304. Commercial Property Ownership and Coworking: Unveiling Trends and Strategies for Success with Jerry Alexander

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If you’re thinking about a non-traditional deal structure as a landlord or operator, join us for our upcoming webinar on June 9th: Three Things Landlords and Operators Should Know Before they Start Negotiating a Creative Deal Structure for a Coworking Space.

TRANSCRIPTION

304. Commercial Property Ownership and Coworking: Unveiling Trends and Strategies for Success with Jerry Alexander

00:00:02,"Welcome to the Everything Coworking podcast, where every week I keep you updated on the latest trends and how-tos in Coworking. I owned and operated Coworking spaces for eight years and then served as the executive director of the Global Workspace Association for five years. And today I work with hundreds of operators and community managers every month, allowing me to bring you thought provoking operator,"

00:00:29,"case studies and inspirational interviews with industry thought leaders to help you confidently stay on top of what's important and what you can apply to your own role in the Coworking industry. Welcome to the Everything Coworking Podcast. This is your host, Jamie Russo. Thank you for joining me. For those that are new to the podcast, new to the Coworking world, welcome."

00:00:56,"I am also the CEO of Everything Coworking. We help operators launch and run profitable Coworking spaces. We are so glad you're here. So today I have a repeat guest, although Jerry has not been on since September of 2021, so a little more than a year and a half ago. And I love having guests on again, especially guests like Jerry."

00:01:21,"Jerry has his own podcast. If you are interested in buying a commercial building and operating a Coworking space out of it, Jerry is your guy. We have all of his links in the show notes, so if you're listening on your phone, you can just open up the details of the episode and get all of his links. You can get a link to subscribe to his podcast."

00:01:43,"I was just a guest on his podcast. We did this marathon recording session, which was super fun and super exhausting, although I have no right to complain cause it was like three o'clock my time and like 10 o'clock his time. So Jerry definitely got the raw end of of that deal, but it was really fun to do an interview on each. If you wanna hear my interview on his podcast,"

00:02:05,"it's one of the more recent episodes so you could pop over there. His posted before Minded. And we talk about all things commercial property, what's happening in the marketplace, what it looks like to own a building and operate a Coworking space. And it, Jerry, I think, has seven locations that he owns and operates. So he is just really in it and he runs some great programs."

00:02:29,"If you're interested in getting coaching, I'm selling for Jerry cuz I think he's great at what he does and I think he has a really clear why and he is super clear about what he offers. So I love that. And again, I, you know, I talk about this on his podcast, I'll just say it again in the intro. Owning the asset is so such,"

00:02:49,"it's such an advantage to the co-working space model. I need to have Giovanni on this podcast. He's my co-host or I'm his co-host for the Flex Uncensored podcast. But he's been sharing with me what he's seeing in the marketplace, which is just in some markets that are really hot right now, landlords are putting up pretty steep barriers to get access to commercial space."

00:03:12,"They just, they want really big guarantees, they want really big deposits. It's just tricky. They'll put in money for the build out, they'll give you free rent, but they want protection on the back end. So it's really hard to do that if you're in a market where real estate is approachable. And roughly 50% of my Coworking, Startup School folks own their buildings."

00:03:31,"And a huge shout out to Kim who's in our current cohort. Kim, I'm so inspired by your story. She's a total hustler. She bought her building, has some investors and she's making it happen. So there are markets we are owning is possible. I don't live in one of them and I would l love, love to pursue this model at some point when I move out of this,"

00:03:50,"the Bay Area. Anyway, it's a great model if you're at the beginning of your co-working journey. Think buying is something to think about. And I think I probably shared this on Jerry's podcast. It never occurred to me to think about buying the building that I bought in Chicago. I, you know, was a one third of the building. So I was already paying a big chunk of the mortgage and you know,"

00:04:12,"there was an a gentrifying area. There were a lot of things going for it and I just had no idea to even ask that question. I was wildly intimidated, you know, by signing a lease as many folks are. So ask the question, do some research, listen to Jerry's podcast, reach out to Jerry. He is a wealth of information."

00:04:30,"Before I turn you over to Jerry, speaking of wealth of information, there's so much happening in the commercial real estate market right now. We have landlords who have lots of whys for putting Flex into their buildings. So we are, geo and I are launching a course on negotiating creative deal structures, anything non-traditional. And we're hosting an intro to that on June 9th."

