248. What’s new in Coworking Management Agreements with Mike Kriel, CEO of Launch

Everything Coworking Featured Resources:

Resources Mentioned in this Podcast:


TRANSCRIPTION

248. What’s new in Coworking Management Agreements with Mike Kriel, CEO of Launch

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 coworking space owner and trend expert, Jamie Russo. Welcome to the Everything Coworking podcast. This is your host. Jamie Russo. Thank you for being with me. Once again, our guest today is going to talk about managing and agreements.

00:00:38 And my guest is Mike Kriel. He was on the podcast and episode 122, which was October, 2019 before everything changed. So the episode today is just to kind of share what's not new related to management agreements and what is new. So Mike is the CEO of Launch Workplaces, and he has locations in DC, Maryland, and now Cleveland. And he only does management agreements and he has decades of real estate experience.

00:01:14 So as you listen to him, talk about his approach, just keep in mind that he represents a rare breed in our industry. Someone who has a lot of real estate experience leveraged flexible workspace in buildings that is company owned in order to solve a problem that they had, you know, around vacancy and offering flexibility. And they realized this works really well.

00:01:41 So they leverage Coworking and flex in their own assets. And then also extended that model through management agreements with other asset owners who also wanted to offer flex, but didn't want to run it themselves. So Mike has been doing management agreements for a long time. He does exclusively management agreements. He negotiates them himself. He does a lot of things on his own that the average bear would not want to attempt.

00:02:10 So keep that in mind, as you listen to his perspective, he's very experienced. So we talk about kind of what's new, what's not new. And I think everyone's interested in management agreements. And I think obviously I think about the industry all the time. I work with folks who are doing management agreements, Michael Abrams, and I are in the middle of our first cohort for January, 2022 of our management agreement course,

00:02:38 which is called creative Coworking partnerships. If you want to learn about that, you can go to Everything, Coworking dot com forward slash management agreement. We will run another cohort probably in March or early April, but folks in that group are doing deals. They're mostly doing deals with landlords that they know. So either a landlord that has seen what they've done on a lease or a landlord,

00:03:01 mostly that. So I'm not necessarily brand new relationships and it's an extension of a relationship, but it's solving a challenge that a landlord has. They want to offer. They want to activate another building, or they have a tenant that left and they need to reactivate that space and they want to do it, you know, under different conditions. They want a partner.

00:03:27 They want to be a part of solving this problem. I was just in Denver for a GWA board meeting. So the GWS, the global workspace association, and we had not met in person in two years, I think. So it was amazing to get together. We at our meeting at shift workspaces in one of their downtown Denver locations, which was a complete treat,

00:03:55 beautiful views and beautiful experience, great catering, all those things. And we just have lots of great conversations about what's happening right now, Giovanni pelvic genie, who I need to have on the podcast to do his 20, 22 outlet. You know, it was talking about how management agreements are not a substitute for leases. This was like his kind of big frustration.

00:04:17 And I thought that's important framing. And Michael and I talk a lot about that in our course, but I'm not sure we talk about that a lot in general, right? You, you can't like talk a landlord into doing a management agreement when what they really want is a lease just because you don't want the lease anymore. They have to want what you're offering and they have to be open-minded about how they get that.

00:04:43 Or they have to want to offer it themselves, but not want to operate it. And so the solution, there is a management agreement, so it's a little bit subtle, but I think it's important. It's about the mindset of the landlord and what they're looking for. It's not first about what you want, which is not to pay for build-outs anymore.

00:05:05 And frankly, if you can pay, if the landlord is going to pay for the build-out, but still wants a lease, that might be fine. I was talking to an operator yesterday who has that experience. And I said, how are you signing a lease in that location? And she said, oh, well, the landlord's paying for the build-out and we're going to take a lease.

00:05:23 And I said, okay, you should probably do those deals all day long. So I think that's super important, but yeah, it's, the management agreement is really, really interesting at this time. And it's becoming more interesting to landlords, which is great news. And we see that in our, in our management agreement course, we do a live Q and a call.

00:05:50 So we get kind of the inside scoop on the deals that folks are working on and what they're negotiating. So anyway, my point is, Mike is very experienced. He's done a lot of these deals. And so he's sort of on the leading edge of management agreements, he operates large spaces. He operates a number of them, take a look at his website,

00:06:15 kind of see what he's up to. I always think it's great to sort of just really try to get the inside view of people who are successful with models that you want to pursue. You know, what is it that they're doing, but also know that in our management agreement group, we have what you would call it, you know, smaller local operators who are doing these deals and expanding and doing,

00:06:37 you know, location two and three with, with creative landlords who want them to be involved. And they're working on some pretty exciting projects. So, okay. We will jump into our conversation with Mike. Welcome. So I have a guest with me today, Mike Kriel, CEO of Launch Workplaces. Mike, the last time you were on the podcast was episode number 122.

