requirements from like,

00:37:06 if somebody comes and says, I need a 20 person office, easy. If somebody comes to a leasing agent with some requirements, it's harder for most leasing agents to figure out where do they, how much space do they need in flex? Do they need running a specs, like how to translate those needs and then figure out how they get paid and all the things we see that it's a pretty significant barrier to leasing agents,

00:37:33 putting people into coworking spaces. They're just not used to that work. And so you're kind of putting all the pieces together and making sure everybody understands like the role where hospitality comes in, where leasing comes in, how everybody gets paid for the work that they do, because yeah, we seek, I mean, community managers wearing so many hats, I'm passionate about that role because it's pretty unique,

00:37:54 right? Like to your point, I see community managers do in tours for 20 person requirements and that's, and then they got, gotta plan the happy hour and fill the coffee. And it's a different, it's a lot for one person to do. So you've kind of separated those two. Yeah. I appreciate you saying that. We totally agree. And that's why we've bifurcated kind of responsibilities as it relates to those two roles,

00:38:17 because we saw a lot of convolution in that and some of the competition, I think the other and your company is called everything coworking. So I'm assuming you saw the Hulu documentary on Adam Newman, but you know, I think one of them is numbers we noticed in the industry was that there was a talk about network and community and opportunities and what we've found as,

00:38:43 as co-workers ourselves. And then as other partners around the country is that there was a large piece of the co-working customer community that just wanted four walls, walls and a roof. And they weren't participating in the happy hours. They weren't getting on the member directory and connecting with other people or talking about the next great startup. And so we saw an opportunity as a real estate provider to just deliver really good real estate Space,

00:39:12 right. With a really great person, you know, at the front desk. Right. Great customer service, great customer service goes a long way. And I think the one thing that maybe the documentary definitely didn't talk about. I Know what's Adams with diva community adjusted something. I can't remember what his fourth one is. I mean, I can tell he's a great salesman.

00:39:35 Anybody listening, who runs a P and L and runs a space is like Other than Mahsan, but that's okay. But so, you know, what we saw an opportunity to do through great landlords like mark and next Realty is, is just deliver really good space at really reasonable prices. And, you know, we have been doing that for decades on the larger traditional leasing aspect,

00:40:05 right? Whether it was through Ross space that was custom built by a tenant or whether it was through a fully furnished spec suite. But I think it was going that extra mile and furnishing them and wiring them and putting a community manager on site and just saying, Hey, we've got a great space. You can move in tomorrow. We've got this short form lease,

00:40:23 we've got credit card payment, we've got an online portal. And so a process that in our world can take, as you know, Jamie, anywhere from six to 12 months can be fast track to six to 12 days. And ultimately it was taking what we believed was missing in our industry and on office space and making a seamless lease transaction process and a really nice office space.

00:40:48 And with DocuSign technology Friday night, 5:00 PM, Adam sends me two leases designed. The people are moving in as we speak, you're having your Glass of wine and high five and your wife. I mean, Adam's story is a great way to start the weekend, right? The long holiday weekend. So it works out well. And we also think that there's a large population of entrepreneurial office users who Adam referred to as wanting four walls.

00:41:15 They don't want to call London. They don't want to call centers somewhere out of the country when they want to talk about either leasing space or turning on the telephone. They want to know that, you know, Andy, our community guys downstairs when he will take care of it or Adam or Curtis, is it just an email or a text away? Yeah.

00:41:36 They need another office or they want to, and I guessing, you'll see, you know, they want to go upstairs. They need more space. You know, then you're, there's a, there's a lot of savings in that ecosystem. Would you have flexibility to do in the building? I've had, it's been a while since he's been on the podcast,

00:41:54 but a gentleman named Mike Creel, he's an asset owner manager who also has an operational business in house and they see it all the time. And he talks about some of the numbers. You know, they save when people are, you know, going upstairs and that transition is so easy. Somebody loves the bill. I mean, you guys, it's a pleasure to speak to both of you because you know,

00:42:16 we read about sort of this theoretically, oh, Hey, dairy happening, right. People, there's a lot of sort of intellectual discussion about, won't it be great when this comes to fruition, but there's a lot of traditional folks in real estate who, you know, six months is fine. It's fine that it takes that long to get people into a space or,

00:42:39 you know, mark, you just want a traditional lease, get me a lease. I'm gonna, you know, so I mean, you're experimenting and you're still have a lot to learn, I suspect. And you'll, you'll see, you know, through your experiment, what makes sense and do it's really early. Do you have any thoughts of, of transitioning some of your other assets into being more flexible or is it still a wait and see?