00:05:01,"Three things landlords and operators should know before they start negotiating at a creative deal structure for a co-working space. We just talked about non-traditional deal structures on the Flex Sun Censored podcast. So if you're listening to this when it comes out, then one of the most recent episodes on the other podcast is that episode. I'll link up to the podcast in the show notes in case you're not already listening."

00:05:24,"So Gio and I just kind of dig into what's happening in the marketplace. You know, the why's for landlords, what operators should be thinking about, but there's a lot of activity out there. Regis is working around the clock to get their locations into assets that landlords own and, and, and basically negotiate management agreements. So landlords are more aware than than ever before about this option to do something creative."

00:05:52,"So we want everybody to kind of know what to think about, what the trade-offs are, what the whys are, how to negotiate, all those things. So we're doing our intro session, it is webinar style, so you have to reserve your seat and you can do that by going to Everything Coworking dot com slash flex. Okay, now I'll turn you over to Jerry and we'll see you next week."

00:06:13,"Welcome. You were on the podcast. I'll have to put the link to the other podcast in summer of 2021. So I couldn't believe it had been two years. And occasionally we'll trade emails and say we need to catch up. And all of a sudden two years goes by. So I'm glad you're here. Thanks for doing this. And it's late for you."

00:06:29,"It's nine o'clock. It is, but I'm, I'm totally ready for this. I'm really looking forward to it. Okay. Are you one of those entrepreneurs that just never runs out of energy? I wouldn't say that. I just, I'm probably more of an evening person. I, I find I'm more creative when there's no distractions and I can get on with things in the evening."

00:06:46,"Just doesn't work so well. Family time, right? Totally. Yeah. The kids in the way. Okay, so you have three kids, how old are they? They are 15, so 15, 17. Oh my goodness. No, yes. 15, 17 and 13. I've missed one out. Okay, good. Boys or girls? Youngest is a girl."

00:07:04,"They're two older a boy. One's just finished school. They literally today. And I said to him on the phone when he, I said, how's your exam go? Oh, it went alright. Okay, so what are you doing for the next three months? He says, dad, it's four months and nothing. Nothing. Okay. Does wanna help you with the business?"

00:07:21,"Well, I did offer, but we do actually have a restaurant in one of our buildings and he does work there along with his sister actually. So you'll be putting some errors in there. Okay. He does some manual work. I keep trying to get my 11 year old daughter to edit my podcast, I'm convinced. Oh yeah. Wouldn't that be amazing?"

00:07:40,"Yeah. Yeah. And with Chad, I haven't Thought about that one. You could write my show notes, but she has resisted, I need to wait until she needs real money at 11. You know, she doesn't really need a lot. So I'm waiting and then I'll, I'll get her. I figured she, she's so I'm sure your kids are the same way."

00:07:56,"Like so technically savvy. Okay. So as a refresher and we have lots of new listeners. So first you are also a famous podcaster and you've been, how long you, you said you're on episode Hundred, 180, something like that. Jamie. I wouldn't go as far as same famous me, but enthusiastic and consistent podcaster. Enthusiastic and consistent. Okay."

00:08:18,"Anybody listening who likes what I do? I think they would like what you do. So it Sure. Mine's a slightly different slant, isn't it? I'm, I'm more on, Yes. Tell us about you, your business. I'm just gonna throw it all in one big question and what you talk about on the podcast. Cool. Let's do that."

00:08:32,"So, okay. I basically, in 2004 went from buying one or two houses and doing them up and all that sort of stuff to buying a commercial building. I hadn't planned on buying a commercial building, I just thought I need to find something a bit bigger with a bit more scale. I ended up buying sounds a bit d I ended up buying a multilayer office building,"

00:08:52,"which had lots of little units in Right. Sound familiar. And basically there was half a person looking after this thing, you know, half a day a week or something. And it was basically the customers came in, they got their keys and they just paid the red check and that was basically it. There was no service. And then over the years we did it up,"

00:09:11,"redeveloped it, brought in new customers, started understanding a little bit about Coworking and about serviced offices. And I was still running another business and, and as I was doing this thing, I, I thought, right, well we're probably gonna buy another one. So we went out to look for another one. The bank said, oh you need to refin,"

00:09:26,"you need to refinance, you need to revalue. They went and revalued the building. I couldn't believe what had happened to the value because it was linked to the income. I was just busy trying to make more income. So the value had gone up a lot. And that's when I decided I need to do this full-time. Yeah, Let's put a little focus on,"

00:09:44,"on this. Yeah. Effort. So Sam's good to that. We've bought a few more. We've got seven locations now varying in different size where we are both the owner of the building but also the operator. And so that's kind of where we're at. And it's a mixture now of That's why, that's why I want people to listen to you because I love that model."

