236. Coworking Q&As: Negotiating Management Agreements, Taking on Investors and Partners, Managing Phone Booth Use
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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
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236. Coworking Q&As: Negotiating Management Agreements, Taking on Investors and Partners, Managing Phone Booth Use
00:00:01 Welcome to the Everything Coworking podcast, where you learn what you need to know about how the world wants to work. And now your host co-working space owner and trend expert, Jamie Russo. Welcome to the Everything Coworking podcast. This is your host, Jamie Russo. We are jumping into the new year with a new format that we're testing. I'm going to run through some Q and A's from our Facebook group.
00:00:41 If you're not a member of our Facebook group, you should jump in and we have almost 2000 members. So it's a pretty active group. And we have some really awesome contributors that jump in and answer questions. So go find us. You can find us by just typing in Everything Coworking, you can search by groups, or if you go straight to our shortcut URL,
00:01:04 Everything Coworking club.com. So I just picked a few of the most recent questions to dive into, and they are good ones. If you are watching us on YouTube, but we are putting some focus on our YouTube channel this year, you can find us on YouTube and my screen is up. You can see the questions. You can see some of the comments that are being added.
00:01:28 So here we go. Question number one that we're going to answer, and this is timely moisture. Em, I hope I'm saying that, right. Says, hello everyone. We are working on some management agreement deals with landlords in Mexico city. Does anyone have a management agreement draft that you could share with us? Thanks. My awesome news. I think there's so much opportunity for this right now.
00:01:53 We have folks in our management agreement course that are working on deals all over the country and apparently in Mexico city. So congrats. That's awesome. Here's what I would say about using someone else's management agreement draft, not a good plan because you would then be sort of going down the rabbit hole of using an approach that is a fit for whoever it is that shared that with you,
00:02:22 but not necessarily a fit for the deal that you're working on. Here's the thing about management agreements is they, no two deals are the same. So when you're negotiating a management agreement, it is really about what's important to you. What's important to the landlord and no landlord is going to be the same. So they will have certain priorities, certain interests,
00:02:45 access to different capital, the ability to fund different aspects of the project. So what you want is all of the negotiation points. So every aspect of a that get negotiated, and then you want to understand what the, what the possible terms are that you might negotiate and what the trade offs are for each of those points. So that way you sort of have this sample outline that you work from,
00:03:17 and you understand each point that you want to go through and discuss with your landlord and how that might come out. And it's going to come out differently for every single pair, right? Because again, some things will be important to the landlord and they won't be, you know, they won't budge and some things they'll say, okay, that's fine. Let's do it this way.
00:03:37 Let's do it the way you want to do it here. So you don't want to start with someone else's agreement. What you want to start with is what gets negotiated and what are the sort of range of terms that are appropriate here. So anything from who pays for the furniture to what's the profit split to, from, to who pays for the build-out to,
00:04:02 I'm trying to think of what else? Lots of aspects. I haven't looked at, looked at our list in awhile. So a little plug, I partnered up with Michael Abrams, who is a real estate expert. It's been a developer, he's been a landlord. He's been in the flex industry. And we created a course on management agreements and module three covers exactly what you just asked for,
00:04:24 which is that sample, you know, how do, or how do we work through the negotiation points? So that's what I would do. I think it's really, really risky to start with someone else's agreement because it'll eat, it'll focus you on where they've anchored in their negotiations versus what's possible. Okay. I'm going to stop that one there. So operations plan,
00:04:53 booking plan I wanted to jump into. Okay. I thought this one had some funny responses. So carrion to Hahn. Hope I'm saying that one right too. She posted yesterday. Hey everyone. I'm curious to find out how other coworking spaces manage their phone booths or their call rooms or better. What phone booth call room policy do you have in place?
00:05:16 Is there a max time each member can reserve the booth. Are there a certain amount of phone booth hours included in a membership? And do you charge a fee if members exceed those hours? How do you prevent someone from occupying the booth for hours and hours on end booking forward to hear about other phone booth policies? Thank you in advance. Okay. We had some good conversation here.