00:43:02 Right. So W we don't have any call it, you know, other in multiple story office buildings in our portfolio, but what we do have, and we're talking about it internally is we have a 50,000 square foot single story flexi office, where you park in the parking lot. You walk in your front door probably built 40 years ago. Yup. I have a traditional 30 page lease.

00:43:27 And what I'm talking about is guys 10 pager. I want to do DocuSign. I will not negotiate it. And let's just roll this out to these. I'm buying another one actually in India, more of A consumer sort of process for getting into the space. Yeah. Right. So we have tenants that range from 400 square feet to 12,000 square feet.

00:43:47 And the lease can be the exact same. Yeah. W in those units, we don't want to do 6, 8, 12 month leases. We want to do three, five years. You know, we'll do a year or two with no leasing commissions and no Tio allowance. So that, that's where we're considering rolling out the process. Can you take the learnings that might apply to other aspects of how you run your business?

00:44:12 Yeah, exactly. Right, exactly. And the portal we're actually, because of what we're doing on LaSalle street, my next Realty as a company is rolling out a portal to it's 150 tenants, so they can pay by credit card right now. They call us on the phone, a few of them and say, Hey, can you run my credit card?

00:44:29 Not exactly comfortable, but we do it because we do it as a, as a, as a favor to them, but now they can do all that themselves. Yeah. Sorry, Jamie, just real quick to, the question is, you know, the institutional real estate world has been a late adopter to coworking as I'm sure. You know, I remember,

00:44:51 you know, three years ago when we work was growing at a clip rate and then, you know, industrious was right on their heels. And there was always a saying in that, in the capital markets world, well, coworking is fine as long as it's not 10 to 15% of the asset. And that was kind of the benchmark nationally for what institutional equity and debt was comfortable with on the co-working front.

00:45:14 I think what's interesting. That's happened over the last, you know, really two years, maybe three years is that this institutional capital world has gotten more comfortable with flexible office because they understand that's what the customer wants. But I think more specifically, and maybe you've talked to some of them on this podcast is, is some people are taking this in house themselves and going beyond even just dream Realty partners as a partner in equity office,

00:45:40 obviously, and Tishman Spire has taken and created coworking and flexible office in house. And I think what ultimately has happened is that institutional equity has realized they've been in the coworking game for a very long time through partnerships like we work and Regis and industrious. And what they've found is that it's a very profitable business that can potentially be done internally or through a partnership like we work industrious or Regis.

00:46:07 And so we think that there's another traunch out there, whether it's a partnership through us, like at stream or whether it's through some other real estate companies, obviously some of the larger competitors are starting to learn through Hannah and partnerships with Notel and others is that there's somewhere in between signing up with an operator or taking a totally in house that I think can be amenable to some of their business objectives.

00:46:32 And I think that the institutional real estate capital world will get behind that because they'll ultimately understand, as market said, it's not just small users that want in short form leases and credit card payments anymore. We're seeing tenants that are 15,000 square feet that are signing three-year leases on DocuSign and paying if you would believe it through credit card. So we've Also seen the same thing with the capital markets,

00:46:55 Adam and Jamie, our conversations have been with the lenders. You've been lending on apartment buildings for, for a hundred years. This is now the apartment building of the office, bill of the office world. I have a six hour, one year lease and they're either going to move in or out. Quite frankly, my, my term, my, my ability to turn the office is a lot cheaper than turning an apartment.

00:47:15 Yeah. So why, you know, what's the difference in asset class? So, you know, w when you say that to them, you know, they scratch their head and they say, wow, maybe. So I think they're moving in the right direction. No, I'm so glad that you both brought this up. So I actually have a podcast going live today with Franco is his last name for Rado from prop Modo.

00:47:37 I don't know if you guys read, read prop Modo. So he had written an article about the institutional lenders, like just cannot compute and, you know, his sort of art. He interviewed a bunch of folks that just like, couldn't, couldn't get behind it. And so I think for a lot of folks that can be challenging cause you also need sort of an entrepreneurial lender to get behind your entrepreneurial spirit about what to do with this building.