00:10:03,"Yeah. And you know, when we last spoke about this and, and I was reflecting on that conversation that you are the industry that, that you are part of in the US a lot of it is leases and management agreements. Whereas for me, the whole thing's about how do I find a property I can invest in and create extra value because the income is one thing,"

00:10:23,"but actually the real business is created extra value. Yes. And building that you can do by owning real estate. Yeah. It's incredible. No, I wish that everyone would do what you do. Yeah. So my podcast is kind of really around that, that, but it's always linked to flex space as well because I've just found that flex space is just such an amazing way,"

00:10:44,"adding the value. Right. So you teach, you help people coach teach, I don't know what, how you describe it. Yeah. To buy commercial property and the extra layer is, and here's a great way to Sure. Increase the value and, okay. Yeah. By the way, your LinkedIn description is like one of the best and most clear."

00:11:08,"Yeah. You're probably like, that sounds good. What did I write? How long ago did I write that? Totally. You know, and you might look at it and be like, no, I need to, some people write these like really fancy sounding and I'm like, no, but what do you do? You know? Yeah. No,"

00:11:24,"my third work Is mine. Third party or not. I mean some, some people write it as though somebody else has written about this awesome person. Maybe I did that too. First person. You're like, yeah, I will. Okay. I'll read a little bit of it. Helping establish residential property investors move into commercial property investment. Like many other property investors,"

00:11:42,"we started off with a few residential investments carrying out refurbishments, blah blah, blah. After few a few deals, we spotted the advantages of commercial property investment and made our first, and then you say, it still amazes me how opaque the commercial property world is. And I was like, yes. You know, like I really think you're, you're just being like really relatable and hitting on like pain points."

00:12:02,"And I'm repeatedly asked, how do you move from residential to commercial, blah blah. And I just think like it's super clear what you do and then you talk about here's how I help people. Oh Cool. That's great. Thanks for that feedback. And it might, you might feel like, oh you know, I wanna tweak that cuz I do something."

00:12:17,"My podcast and social media posts are to help dispel the myths and show how commercial property investment can work for those of us who are not from a commercial or professional property background. See, totally accessible and clear. I love it bro. I love that. Thank you. Yeah. Okay, so this is what, so you invest, you operate and you coach teach."

00:12:40,"Yeah, yeah, yeah. And you know, and I, and you'll be exactly same to what I find about the whole podcasting and teaching thing is it makes you really reflect on your business and what you're doing because you are having to analyze what you do and how the way you think to be able to talk to other people and understand where they're coming from."

00:12:57,"And it's really valuable. And actually bringing our team into that process really helps as well because they have, they're forced to do the same. Yeah. So think about how do I, how do I actually articulate what we do? It's great for us. Great therapy. Great therapy. Okay. I have to find my list of, list of questions for you."

00:13:19,"They're, they're extensive. Okay. Well so I'm curious, there's a lot happening in commercial real estate I'm sure. Sure. Where you are is not. So yeah, tell us where you are. Yeah. Oh, sorry. Yeah. I'm over in the UK based up in Scotland. Near, near Edinburgh is where I am and where we invest around there."

00:13:38,"Yeah. Okay. So what are market conditions looking like there? Are you dealing with some of the same macroeconomic high interest rates? Yeah. Lending. Sure you Are. Our interest rates went up again, unfortunately when the fed put theirs up, our lots seemed to follow them. And my thought on the last rate increase in the UK was just nuts."

00:13:59,"I mean yeah, let's not get into the politics of it. Right. So basically in the commercial market, I would say really there's the kind of three or four areas. There's retail office, industrial storage and leisure. And each of those have been affected slightly differently because of what's been going on. And we also had our own mini budget back in September,"

00:14:17,"which blew the lid off of what was going on in the UK and really made the international money markets think that we were a a laying duck, which put up our interstate as well. And during covid retail really got hit. It didn't really get impacted too much cuz the yields had already pushed out. When we came around to the things last September, the office market is the really intriguing one."

00:14:39,"I'll come back to that in a second. But the industrial in storage, I mean it's just nuts. Yeah. How expensive that stuff's got. Yeah. Because the cat rates are, you know, have really changed. The yields have come down and even though interest rates have gone up, they haven't affected it as much as you would've expected it. They are starting to stretch a little bit,"

00:14:59,"but it's still really expensive. But office space, it depends on so many factors where you are right. The customer or target market, is it in the city center? Is it in a local demogra, you know, in a local market? Sorry, is it quality space? Is it pure space? What's the square footage that you're letting? Is it a small space that there's just all these little levers that pool in the market?"