00:07:03 And we are in the two thirties to forties ish at this point. So I'm so glad to have you back to do an update. And if you haven't listened to episode 1 22, I often tell folks don't go back too far because this industry moves so quickly that, you know, I don't want people exposed to information that is, you know, a little dated at this point,

00:07:27 but I think 1 22 is still really valuable, but we're going to do kind of an updated state of the union on, you know, particularly on management agreements, which is the model that Mike run. So Mike, thank you for taking the time to come back today. Yeah. Thank you. It's good to, I didn't realize we were over a hundred episodes ago.

00:07:48 Isn't that crazy? I Have to admit, I haven't heard all of them since, but I do. I will say I do. You're still a reference. I listened to episodes. I try to answer questions on the Facebook platform and I know, I see, you know what I'm going to publicly. Thank you for that. I see you pop in.

00:08:08 Sometimes I'm like this guy is busy and he's in the Facebook group answering questions for people, which is awesome. So yeah. Okay. So for those that have not, were not with us a hundred plus episodes ago, give us the, and you have some, you know, kind of some, some shifts recently, give us the update. Who are you?

00:08:31 What does your portfolio look like? And then we're going to kind of cover management agreements. What's not new, what's sort of persistent, but also what's changed from Mike's perspective. So I'm looking forward. So yeah. Tell us about Mike and Hold on. I got people flagging me down in a windowed office, great danger, danger. I don't have the air sign on my Creole from Launch Workplaces.

00:09:01 We started in 2014, but pertinent to this discussion today, 2018, we started our third party management platform, purposely solely management agreements. So today we have nine locations that are open with management agreements, three locations that are open with what we call service agreements, where we don't really manage the entire, all the aspects of the business. We just do pieces of it.

00:09:34 And then we have two signed deals that we shelved. I think we signed them both literally the week COVID swept the country. So we just said, put them on hold for now. Looks like we're going to bring those back to life. Probably Q4 of this year opened four locations in 2021, which is a little bit scary, but mostly more fun than scary because we actually were able to look forward versus sit still in our tracks Feeling like,

00:10:09 okay, we're making progress. And I'd also love you to mention, I'll let you keep going, but the geographic locations of your portfolio, cause that's another thing that happened in 2021, right? Your, Yeah. We're mostly around the DC. Well, I am now in urban DC was able to take over a couple of the make office locations when they shut their portfolio down.

00:10:35 And then we opened our furthest locations. We have two in the suburbs of Cleveland, one on the west side, one on the east side, which I learned there's this natural rivalry, which is great because since I'm on both sides, I, I I'm right down the middle. I get to route through both sides of Cleveland, great markets, terrific owner,

00:10:57 great assets and all the stuff that everybody dreams of. So looking forward, we were very happy as I, hopefully most people were the last six months of 2021 was a great windfall of, Are you going to quote your, your biz now Salary and just demand? Yes, that has more itself out. I believe my kids tease me when I come down on Saturday morning,

00:11:29 like, was there outrageous demand? You guys made you point if You need media training, call Mike Kriel Soundbites. That's the cake. Exactly. Hopefully a lot of people did well, really we're very mainly suburban. Our suburban markets were just wonderful for the last six months. Very happy for that. Looking forward deals look robust right now. I'll say what I,

00:12:02 what, what we saw we had some owners are still kind of, let's play it out a little bit, right? There's a lot of different opinions on what's going to happen from, you know, work from anywhere to be forced to come back to the office and everything in between. So there's a fair amount of owners. Like let's just let it play out a little bit.

00:12:23 And some owners, especially in the trophy category, kind of don't really care, you know, flight to quality during downtimes and my building's doing fine and that's great. And then some owners were, Hey, I need flexible and I need it now. So we've seen, we've seen the sales cycle on some of these owners, very motivated, literally from first phone call to redlining management agreements inside of 120 days,

00:12:58 which is unheard of. I was going to say, we'll put that in the what's new category. Yeah, Yeah. Yes. That'll, that'll we'll come back to that one later. So it's, it's an exciting time, but what we talked about and what we'd like to share on, on the call today is there's still basic principles of a management agreement.

00:13:19 If you go back to episode 1 22, you'll hear the same thing and then, you know, kind of what's what's different or what, what do we see that's been different for us? So the first thing I want to emphasize, all right, management agreement is still difficult. It just because the world's changing doesn't mean that these things are layups. And I know you guys referenced this all the time.