00:05:38 So Jerome Shang who's one of our group experts jumped in. He runs a brand called blank spaces. He is an OJI. He's been on the podcast in the past. He says we put a remote switch to be able to blink or turn off the lights, which if that's true is completely hilarious. I can just picture his team at the front, like flipping that switch and saying,
00:06:04 okay, time's up. You need to get out. That's a lot to keep track of. Yeah. So Carrie Ann responded and said, that's a good one. And how long will the lights blink? Jerome said, it's manual. How often? You'd like to have a blank. Jerry Stewart sucker. I heard another owner mentioned that they have some phone booths without chairs in them at a standup desk.
00:06:29 And then people naturally exit after a bit because they're standing up for so long. I was thinking about a good mix of each, but you're bringing up a good topic. Carol did. Giovanni says we charge by the quarter hour for phone booth use and it's reserved through our member portal, dedicated desk and private office members can use their conference room credits in the phone booth zoom room.
00:06:50 We're still so new, but we've had no issues with someone staying in the phone booth for an unreasonable amount of time. Okay. So I love this all three good solutions. You might do a combination of each or figure out what works for you. Here's what I would say. If you are pre opening, this is something you really want to think about,
00:07:12 and you really want to be intentional about what your policy is going to be, and you want to stick to it because if Karen has already opened and I suspect she might be the challenge she's going to have is managing change, right? It's hard to manage change with our members. They get used to things. They get used to unlimited access to the phone rooms,
00:07:33 and then they feel like we're taking something away from them when we make a change or put a policy in. But sometimes we have to do hard things. So I love a mix. So I like to keep it really simple. And I think simple is not letting your team manage it. Not, you know, as much as I love the blinking light.
00:07:55 I think the blinking light is like a last resort. And very funny, it could add some humor. I think humor is a great way to sort of help manage challenging situations, which are community managers have to do all the time or owner operators. So I like having a policy in place where you get some time in phone rooms. And I think this is what Carol is mentioning.
00:08:21 Like, look, you get some included in your plan. You can use meeting room credits or you can use phone room credits. And here's the thing I love about this. You probably know this from your membership generally like 80% of your members will not really use their meeting room credits. So if you give them phone room credits, that feels very useful to them,
00:08:41 right? And they probably will use them, but you're giving them access to something they need. We've had this discussion on our Flight Group calls. It, it seems that folks feel weird going as an individual into a meeting room, that's set up for four people and using that space for zoom calls or phone calls. Oh, strange human behavior thing. But I think that that is probably the case.
00:09:08 And we talked about that seeming to be the case. And that it's great. If you can give folks what feels like an individual phone room, which has good acute acoustics and help them manage themselves in that room. Right? So give them a way to book the room. You can set up your phone room as a bookable asset in your management platform,
00:09:29 just like you do a meeting room. So if you're using Office R and D proximity, whatever it is, you're using set that up as an asset and let people book it. Now the trick, and this is why maybe Jerome had said is light flicker is that you have to count on people getting out of there on time. And I know I have reserved phone rooms and I lose track of time,
00:09:50 or I, I book it until noon, but my Collin's at noon. And so now I'm, you know, answering emails and winding down for my meeting or doing some follow-ups. And I don't realize I'm now 15 minutes into somebody else's reservation. Hopefully they're going to knock on the door or drums can kind of flick that switch. You can manage that by having tablets.
00:10:10 They do not have to be expensive iPads. They can be refurbished tablets inside of the room that shows both, you know, insight. You can have them facing both ways inside and outside. So that it's very clear who has the reservation. I think they can also be set to kind of blink they're green when your reservation isn't progress. If they turn red,
00:10:30 when it's time for you to get out. So that's a little bit of investment. It depends on how many rooms you have and whatnot, but that I've seen that technology work and it works well. So I think given the volume of zoom calls and phone calls that folks need to make these days, and if you are onboarding new members, it's probably the case that those new members have phone calls to make,
00:10:53 make it really easy and really clear for them to book. I also think the other advantage of being able to book the time, even if they're paying for it in credits or just paying a fee is that they have the peace of mind that they will have access to that room. So when I book phone rooms, there's a coworking space. I've mentioned this,
00:11:12 that I go to, we have spent a lot of time skiing. So we rent a place in lake Tahoe for the winter, and there's a coworking space that I go to and I can go online because I'm online as a member. And I can book a phone room for the important calls that I have. I don't want to show up at the space and worry that I won't be able to get access to one.