00:15:24,"So if you look at the macroeconomics and talk to some of our agents, some of them will be telling you, yeah, you don't wanna be investing in office space. That's not a great market. Right? Why would you be doing that? You know, you should be investing in industrial. And you're like, yeah but the return's terrible. Right?"

00:15:39,"But in the office space, it's those levers that I think a lot of people forget cuz they think it's all down to location and price, but it's not, is it? I mean apart from hospitality and all the things we talk about in Coworking, it's just the thing about well what's the contract? Like what's the, you know, is there something where somebody else is responsible for everything or am I as a tenant responsible for everything?"

00:16:02,"So then how long am I allowed to be in this space and what's the size of it and what's the quality and what's the environmental, you know, there's so many layers. Yep. That actually when you start looking at as investor, although the market isn't a bit of turmoil, it's just understanding those levers so that when you are looking at your local area,"

00:16:20,"you really focus in on finding where the gaps are based around those parameters. And it's not just that supply, sorry, that location and finance thing or, or rent. It's actually about those different things I was talking about. Which of course feeds a lot into coworker spaces cause they are that much more flexible. So the market's in a bit of turmoil,"

00:16:41,"it's still opaque, but that does mean the opportunity tends to be invisible. But right in front of your face, I want to interrupt you for a minute. With a special offer, if you are an operator that is getting ready to launch or your space is less than a year old and less than 200 members, office r and d is piloting a program called Flex Startup program,"

00:17:09,"which allows you to save 50% on your first year with office r and d Flex to help you grow your Coworking space. As many of you know, I run programs that help operators launch. I run mastermind programs for operators that are in business and a Community Manager program. And we have lots of members that love using r and d office r and d."

00:17:30,"It's kind of an all-in-one platform that has fantastic analytics, meeting room management, lots of integrations, all the things as I like to say. So it's a fan favorite of the Everything Coworking program members. So I'm excited that you get a chance to kind of get started with it at a discounted rate. So 50% off of your first year, you can learn more about the offer and sign up for a demo by going to Everything Coworking dot com slash O R N D."

00:18:05,"That's Everything Coworking dot com slash O R N d. We'll also throw that link in the show notes. So if you open your podcast app, you can grab the link right there. Okay. So are you optimistic for investors looking at commercial and thinking about doing flexible office space? Yeah, sure. The only challenge in the market right now is, is raising finance."

00:18:31,"You know, because interest rates have changed. Yeah. There's, yeah. Minor challenge, right? I mean there's ways around that but, but that's a bit challenging. I mean of course the thing is, what it does is deflate prices too, so, right. You know, if you're trying to get in the market, that's better, but you need some money."

00:18:46,"But I think the opportunity is fantastic and, and what's interesting is that if you think, if you're looking at a local market and you're thinking, well, you know, my town is not necessarily growing, I'm not sure this is a great market, it's investing. It's not about how big the pie is, it's about how big your piece is. And if somebody else is not creating more modern offer,"

00:19:10,"then the supply is really restricted and that's probably an area you should have a look at. Yep, yep. No, I think that's super important insight. Okay. So folks that are sort of working with you on, you know, these investment opportunities Yeah. I mean how are you helping them think about the market? Give me a little more, more granularity on that."

00:19:31,"So the first thing is to work out what they want. So facts, basics, right? What are you actually trying to do here? Yeah, yeah. What isn't you trying to do here? And a lot of people answer it with a dollar sign and you're like, well that's not always gonna get you through some of the tough stuff. You gotta work out what you want."

00:19:51,"Because when you do that, you can work out, for instance, if you want to be a more traditional investor where you're just buying passive income. Yep. You're just buying income or you want to be more creative and active. If that's the case, well then that changes the type of investment you're looking for, right? So it is working out what you want."

00:20:09,"Okay. Then decide on the type of investment. And from that you, I, my suggestions always just really focusing on a specific geographical area. Because the only way you're gonna understand what's happening in that market is by studying it. And if you are looking one day in Ohio and the next day you're looking over in California, how are you ever gonna understand what's going on in the local area because you're just skimming over it."