00:13:45 Each one has its own nuances. Each one is unique to the, each one brings different challenges, different opportunities to negotiate things at the end of the day, right? I say, don't just do a deal to do a deal. I have told more people in the last six months, I wouldn't do that one. Then I have helping other operators try and get through their first management agreement because everybody wants their first one.

00:14:15 You never forget your first one, but don't do your first one. Could you might not get a second one. So win-win has to be a win-win you have to be transparent. You have to be very clear who does what, who doesn't do what you have to be very clear on. How's the owner going to recover money? How are you going to get paid?

00:14:41 And I think I emphasize this a hundred episodes ago, if this does end and it can infer a variety of reasons. It's not just non-performance it, it could be the owner sells the building and you have language in your agreement that says, let new owner doesn't, isn't stuck with this. I mean, it may prove to be a good model, but what if it is?

00:15:06 So how do, how do we get out? How do we get out? If it is poor performance, how do we get out of it's negligence? And, and, and I, I, you know, I was on a podcast and I made a joke like, you know, when you you're dating the really beautiful other person and you start dreaming of being together,

00:15:25 it's hard to just make yourself go. Well, what if it doesn't work out right? This is awkward conversation to have, but having, and on top of all that communicate it really, you really need to have a partnership. I can give a bunch of examples of things that there are other, a lot of our owners right now are asking us our opinion and for our help on other places in their buildings.

00:15:59 So again, this is probably covered in a million, you know, how to books now and management agreements one-on-one, but you've got your four walls. And if that's all you're ever concerned with, you're not a partner. I mean, it's a priority, but if you are diligent and smart enough to understand what else is going on in the building, what type of tenant mix does the owner have?

00:16:24 What type of occupancy or vacancy do they have? What's going on in the area around your building? Do you talk to brokers and say, Hey, wait in DuPont, circle in Washington, DC, what demand do you see? Do you see 1500 feet with flexible terms? Or do you see 7,000 feet with five-year deals in your owners? Probably do some of this as well,

00:16:50 but get involved in, right. Always bring back. It might not be monetary. It might be informational. It might be listening to an owner as a sounding board. It might, but it's always, always shooting your news up the chain, good or bad, right. A real paradigm shift from the lease, right? Because the legal document, we sign it,

00:17:16 you go your way. I go my way, we're only going to talk if I can't pay their rent or if the elevator's broken. So I, I, and I think you, you know, the really important concepts, you can't say enough because we all need to hear things a hundred times before it really sinks in. But I think, right,

00:17:34 it's a different mindset. And to your point, starting to think about like, how do you engage in the broader real estate community? And I think the folks that are more successful in getting these deals done are comfortable with that. And not to your point, not just in their own four walls and or your Cleveland locations, both with the same owner or different owners,

00:17:58 Because You put yourself on their side of the table and you've become this resource and they trust and they trust you. And maybe everything's not going to be sunshine and rainbows, but you've been on the same side of the table, enough for them to feel comfortable and they want to, they want to collaborate and they want your opinion. And they, you know,

00:18:17 they value your advice and that's to your point, just a really a great position to be in, but very different from a week. Yeah. You can't state it enough, the honesty and the consistency with which you communicate is just as important, right? You over-communicate on downtimes and bad news so that there's never fear and panic. You can go back to kind of a normal cadence when things are going fine in,

00:18:49 in, in, you know, you're doing well, but it's a true partnership. So that goes to the fact that back to don't just do deals to do deals, right? You have to vet the owner as much as the owner's vetting you. It, do you have cultural differences? Do you, do you want to run the same types of organization that they run?

00:19:11 Do you, do you treat your employees the same way? Do they mean the same thing to you besides the fact from just that the deal itself is it, I don't know what else to do. You know, I've had a lot of vacancy for a long time and, and this is my hail Mary. I'll never recommend someone to do that deal.

00:19:31 The owners approach he's in your space every day. He's still an office yet. Why not? You know, they wanted That's, that's not a comfort level, especially if it's your first management where you, you know, typically, maybe you've never had that relationship with an owner, but now you do. And you need to be able to quickly and accurately answer all their questions in as few words as possible,

00:20:01 but there's a lot more questions and a lot more conversation in the managed model know tenfold than, than the tenant landlord relationship. So it's, it's really important. Okay. The desperation piece, I wonder if that is even more on the forefront now, because I remember in episode 1 22, you walked us through this like 60 point, you know, due diligence list that you go through on a location,

00:20:31 which is why I think it's really useful to go back to that episode. And right, when you, if you get approached by a desperate landlord, it's tempting to throw that out the window and say, yeah, let's do the deal. But to your point, if the deal doesn't go well, that's your reputation, right? And the desperate landlord will feel even more desperate if you can't get the model to work.