00:11:35 I want to reserve it in advance. And if I go to reserve it and all the slots are taken, then I can make a different plan, right? I'm not mad at the coworking space at that point. I know I waited too long to book it and I just need to find another solution. And maybe that solution is the meeting room, or maybe it's,
00:11:50 you know, I stay home and hope the internet works as it should. So I love the peace of mind of booking. I also love that it really assigns value to that space that you're providing, because otherwise those are sort of like non-revenue Jane are generating, you know, non licensable spaces in your coworking space. And if you have a lot of them,
00:12:11 which some of you, you know, might be seeing, you need to add more as your members are, are online, a lot more on zoom calls, et cetera, than being able to monetize them is really helpful. And you can make it a really small amount, but again, it lets people plan in advance and lets them, lets them appreciate the value of having those spaces.
00:12:32 So your space management platform should be able to handle that. Okay. That was a long time on that one, but it's a hot, hot topic. Hey there, our next cohort for our management agreement course called the creative Coworking partnerships is starting on Monday, January 24th. If you are a landlord or a coworking space operator, looking to get into a creative partnership structure,
00:12:58 to put a co-working flex office into the building that has the right upside for each party, while being confident that you've covered all the who does what and what ifs before you commit, then you need to become an expert on how management agreements and other creative deal structures, bark. I've partnered with management agreement, expert and real estate expert Mike Abrams to develop a course covering structuring and negotiating management agreements and other creative partnerships from A to Z.
00:13:30 If you are a coworking space operator looking to expand through our creative deal structure or your landlord looking to add Coworking or flex your building, we designed this course for you. You can get all the details at Everything. Coworking dot com forward slash management agreements. The course is online and it's actually available anytime, but we like to run cohorts because we feel there's a ton of value in participating in the group calls.
00:13:59 So you can get your questions answered live, and you can learn from what others are up to because we have a lot of folks who are actively negotiating and jumping into their creative Coworking partnerships. Right now, we actually launched this course almost a year ago, which seems crazy. We invite any past students into our new cohort so that they can continue to learn,
00:14:21 continue to get questions asked because we know these deals can sometimes take a while to get done. So the next cohort starts on Monday, January 21st. So sign up now so that you can jump into that cohort. You can get all the details at Everything Coworking dot com forward slash management agreements. Okay, hold on. Oh, this is a good one.
00:14:44 I don't have all the answers here, but I thought let's do this one Shelby beach posted the other day. I'm looking for any advice can get on investors. Wondering about initial investments and ROI. Also looking for advice on partnerships. My coworking space will feature salon spa services as well as a yoga studio. Does anyone have experience with these? Thanks so much in advance Shelby.
00:15:06 That's a lot going on for one coworking space. So investors and partnerships are two really big topics that you want to think a lot about before diving into. So there are Jess Bommarito posted a comment which was really helpful. She said, I don't have investors in my Coworking business, but when I decided to buy the commercial building, my space was renting from,
00:15:30 I pulled in financial partners and we started a separate real estate court. Not sure my experience is relevant here, but happy to answer any questions. Thank you, Jess. Jess was on the podcast early, maybe April ish. I'd have to look 2021 and she is one of the top episodes. So if you have not listened, just Google, Everything Coworking and Jess Bommarito and you'll find her episode.
00:15:56 And it's a great listen. She talks about adding a digital membership layer to her Coworking business and she and her husband also own the building that they're in and they're in Canada. Okay. So I'm going to start with the investor piece first, but it is related to the partnership piece. Make sure your know your numbers are really, really well. So it feels like you maybe have a concept and you're going to include salon spas services and a yoga studio.