00:20:33,"So it's really understanding what's going on the market. Go and have conversations with agents, remember to ask questions when they deliver you an answer though, when they say to you, oh, I wouldn't invest in office space or self storage, you've gotta ask more questions. Why? What type of office space? Or if I was to bring you the perfect office space for your customers right now,"

00:20:57,"what it would look like, what would it look like? And they might give you a, a positive answer, but actually what they've been telling you before that is, oh, I wouldn't bother. So it's really, it's basically getting under the hood of a local market and really focusing in and then thinking about those levers about size, contract type, quality of the space."

00:21:16,"And then ultimately, yeah, it comes down to price, but those other things tend to affect price. Right? Yeah. So quality of space, because you mentioned like sort of redevelopment, I mean, do you help people kind of look, look at that opportunity or like do you steer people towards already high quality space or do you steer people towards space that could use work and is an opportunity?"

00:21:39,"That's a great question Jimmy. Personally, we've only ever built extensions. We've never built new build. Yep. I just, I can go into the numbers, but I just think when, when tough times come, if you've invested up at this level, you've got no room for maneuver. That's so, that's difficult. But we tend to buy old stuff."

00:21:57,"The reason we tend to buy old stuff is often it was built for one occupant and that occupant is now moved on, they've gone to Malaysia, they've gone bust whatever it is, and the need is no longer there. So our job is as investors to work it Wright, how can I bring, now that I've worked out what people are demanding, can I redevelop this building into this product that they're looking for?"

00:22:20,"And then of course you're buying the product at a discount because nobody knows what to do with it. Right? It was built for a manufacturing company or something and they're no longer there so you can buy it a discount. So yeah, I tend to work with people that are trying to do redevelopment or take on older buildings and then helping them develop it out."

00:22:40,"We don't do the work obviously, but in terms of just helping them with design and of course the thing about that whole process is you've got finding the buildings one thing, working out how to design it out for the optimal use is the next thing. Actually having someone do the development work and then of course as the operator. And the thing is, if you only know one of those things how to do them,"

00:23:04,"they have an impact on all the other parts. So you kind of need to have that holistic viewpoint of right, if I'm gonna operate a coworker, how does that affect the design? How does that affect what building I'm buying and how is it affect the guy that's building it out? Yep. And they all have implications, don't they? So it's just trying to have that overview when people are starting to do these developments and help 'em through that process."

00:23:25,"And that goes back to the why cuz if your end use is is right one thing, then especially if it's flexible office space, then you're looking at different factors on evaluating the space. Yes. So in your market, talk to me about demand for co-working sort of post pandemic. What's the office environment and then your seven location, sort of what's the sentiment on those in terms of,"

00:23:52,"you know, demand and what folks are looking for? Okay, so co-working in general, I can't talk for the industry fully cuz we're only a little microcosm of the industry. But my understanding is that the city centers are still struggling a little bit. Although the pendulum has come back a lot. The working from home thing is changing a little bit more to working near home,"

00:24:14,"not necessarily working from home. I mean, a lot of people that talked about working from home in around LinkedIn singing its praises tend to be middle-aged, have a spare bedroom or an office in the house and, and Yes. You know what I mean? And there's, and it's like the world's changed. The office is not coming back. Actually some people don't have that luxury Hundred percent."

00:24:34,"So culture, Right? There's a lot of, yes. When we think about our own personal situation's, A lot of assumptions there isn't there? Yeah. So, and the whole thing about training and, and all that stuff. But anyway, we found in our locations, depending on where they are, that Coworking has changed slightly to the office being paid for by a head office."

00:24:58,"We, most of our customers used to pay for their space. And then when Covid came along, that changed and some people went home and we maybe gained some other more resilient customers. But what's definitely interesting to to observe is a lot more HR departments are involved in choosing real estate and a lot of the invoices are not sent to the person in the room."

00:25:20,"They're now sent to head office somewhere. So that dynamic's changed a little bit, which has been interesting. But the general occupancy of our buildings has been close to a hundred percent for at least two years. So post Covid v all our, all our storage is full. I mean it has been for three years. Yep. But our office space has,"

00:25:42,"we lost some customers, not lots, but it's then filled up. So, and we've got one building we struggle because we haven't got any breakout space, which we're gonna have to try and create. But the other buildings are all pretty well occupied. A hundred percent late nineties, you know, the market's strong for us. No breakout. You mean mostly office space?"

00:26:04,"Not, Yeah, you go in that building. It's a nice building. I was talking to one of our team today about the fact that, you know, trying to get feedback from customers and there was one that was one to move to another one of our locations. I was trying to tease out them, what's the difference? Well the building's really nice and modern,"

00:26:18,"it's quite a nice space to work in, but I don't really see anybody, whereas our other location, there's more energy and there's more community the one that they want to move to. So you just like, oh right. That it was a thing was difficult for them to tease out the tangible thing. Yeah. Like what is it? Yeah, yeah."