00:20:54 And, you know, the model is about customer acquisition. And if you can't acquire customers for that location, then not going to work, He couldn't do it. And now you do it. So not only is it, you know, ABC, Coworking, but now that owner talks to other owners, it's like, wait, I tried this and it's a disaster.

00:21:13 They, they don't know what they're doing. They can't get people in and it just spirals. Right? So that 60 point evaluation we've trimmed down to, we, we actually in a hundred episodes it's now and it's weighted and it is a great, so our job, There's an algorithm now. Yeah. Right. I actually paid someone to make it a really cool looking and produces a report.

00:21:42 But the key for us is get to know as fast as you can. Right? So that's step one. We turned down over 95% of the opportunities that come across our desk. So that's not good or bad. It's just, that's our tolerance. And you know, maybe you're 20% or, you know, maybe you accept 20%. It's up to everybody.

00:22:04 But you know, with, with our constraints, you know, with the capital we had in the region, we wanted to grow and how we wanted to do deals. You know, this thing spits out a number that makes us happy or sad, and everybody should have their own. What is your model? What do you, what do you throw into what machine?

00:22:25 And it spits out what for you to decide? Do I take the next step? Because if you take 10 steps with every owner and you're in, you're only accepting five to 7% of the deals, how much time are you wasting? Right. Two to, oh, Jesus. You know, it's going to take me two months to decide to do this or not.

00:22:43 Right. I can tell you in three days, if I want to continue the conversation. So it's really important that you get that, that, that whatever your system is. And the second piece, I'll say, when you go to you get past, Hey, look, this is something I definitely want to take a look at them. You know,

00:23:04 I'm going to do five steps each step we'll we'll check back and make sure we want to continue. When you come back to an owner with a manage agreement model, your stuff has to be really buttoned up, right? So if you do a demographic analysis, a competitor analysis, competitive buildings in the market that has to be presented in a really professional manner,

00:23:31 because don't forget at the end of the day, you're asking this owner to spend north of a million dollars on this deal. If you come in with some little bit of word document, some crappy PowerPoints in two handouts, right? Is that what you're, everything's a test. What does that owner he's measuring. Okay. Is it, you know, do you really have this thing dialed in because you're kind of all over the place with what you're presenting me,

00:23:58 right? So, you know, we have created, you know, we, we get a balanced presentation book that is probably 30 or 40 pages that takes us forever to get through with an owner. But it's a very slow logical process that look, this thing's clean, it's tight. It flows. It has a table of contents. It makes sense where we're going.

00:24:19 And we can always reference that book all along the journey from introduction to evaluation, to drafts of a management agreement that are signed. You're always performing because you're not shopping. Oh, it's 20 bucks a foot for 10,000 feet there. Oh, it's 1950 for 11,000 feet. Which one should I take? Now? The owner has to do, owners are fighting for me.

00:24:47 It's the exact opposite, right? If somebody gets wind that there's an owner shopping for a flexible operator, pretty sure there's half a dozen people now chasing that deal, get your work done quickly. Get it buttoned up very professionally as best you can and get back in front of the owner. Right? Cause also time kills deals, right? If, Hey,

00:25:10 I'm going to do an analysis of the area, some other stuff, and come back to you if that takes three weeks. Right? So to your point, if you're chasing many deals and it takes you three weeks or more because you have too many irons in the fire, that's another reason. So what is sort of the chicken egg part of the process where you have your,

00:25:33 do you say it's 12 points now We're down to 12. That's amazing. Okay. So you've got your 12 and I love, I'm sure this is not easy for an new operator. So it's an iterative process to say, I'm going to have an objective list and I'm going to put my date through it and decide if I, you know, want to keep dating and try to be logical about it.

00:25:56 Objective about it, not emotional about it. So I love that. I'm sure that takes a little bit of some reps before you really get it down. But like going in with not just like, I'll take any date, you know? Right. Well, here's, here's a tip. Here's a tip. Create your, your machine and then have at least one other person run the same asset through the same machine,

00:26:22 compare your outcomes. And then that's where it wasn't objective. Was it emotional? Right. So you just try to just try to argue logic versus logic. So we do that quite a bit still. I mean, we've looked at hundreds of properties. John's my sales guy. He took me to a three weeks ago and I hadn't seen the score, but it,

00:26:47 it, it, it got me to go to it. The first thing he said, when I got out of the car, he goes, tell me what you think the score is for this asset. I driven around. I had already done, you know, I, I looked at the competitive set of, of Launch competitors. Building competitors, demographics looked at the building,

00:27:07 drove in. I missed his number by one number. Wow. Right. When you get to a point where you're lockstep step, where we, okay. We built, we've taken most of the emotion out of it. And the, the interesting thing is when we get to a number that's close, right. Are we score between zero and a hundred?