00:16:26 If you are going to take on investors, do you want to be very, very confident in your numbers? Although I have to mention this, I am addicted to the audio documentary on Theranose, which was done. I think it's by ABC audio, it's a podcast version called the dropout and I cannot stop listening to it for whatever reason. It's just as a really interesting storyline,
00:16:50 although they, they repeat a lot of their audio tape. But anyway, as I say, I'm really a big advocate of, you need to know your numbers really well, and you need to believe in those numbers and their nose was all, you know, a big farce and they had million dollar partnerships with Walgreens and Safeway, and it was all a big lie.
00:17:11 So there's that. But anyway, you want to know your numbers really, really well. You want to be conservative and you want to know that you can hit those numbers. So this is like a really interesting balance. If you're brand new at operating a space, if you might consider operating some version of your model without investors, if you are able to do that,
00:17:35 just to prove the concept and instill some confidence in your ability to run the model. If you have a lot of business experience and you think you'll be really compelling to investors, maybe you don't need to do that. I do think it is somewhat complicated to combine Coworking with other services like the spa and yoga. I don't get super worried about the model where you're letting service providers rent space.
00:18:04 I have folks in my programs that are doing that, and that's a really great amenity to your members, but also service of revenue, but it's really hard to be running like a spa model and a Coworking model all at once and the yoga studio. And I will tell you, the yoga studio is generally very hard to monetize in the Coworking concept, unless it really fits into a broader sort of lifestyle club concept.
00:18:32 Then I would be careful about calling it Coworking. So many, many folks will do yoga, but they won't really commit to doing it at the coworking space and it's hard to monetize and it takes a lot of space. So I had a fitness studio in my space in Chicago, and it was seen as a really valuable amenity. And it was part of my overall brand.
00:18:55 My brand was interspace for energy and my tagline was work well. And I will tell you that I struggled all the time about whether I wanted to leave it as an amenity that I was not really monetizing or I wanted to turn those into private offices. That was a struggle I had all the time. So you want to be really realistic about sort of how much share of wallet.
00:19:18 You can pull into a space where people are thinking about working again, unless you want to make it a broader concept. And it's more of a club concept. Tessa, I am blanking on her last name. It'll come to me. We had a podcast guest several episodes ago. She operates club quench in Victoria, Canada. So have a listen to that episode,
00:19:47 as you're thinking about this concept, I think that will help and sort of follow her online. It's super interesting. And she does really, really well, but she's a broader sort of club concept, not just Coworking. So back to the investors, I want you to be really confident in your model, and I want you to do lots and lots of due diligence about how monetizeable or how to monetize the services within your space.
00:20:14 There's a space in Tucson called the L offices and they have a fitness studio and crystal does an awesome job at monetizing that space. I won't share, you know, all the details, but she's been really focused on how she does that. So it takes up real estate, but her members love it. And she has some training and some classes that are going on in there that she gets paid for.
00:20:36 So there are definitely ways to do that related to partnerships for anyone that works closely with me, you know, partnerships make me very anxious because they can be fraught with challenges. So if you are thinking about taking out a partner again, you want to be very careful about the model and really with the model. What I mean is you have to find the sweet spot of the size of space and the pricing and the offering and aligning with your target member so that you create a space that generates enough profit to pay back your investors and to pay you and a partner that can be challenging if it's not on a pretty big scale.
00:21:18 So you're probably looking at a space that's 20,000 square feet in order to be able to give any sort of real return to investors and have profit to share between you and a partner, unless you probably, even if you own the building owning the asset, as Jess mentioned, is a really, really huge advantage, especially when you're experimenting with the model, experimenting with a new model and having to pay rent is really,
00:21:46 really challenging. So I would plant the seed. Could you look for a building to buy and get the investors to help with the building asset, as I just mentioned, and then create kind of a favorable ramp up situation where you're not paying full rent until you really got the model down. So I think there are some creative ways to think about that.