00:26:36,"What is it that, and because the building's got nice services, it's two stories. It's got tee points on both floors, which I think is mistake. We inherited that. I think you need one One, okay. To Force people to bump into each other, right? Yep. And there is no, apart from the two tee points kitchens, there's no place to actually meet people apart from the corridor,"

00:26:57,"maybe the toilets, right? Yeah. And so we, I think we need to create more collisions in the nicest possible way between members so they actually get to know each Other. There's so much tension in the model, right? I mean, you have seven locations, so you look at seven different proformas and you build out the spaces. I think that is one of the big challenges."

00:27:18,"We talked, I think right before we hit record about, you know, my episode on third spaces. I think one of the challenges right now is like, you know, the business model behind what consumers want, right? Yeah. Like that location, if it's full, is probably one of your most profitable buildings because it's so dense. I mean,"

00:27:37,"assuming that, you know, it's a efficient space and you don't have like, it's, It's, it's not amazingly efficient that building. Okay. Our, our, I think our average efficiency, gosh, right? I think it's about 76%. Okay. But we have some that are as low as 65. Okay. But That's because I'm not including the kind of the breakout space Yeah."

00:28:02,"Slash Cowork business lounge area. Okay. You know, going onto the trains and stuff, one of the things that is an absolute is that people now are willing to take smaller units to have ability to access larger shared spaces. Okay? So our square foot rate is going up considerably in the buildings where we've more condensed. Yep. But we are providing all these other services and other spaces for people."

00:28:31,"Okay. Yeah. So people want that blend. Okay. So that's great for your business model that you're, because overall it's balancing out like you Yeah. If you don't count that space as part of the efficiency, but you're getting a higher, you know, revenue rate on the Sure. Yeah. So, but I think it is, especially for newer operators,"

00:28:55,"hard to strike that balance around how do you create a space that feels good and accomplishes, you know, the interaction that you want, but also is profitable. Hey, I just wanted to jump in really quickly before we continue with our discussion. If you're working on opening a Coworking space, I wanna invite you to join me for my free masterclass. Three behind the Scene Secrets to Opening a Coworking Space."

00:29:22,"If you're working on opening a Coworking space. I wanna share the three decisions that I've seen successful operators make when they're creating their Coworking business. The masterclass is totally free, it's about an hour and includes some q and a. If you'd like to join me, you can register at Everything Coworking dot com slash masterclass. If you already have a Coworking space,"

00:29:45,"I wanna make sure you know about Community Manager University Community. Manager University is a training and development platform for community managers and it can be for owner operators. It has content training resources, templates from day one to general manager. The platform includes many courses that cover the major buckets of the Community Manager role from community management operations, sales and marketing, finance and leadership."

00:30:14,"The content is laid out in a graduated learning path. So the Community Manager can identify what content is most relevant to them depending on their experience and kind of jump in from there. We provide a live brand new training every single month for the Community Manager group. We also host a live q and a call every single month so that the Community Manager can work through any challenges that they're having or opportunities get ideas from other community managers,"

00:30:43,"build their own peer network. We also have a private Slack group for the group. So if you're interested in learning more, you can go to Everything Coworking dot com slash Community Manager. Absolutely. And, and one of the things that I talk to investors about is creating as much flexibility for themselves, not just for the customer. So going back to that design stage,"

00:31:10,"when you're putting in your electrics and you're putting up stud work, make sure the electrics come up through the floor and don't run along the wall. So when you have to drop the wall to change the space, all you do is drop it, the electrics into a floor box. All the light switches are on the external walls or wall corridor walls. So you're not gonna change that."

00:31:28,"The radiators are all on, you know, it's just trying to design in flexibility so that when you build something out and you've done all your market research, you think, right, okay, I think I've got this right, but I need to have some flexibility here in case I've completely missed it. Because the last thing you wanna do is develop out 10,000 square feet,"

00:31:45,"open the doors and you're like, Yeah. Start up. You never know for sure you can do all your due diligence and to Yeah. Really get a feel for the market and think you understand and then not quite get it. Right. Yep. And, and it's not just that, Jim, is it because, you know, COVID came along,"

00:32:02,"right? So, and the market changed. So you need to build in some flexibility into your physical structure Yep. So that you can adapt when stuff like that comes along. No, it's, it's super smart. And because the folks you work with own not lease when you lease, it's expensive. It's worth it. Yeah. You know, it's complicated."