00:27:28 If you score 80 or above, we're excited. So, Hey, it's a 78. Right. So that's when the emotion comes in and we're like, Push it a little harder. Yeah. So that's the interesting part, but yeah. Build yourself some sort of measurements. We'll start with, like I said, I had an Excel sheet, I put 61 measures on it.

00:27:51 Quickly realized you can't really move the dial, measuring 61 things. So started to consolidate, put weights on them and did, did a lot of stuff over two years to make up, you know, an actual machine that we do put numbers in at something spits out. So does the owner see the 30 page plus after they get an 80 or above?

00:28:15 Or where, where does that play in? Well, if I, yeah, if he doesn't score high enough, he gets about a 10 page book. It says, here's the initial work we did. Right. Scored your building, did some demographics. And you know, I wanted to know if you're building scores poorly and it, and it confuses me,

00:28:30 which luckily not a lot of them do, but I'll do a little bit of work. That's you? I mean, I would expect that one to come in a little higher what's, you know, what's the deal there, your demographics bad. Are you the only guy that charges for parking on the street? You know, there's something here that, that intrigues me a little bit.

00:28:49 So I'll do a little bit of work until the owner, you know, Hey, you gotta, you gotta 74, which is okay. And here's a couple of reasons why that it just didn't score well now sometimes you go, oh my gosh, that's an anomaly. Or let's talk about it. Sometimes the owner be like, all right, I'll,

00:29:07 you know, maybe just because it's not for me, that's another point to emphasize For someone else. So, you know, have relationships. I try to give referrals to other operators. I, I work constantly with other operators to help them vet things, their own process. You know, we have the good fortune of being a couple of years ahead of this management agreement wave.

00:29:34 So there's not a lot of surprises in it for us. So we, we do get a lot of calls on a, I'm trying to do this, you know, you've done it. Can you give me 10 minutes? And I generally can find 10 minutes. So, Hey, there, I'm going to interrupt our interview for just a quick second.

00:29:55 Someone reached out to me recently, for some help, they were negotiating a management agreement using a property management agreement template as their starting point. You do not want to do that. So I sent this person straight to Michael Abrams. And what you want to do is understand all the possible negotiation points for a management agreement, what the relationship looks like, which is very different from a property management agreement,

00:30:25 what the roles look like, who does, what, what happens if you want to know what all of those possibilities are and what the structure of an agreement looks like for a management agreement so that you can confidently negotiate with your partner. You don't want to start with a template. That's not for a management agreement because it's just like philosophically not aligned. And you don't want to start with someone else's template because maybe they started with a property management template,

00:30:54 or they just ended up with a deal that is not what your deal is going to look like. So you want to start with the base of all the things that you need to know about how a management agreement works and it gets negotiated. So you've heard us talk about this before. We're starting our next live cohort for our creative Coworking partnerships course, the week of April 26,

00:31:17 which is in a couple of weeks. When you register for the course, you get all the content immediately. So we've recorded modules that are online. You can binge watch them. You can listen to them in your car and you get access to all of our past Q and A's as well. But we also run a new cohort of live Q and A's.

00:31:37 And right now you get an invite to every new cohort once you joined the class. So if you're just at the beginning of your journey, you'll get an invite to our next cohort. We've been running this course for about a year. Now we've run four cohorts. I think. So we have a number of folks in the group working on deals. Some are working on deals with their current landlords.

00:32:00 Some are working on deals with landlords. If they've met locally, some are just, you know, kind of pursuing deals outside of their local market. As a way to expand. We've had landlords in the course as well, who are looking for partners and looking to understand how the relationship works. So if you are thinking about, or working on a management agreement,

00:32:21 you want to be pretty close, I think, cause it's pretty practical and tactical, but if you want to learn, how are you getting close to starting to consider negotiating one? Then it's a great course. It's super in depth. Michael has decades of experience in real estate and he has Coworking management agreement experience. He's always working on deals with folks.

00:32:44 So he knows kind of the, the latest and greatest of what folks are negotiating. So like I said, everything's online, but we run a live Q and a cohort for three to four weeks, kind of, depending on the activity of the group. And that next live cohort will start April 26th. So if you want the details on the course and to join us for the live cohort,

00:33:05 you can find them at Everything, Coworking dot com forward slash management agreement. And now we'll get back to our interview. So I'm curious, do the owners usually come knowing or open to a management agreement or are they interested in your model, but they really want to lease Both more. So now we've been around long enough for, especially where we started down around DC people know our deal.