00:22:08 So maybe my other piece of advice would be don't rush into this. And also anybody who's listening, please jump in and give your advice to Shelby. You can jump into the Facebook group. I know we have folks who kind of lurk around and don't always answer questions or ask questions, but we have a lot of really experienced folks in the group. And if you have experienced,
00:22:32 you know, with investors or partnerships and you want to share with Shelby post in the group, or, you know, you can DM shall be as well, but we love it when you post publicly. So we can all learn partnerships. My big advice would be besides knowing the numbers and making sure there's room for a partner and that you can still achieve your goals.
00:22:52 Make sure you have an operating agreement that is legal, that is get an attorney, get a good template and make sure that it's executed. And it's on file. And you're working from this operating agreement. So the operating agreement now is kind of like the management agreement, where you're outlining all the ways that you'll work together. Who's responsible for what who's putting in,
00:23:13 what money who's getting paid, how they're getting paid when they're getting paid, what happens if something goes wrong, how you get out? What happens if someone dies, you have to answer all the what ifs and it's a lot of work, but it's really, really, really, really important because I think partnerships really fail when there's not clarity around roles and how things work and who gets what out of the deal.
00:23:37 And so you want really, really clear expectations for both parties going into the arrangement or else somebody might have failed expectations and want out. And that will be challenging because you have to figure out if you don't have anything in writing who owes, who, what, how do we buy out what, you know, just too much to figure out. So be very,
00:23:56 very, very clear going into this. And the challenge with the sort of pre-launch part of the business is we get excited about our ideas and we want to dive in and we don't want to deal with all this like legal and paperwork and slowing down and doing the numbers and, and all those things. But it's super, super important. And Shelby, I will mention,
00:24:19 I run a Coworking Startup School and the very, I think it's the, it might be the third module is all about the numbers that we just updated our financial model. And it allows you to kind of plug in what you're thinking about what your assumptions are, and it will give you an output of a sample performance so that you can kind of play with the numbers.
00:24:41 You will have to do some customizing because you have some additional services, but start with the numbers and then look at, okay, what, you know, what, what makes sense in terms of getting investors, should they invest in the operating business or should they invest in the real estate? How long, you know, is their investment period. Here's the other thing I will say about investors is if you sign a lease,
00:25:06 it may be that you do not break even on the project until month or sorry, year three, four, if there's a really expensive build out, it could be five years. So that's a really long timeline for investors. And so you want to get investors that understand that or that you create a structure. That makes sense. So you may have positive cashflow after say year one,
00:25:38 it depends. We hope, but you may not sort of pay back the whole project until year four or five on a lease, which can be really challenging. So you want to structure payment to your investors that allows you to pay them, you know, give them their dividend or how, you know, however you're structuring, you know, in years,
00:26:00 two, three, et cetera, but you may have to ramp that up over time. And you'll want to think about, anyway, you'll have to kind of, you know, do some real work on the numbers to look at time and the rate of return that you can give them and make sure that it all makes sense. There are lots of folks who open spaces with investors.
00:26:18 It certainly gets done. You just want to be really, really careful. So because managing investors is like managing a boss, right? You have to constantly have your monthly reporting. You need to have good dashboards, good KPIs in place. So that they're confident that you're doing the right things. Even when things don't go, as you expect. So those surprises,
00:26:39 all those things. That's another thing to kind of take on is you're starting a coworking space. Okay, I'm going to leave that there and stop here. And we'd love some feedback. If you like the Q and a format, let us know. If you have a question that you want answered, you can email us directly or just post in the Facebook group and we'll hopefully we will get to it.
00:27:00 So I hope you guys are off to a great week. We're in the middle of January already here. So I'd love to see you in the Facebook group and we'll see you on the podcast and on YouTube next week with a great interview. Hey there, thanks for sticking with us through the end of the episode, don't forget to subscribe on your favorite podcast player.
00:27:23 And if you were enjoying the podcast, please go leave us a review. It helps other folks find the podcast who are thinking about starting a coworking space or already operating a coworking space and are looking to stay up to speed on tips and trends. And we started a YouTube channel. We'd love to have you catch us on video. You can join us for podcast,
00:27:48 videos, and Q and A videos and other things that we post to the channel. We'd love to see you there.
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