00:48:03 And I think the lack of public transaction data, right? So you've got the IWG, you've got a surf Corp is public, but there's not a lot of public data around, right. What is the average tenure of a, of an office tenant or a co you know, there's just a lot of data that's not available for the lenders to, to sort of understand what the risk is.

00:48:25 Right. I think the lenders have to have to underwrite the owner and in terms of the owners, hands-on ability to support stream and whoever else to get this done. Because if the owner is a, hands-off just like, you're hands off in an apartment building, you're going to wind up with a high vacancy one day and you're not going to realize It.

00:48:44 That's right. Yeah. I, I, you guys have shared a ton of good nuggets. I think mark and Adam, I think my, my parting question would just be, if, if others are thinking about this, if there's a landlord listening who maybe is in a similar situation, cause I hear a lot of these stories and like I said,

00:49:02 I always want to get in their head. So thank you for letting me get in your heads. You know, what are a couple of things you'd tell them to think about when they're thinking about what to do with the asset? So, well, first I got to put a plug-in www dot six 20, and lasalle.com. Please go there and check out our building.

00:49:20 I think the biggest surprise to me was the investment in time that the digital pres presence required you, you had to let the world know that this building existed. And how do you read this is a brand industrious as a brand novel note, tell their brands. As everybody tells me, including my family, I'm nobody. I got to let the world know that this exists and,

00:49:48 and we've done that. And we've done a lot of building signage and Adam's website and his ability to get it out into the marketplace has got there. So I think that for me, that took a little bit longer And mindset shifts. Yeah. Yeah. So I mean, to Adam, I mean to Adam's point 12 leases at 90 days, that's pretty good.

00:50:09 I mean, my benchmark, and if you don't have a partner, you know, someone who's willing to really go show a one office space, a one-person space, you're just not going to be successful to your point. Having the community manager try to lease space when they really only know how to make sure that kombucha is filled, right. And the coffee and whatever is done and be nice.

00:50:30 It's not going to happen. You need experienced people in the field. Yeah, no, I think that's yes, we have. So I will say we have community managers who listen, who do manage. I think it's a, it's a very unique situation where you sort of find somebody who can wear all those hats. So you're, you're taking risk when all of that sits with one person,

00:50:51 Adam sort of thoughts. And also, yes, you mentioned the website, but anything you want to share about how people can reach out Adam, I'm sure if there are other asset owners listening who are interested in a partnership, make sure they know how to find you. Yeah. I think my answer would be be open-minded the traditional way of leasing office space is not as efficient or effective as it used to be.

00:51:16 And I think that the ultimate customer who's, these tenants wants a different way and it's something that has been somewhat delivered to them through other operators and companies. And it's something that can be delivered that through them, through institutional owners and through institutional real estate partners like us. And so I think we're excited about the opportunity to deliver what the customer wants. And we feel like we have a really good platform and a business unit built around the customer,

00:51:46 which is ultimately the business that we're all in is delivering the best service to a customer in our world that's real estate. And we think we found a really good way to do it. I love it, Adam, how can, what's the best way to find you? I have your LinkedIn profiles hooked up in the show notes. Thank you. I have to commend our,

00:52:04 our marketing and PR team. I'm really not hard to find on the internet. Nowadays stream Realty partners invest a lot of capital and PR and marketing, but we're at stream realty.com and you could probably just Google Adam show Walter Chicago, and I'm sure you'll find my contact Info. Perfect. And mark, I'll add six 20 and lasell.com to the show notes as well.

00:52:29 That would be great. Thank you. Thanks. Well, thank you both for taking the time to do this. I know your travel schedules are a little intense and just getting this new partnership off the ground. I'm sure keeps you busy. So lots of folks listening who are thrilled to hear some of the nuggets you shared. So thank you for spending the time,

00:52:48 right? Jamie be well, Thank you, Jamie. Come see us in Chicago, Stan. I can't wait. Absolutely. And we Offer day passes, Jamie. Okay, perfect.

For the full show notes of this episode, click here.

Want to join our coworking conversation in the Everything Coworking Facebook Group? Find us here!

Looking for a specific episode? Go to the episode index here.

Jamie RussoComment