00:33:31 So most of the calls that we get inbound now are, look, I need flex. I know you guys do management models. My group's interested in learning more about it. So that's great. And that's a reputation you've built because I think others probably don't have that. You know, maybe more naive owners that are still, you know, but I want that lease,

00:33:59 You know? Well, it's hard too, because you know, it's kind of transitioning over to what's new in tenant agreements. What what's not new is the underwriting of buildings with management agreements. It's slowly evolving, but that's like turning a ship around in the ocean, right? So You're an episode later, it's still challenging, Right? And people now reference,

00:34:23 Hey, you look, you underwrite apartments, you underwrite hotels. You can underwrite a little bit of Coworking in a building. You know, you can debate how much flex in a building is, is too much. Now I think that's a sliding scale on a lot of, based on a lot of things, but ultimately right, the deal flow is gonna force underwriting to be easier.

00:34:50 So as management agreements have now become at least a buzzword post pandemic, that there's a lot of, you know, a lot of institutional owners are now very open to management agreements. A lot of the bigger banks and financial institutions are now going to have to learn how to deal with them because they're going to be forced to. So that's a good thing.

00:35:15 You know, I know in our world when we started, we used to bring banks out to tour our space and explain what it even was like, we don't have to do any of that stuff anymore. So it's come a long way and it's going to continue to make like, but again, if you can know, right, if you know the,

00:35:36 the objections or hurdles or hesitations of an owner going into it, then how do you address it? Right. If this, if you know, they've never done anything but leases, they're probably expecting the lease. How am I going to over? I know the questions coming, how am I going to overcome it? All right. So then you can prepare for it.

00:35:54 So, you know, we done, we've only done management agreements, half the buildings we've been in have been refinanced at some point with no issues from any banks. I can tell you that I can give you contacts at the bank to tell you, you know, verify that I'm true. You can talk to other owners that we've done deals with, right?

00:36:12 So how do you continue to build credibility and trust with the owner? And the easiest way is to, you know, open the kimono and say, look, you can talk to anyone I've done work with. It may not love every single thing I've ever done, but you know, to my credibility and in my trustworthiness, there's not going to be any questions.

00:36:34 So it's just another way to, to, to just build a relationship, Although to your point about, you know, being careful about choosing the right partners and, you know, making sure you're not taking the I'll take any management agreement, deal approach. You want to build that reputation for all the reasons you just talked about. Right? And it goes to what's what's new and management agreements in,

00:36:59 you know, back to what we spoke about the beginning. It's it's really, your partnership is just as important as the financial results. I have talked to building owners who have made agreements with, with name brand operators who are so frustrated because they cannot get simple answers to simple questions that they're aggravated. So even though maybe they're doing fine financially, you promised we were partners,

00:37:32 you promised we were going to share stuff. And now if I ask a question and you don't answer it, I get upset. So right. That it can help you or hurt you. You have to look at the whole picture, right? Am I doing what I said? Am I keeping them communicating with what I said? And am I meeting my objectives?

00:37:52 Right. So you can't, you can't put all your eggs in one basket. Well, I'm doing well financially. Just leave me alone. The deal you signed up for. That's not that easy or it is easy if you're willing to talk to your landlord partners. So Can you, I'm curious, can you talk a little bit about the reporting requirements when you do a deal and you know,

00:38:16 sort of, how much do you need to add to your team every time you add a new location in terms of how much? No. So when we do new deals, we put together a pro forma on what we think, you know, absorption is going to be everything. And what I tell what retail, again, this isn't for everybody. What we tell our owners is where we'll clue you in on a weekly basis,

00:38:42 leads, tours, like, right? We want you to know, even though deals might take a little while to come, what are the prospects looking like? So we, we spend a lot of time creating interest in the space before it opens. So our goal's always, you know, 50 to 100 people on a prospective list. So what do we do there?

00:39:06 So we keep the owner informed during our construction period. Hey, it's looking pretty good. Then when we open, we have some events, open houses, tours, free rides, how many people are taking advantage of that? How many people are reclosed and then what's the new funnel look like? Hey, we got nine new leads today, five for office four for Coworking.

00:39:28 We got bunch of tours set up. Our success rate on tours is about 55%. So we're feeling pretty good. So we'd do that for a couple of months until they're comfortable that, okay, you maybe only sold two offices or three, but you're meeting your numbers and more so importantly, right. Your funnel is, and it's trickling down to Working the app.

00:39:52 Yeah. So that's really, again, that's being a partner in a, in a lease deal. If you tried to, Hey, guess what? We had three tourists a today, they'd be like, who, who is this? Like, don't bother me. Just pay your lease. That's different. And then on the, on the end of the month stuff,

00:40:07 it's just very simple. We ended up dumping all, everything we have into QuickBooks. And it's just a very basic financial package that an owner wants to see, you know, if P and L's a trial balance bank account information, the balance sheet. And so, I mean, that's just pushing the button and QuickBooks and send it out to them. Variance report is important as well.