00:32:21,"Yeah. That's, that's the challenge. Yeah. Yeah. I mean, so that's another sort of plus in the ownership model is if you have to make a change, it's for the long term and it's yours, it's your investment, your return. Yeah. You're like, yes, I know. So, And I'm not, and I'm not gonna be paying any dilapidations to take out my fantastic space."

00:32:39,"Yeah, Yeah, yeah. I, I mean, yeah, it's, yeah. Anyway, we could go on and on about the, about the benefit if I could make it. So I think I would want everyone to do your model. Sure. But right. I started in 2004. Okay. And you know, I That's when you bought the first space."

00:33:02,"That was like the Yeah, Yeah. You know, I have had other distractions but you know, there are some other large operators that have come along in that time and opened up several hundred if not thousands of locations because their model is different. They not doing capital. Have you checked their stock price recently? Yeah. Well I wasn't gonna mention the name,"

00:33:22,"but, but you know, cuz the thing, if you wanna really scale fast, it's that capital intensity of buying buildings. That's the problem. I know. No, I, Again, it comes back to what do you want? Is it you're trying to do in the first place? Yeah, exactly. What's your goal? What are you trying to accomplish?"

00:33:38,"But I do think it's well suited. I would, I my wish for operators who are in smaller markets where real estate is approachable to consider it. Definitely. Because I think, you know, to your point, maybe somebody who does some residential real estate but doesn't think of commercial, that's why I love your LinkedIn description, doesn't think of it as approachable."

00:34:00,"And they don't realize like maybe the mortgage is the same that they'd pay in rent or Right. Maybe there are deals to be had and there's more people than ever living in markets that are not, you know, core cb. So Yeah. So it's a model to consider for people who are doing, you know, a lifestyle sort of approach and not looking to I P o."

00:34:24,"Yeah. Yeah. As nice as that would be. I Know. So, yeah. What else do I want? So I, yeah, I guess, I mean, you, this is what you do. I mean, you help you coach what, so for somebody who give, give us the, like the one-on-one for somebody who's thinking about or maybe isn't aware that commercial property could be for them."

00:34:45,"If you're having coffee with someone, you're not, you know, given, given them the whole like, you know, coaching course, what would you say? What, what would you tell them to consider If they're looking at buying commercial or they're just, yeah. If they're like, I've got, I've got a few hundred thousand pounds in my pocket,"

00:35:00,"Jerry, what, what should I do with it? Well, maybe they're passionate about the, maybe they come at it for my audience. They, they already have an interest in. Yeah, okay. Coworking and they're thinking about leasing, which is Yeah. Right. More common here. What would, what sort of bug would you put in their ear?"

00:35:19,"Yeah, I would ask the question, are you looking at building trading business or long-term, do you want to invest in assets because the trading business is the day-to-day thing that makes it all work. But, but actually if you're not doing the fundamental asset investing, you're not building up wealth unless you can sell an I P O in your trading business. Right."

00:35:42,"But buying the commercial real estate allows you, particularly if you use good tax planning, allows you to build up a pot, shall we say, or an insurance that is there for the family as well. And it's important to make sure though, that we're not blind to the fact that the purpose that we think the building can do today might not be the same in two,"

00:36:02,"10 years, 20 years time. And it does have to have multiple exits. I think that's really important because sometimes you can buy a building, you think, oh this is perfect for, I dunno, self-storage or something. Yeah. And then three others open up down the road and you're like, okay, what am I gonna do with it now?"

00:36:18,"And if it's difficult to rezone it, what, what are you gonna do? So yes, trying to make sure that you've got multiple exits on it, but I think that the piece that people don't understand about buying the commercial assets is the tax savings you can make and the incentives for doing it. You know, I, I appreciate UK and, and the US are different and I always feel that we tax ourselves even more,"

00:36:39,"but basically there are a lot of tax benefits that aren't as obvious. Like, just an example in the UK being, if you build a new building, you can get capital allowances, which you can offset against your initial profits. But if you're doing refurbishment, there's so much more that can go into those day-to-day expenses that actually will come off against profit."

00:37:02,"Which means that you can really make profits for one or 2, 3, 4 years after you've built the developer or redevelop the property. And actually who tells you that stuff, you know, but, but it is there, it's possible to do it once you get the right advisors. So anyway, I'm, I'm going slightly off track, but basically the fundamental thing is,"

00:37:21,"are you trying to just do a trading business or do you wanna create wealth through investments? Yeah, I love that. And thinking about sort of, I mean along those same lines, I've been in conversations with folks who are trying to understand like what are the exit possibilities for Coworking businesses? And there's not a lot, it's, it's like a typical business."