00:40:32 So it's pretty standard stuff. You've, you've made it standard and simple over time. Yeah. It's standard. Meaning any, owner's going to ask for the same financial package from any, from whoever the operator, Not a lot of custom, Right. What else is under the new category? You know, there's, there's, there's, there's this new group.

00:40:57 I don't know how to describe them. So in a, in a, in a traditional deals with leases, right, there was a lot of room for brokers and people, too. It was a transactional deal. Meaning there was going to be some math with there was going to be an easy way to calculate a fee for someone to be involved in the deal between the owner and the operator.

00:41:23 That's not as apparent and clear today. Meaning if I sign a management agreement, I'm not promising to pay X amount of dollars per square foot for 10 years. So there's a lot of people right now trying to figure out how do I get in between the operator and the owner? It's not a terrible thing. It can be good, or it can be bad.

00:41:48 I'm not trying to paint it either way, but there's a L just trying to figure out how do I make this transactional again? And you're really making a mistake. It's not transactional. And whoever I'll give a tip to a brokerage firm or consulting firm, or whoever is doing this, you're not going to take a management agreement and say, well, you promised to meet certain hurdles of rent as NOI of your business.

00:42:20 And I'm going to multiply that by 10 times, 6%. And that's going to be my finder's fee for introducing you to this owner. Don't do that. It's just not going to number one more sophisticated operators. Don't need it. And number two, it's just, you have to evolve that, that day of signing leases. And that's great keep doing that,

00:42:43 but on, on a management agreement side, that's just not how it's going to be done in the future. So this might be the most important part of this, of this call. If you want to try to put yourself in the middle, you have to create value. And it has to be apparent to both sides. So, and that may mean,

00:43:05 excuse me, that may mean that there is no transaction. Maybe there's a somehow I'm involved, or I act like I'm involved, or I feel like I'm still part of the process. And it's, if these folks meet their numbers, maybe in year one, two and three, that's how I get paid because I understood building owner. I understood your requirements and I introduced you to the best possible operator to fill those requirements.

00:43:34 And I did some other work for you, right? That's adding value. It's if it's just, Hey, building one has 15,000 feet, Hey, coworking operators. How many of you want to bid on this? And, you know, guess what, if you give me a 3% fee, maybe you're my fourth guideline, a 4% fee. Oh,

00:43:56 6% fee. Yes. I'm going to recommend you. Right. That's trash. Don't do that Right Away to create value to both sides. Yeah. So it, but this is all in. And the big difference here is when there's a discussion about a lease, oftentimes operator and landlord, don't talk about No, it's negotiated the broker negotiates between the two of you.

00:44:29 Like maybe you don't even the landlord's phone number. I mean, really? Exactly. So the operator has to be equipped to manage the discussions, because it's really about that relationship. If you were, if you're a good broker or consultant or something in the middle, right. Maybe you know, more than the operator does, maybe you look, I I've done a couple of these.

00:44:58 This is how we should approach it. Do you have your own system? Do you have your own machine to figure out how to decide if this is a good deal or not? If you don't. Well, maybe we do. Maybe that's the value that that intermediary brings to the table is maybe you don't know how to do competitive analysis, demographics, great.

00:45:18 A building. It could, you know, competitive analysis of the buildings of the operators. You know, maybe that's what that middle person does. So maybe they've already met with the owner and said, look, you're in a great market. There are seven other competitors. You know, the demand to supply as is off kilter and there's room for more people in here,

00:45:38 I had introduced you to one or two of them, right. Then if that person can then help the operator go, I've already laid the foundation for you. Here's what they want to see that, let me help you put it together. That right. That's where you're adding value. Yeah. And not every operator needs it. Not every owner needs it.

00:45:58 So guys in the middle, you need to pick and choose, you know, how hard or how deep you're going to insert yourself on both sides before people start getting annoyed. Like, I don't, I don't need you bothering me, but it's, but you gotta, you gotta where's your lane. And because this is kind of new and there are a lot of people coming out of the woodwork now claiming to be these,

00:46:23 these deal makers. Right. You gotta figure out where you fit. That's all. Yup. Yup. I think that's, that's great advice and good perspective. So, okay. 20, 21 was a busy year for you. And to your point, hopefully on the upswing for many folks listening, what, what do you think 2022 looks like? I'm curious,

00:46:47 sort of industry-wide we just had a big acquisition announcement. Yeah. So say Nick stole the, I haven't. I think everybody realizes this, you know, there's, there's going to be acquisitions in what the last six months of 2021 did was they're still gonna be acquisitions, but they're not going to be value acquisitions. They're not going to be, Hey,

00:47:13 I, I don't think I can survive. I'm making a little bit of income. I can't withstand this downturn. You can buy me for 30 cents on a dollar. I think there's some of those, but there's going to be less because most people did pretty well in the last part of 2021. The acquisitions going to see now are obviously going to start at the WIWORK levels.

00:47:34 So what their math is, what's the cost for me to get into that market versus the cost of buying into that market. How long would it take for me to open 23 locations in Texas and get them ramped up to where Nick was versus writing a check to get in there instantly. So you know those and they're kind of in rare, right? Those,

00:47:57 those well-funded well capitalized, bigger players, you know, the, the 86% of us that aren't, those guys are 90% of us. What are we looking at? We're looking at the same thing on a smaller scale, right? There's a lot of people now saying to themselves, well, w and I'm not talking 3000 feet building where I, I rented an office and now I'm selling a couple more.

00:48:23 I'm talking about people that you're trying to grow. You want multiple locations, a lot of questions I'm hearing from these operators. Like, what's my ex what's my app. When and how do I need more locations? Do I need less? Do I need to be in different geographies? So there's going to be more consolidation, you know, w w w we,

00:48:45 weren't going to continue to hunt. They're going to make the news. You know, there's, there's groups at our level that we're, we're hunting in, in different markets. We're looking for opportunities for locations. And we're looking for opportunities for acquisitions of operators. And maybe you're just tired. There's, there's a handful of folks that are just exhausted by this.

00:49:10 It was hard. It was hard mentally and physically. There's not a single flex operator that didn't have to let somebody go or furlough or something that didn't affect them. It's impossible. So some people would just like, look, yeah, I had a nice little upswing here in the last six months. I still want to do it anymore. You know,

00:49:34 there used to be 200 companies that made cars right now, there's six. So you're going to see it on that scale, how long it takes. I don't know, but you know, we're one of them, we worked probably not going to pick us. We, we don't have the finishes that they, that they like. And we're kind of in secondary cities,

00:49:58 which maybe at some point will be attractive, but you know, we're on the other end, we're looking for folks that have a couple locations, either needs some help, need a way to scale, or maybe they're just like, I've had enough. It got me this far, and I'm ready to pack it in. Yeah. There a lot of,

00:50:20 I think, continued evolution and opportunity to your point where people who want to grow or people who to change. I love it. So, Mike, if people are curious to follow you, tell us, where are you most active work? And they work in, they check you out. You can always find me on LinkedIn. I've got my own personal profile.

00:50:44 And LinkedIn Launch has a LinkedIn page. You can follow. We're obviously on social media, all the channels you would expect, but really the easiest way to get ahold of me is if you want a one-on-one to hit me up on LinkedIn, I make anybody who asks me for a call. I give them a call, regardless of what you want to talk about.

00:51:04 The management agreement, a business opportunity, whatever questions you have, what am I? It's not a fear. It's just, I just want people to do it right? Don't waste your time. Don't get frustrated. If I can help you a little bit to steer you one way or another. Great, I will. There's there's I said this in episode 1, 22,

00:51:28 there's tons of room for people to do this. This is not a shrinking market where people have to, you know, cannibalize each other markets, you know, depending who you listen to, this is going to grow 10 fold in the next couple of years. There's plenty of opportunity. So if you need any help, if you need any advice, if you have any questions,

00:51:52 hit me up on LinkedIn, and I can sit with you for 10, 15 minutes to anytime I love being a part of an industry that has sort of this abundance mindset. You know, it's not the scarcity. I'm not making time for you. You're a competitor. You know, it's really, really giving a view and you're not alone in the industry,

00:52:13 but I appreciate that because you are also, you know, busy paving your own way and growing your own company. So it's, it's fantastic of you to offer that. So we'll link, we'll link up your, your business. Now, article your website and LinkedIn profile in the show notes in episode 1 22, we'll link that up to in case anybody wants to go back,

00:52:35 but thank you, Mike, for taking the time to do this and for everything that you give to our industry, we appreciate it. Thanks. Great to see you again. And we'll talk soon. I'm sure. Well, yeah. And we'll have to do this in another 200 or 100 codes, which A couple of years for now. Let's see.

00:52:51 What's changed by then. Thanks Mike. Thanks. Hey there, thanks for sticking with us through the end of the episode, don't forget to subscribe on your favorite podcast player. 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.

00:53:20 And we started a YouTube channel. We'd love to have you catch us on video. You can join us for podcast, videos, and Q and a videos and other things that we post to the channel. We'd love to see you there.

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