00:37:42,"It depends a lot on the lease, for example. So in the US in other markets, producing is more common. It depends, you know, the value of your lease and what is it gonna look like when it renews is a pretty big factor in terms of the business valuation. Sure. And even then, you know, it's three to five times ebitda,"

00:38:01,"which you know is okay, like, but it's not necessarily life-changing, you know, for anybody with, with a few locations. And so if you have a why of building, you know, long-term wealth and having, you know, sort of a, a bigger outcome than buying the asset and working it that way can be a, a better return than thinking you're gonna build up this business and and sell it for many Times."

00:38:26,"Sure. Or or even worse hand the keys back. Yeah. Because or Even worse hand. Yeah, yeah, yeah. Great. Yep. It's interesting in the UK I'm sure it's in the US but in the uk valuation is down to, I mean there's loads of factors. The the main things that the values really look at when, when they're,"

00:38:43,"they're assessing your property for a bank or for somebody else around the lease is based on obviously the income. That's like the number one thing, but the quality of the tenant. Now we can maybe come back to that cuz in Coworking the quality of the tenant always, always is good. And also the length of the tenant's agreement. Now if you are the landlord and you're letting it out on a month by month basis,"

00:39:08,"there's not a great value in that. So there's, there's ways to work around that, but you have to be aware that it, that does affect it. And then of course what they're trying to do is work out well as it is right now, what's the value gonna be based on the, the total money, how long the money's gonna be coming in for."

00:39:25,"And then the sort of the backup is the vacant possession. Actually, if this thing came back in the market, if you're a royal, not a royal, if you're a, a finance company and you're saying, right, well I'm gonna lend Jerry the money, but if it all goes up, what's the vacant possession value that underpins it? And those,"

00:39:41,"those different valuations, some lenders will give you based, they're, they're lending based on the vacant possessions. Some will do it on the, the, the, the total income or the ebitda. So it, there's different levers in there, some of which you can totally influence. Right. And then others not so much. But in terms of investing in commercial,"

00:40:02,"a good example would be buying something that's got either vacant possession or a partial income, which is what we tend to look for. Yeah. Something with a partial income. Cause it kind of tells you that there's more space to develop. Yeah. And it also gives you an income that helps Yeah. Raise finance. But when you do that and then you redevelop the space,"

00:40:19,"maybe re gear the lease that's currently in place and put some more in, you've added income. And this is what I didn't realize on the first one was it totally changed the value. Right. Generally Where I am, the multiples of round about 10 on the rent varies wildly. Sometimes it's 20, sometimes it's five, but, but 10 is kind of your vanilla products."

00:40:42,"I remember coming to the US and going to a trade show for self storage industry. I'm amazed at the yields in that multiples there. Yeah man, it's unbelievable. Yeah. But there's institutional investment in the uk. We don't have that in self storage yet, but I'm getting slightly off track. But basically a multiple 10 is kind of where you're looking at."

00:41:00,"Whereas if I was selling a small seven unit Coworking operations business, I wouldn't get a multiple anymore than what you were talking about. Right. That's for sure. Exactly. Yeah. Yeah. Okay. So if you wanna buy another building, there's Right, the building's half fall. Yeah. And you're gonna redevelop into Coworking. What do you have to,"

00:41:24,"are the bank, do the banks understand what you're doing? Do the banks support what you're doing or do you have a hard time financing that project? We've generally bought one about every two years, years and it changes every time we go to see them. So right now we're going through a refinance on some of our buildings and the questions are different than last time."

00:41:44,"Their outlook is different than last time. But right now the key things they're asking for is serviceability. So if you buy this building, Jerry put it in your existing portfolio and it completely flops, can you still afford it? Yep. So that's the serviceability. But the second one is what's the loan to value? How much are you putting in? We tend to leverage our existing,"

00:42:06,"so we don't always have to put much in, we just keep our loan to values reasonably low as we can. And then of course the third part they're looking at is experience. I think at the moment, if you've got the high street for a commercial loan for a multi light building that's not performing well right now, it's difficult if you don't have experience,"

00:42:23,"that's the bit they want to know about. If you've been leasing space already and you've already got one or two locations and now you're thinking, do you know what? I'm gonna buy my own one, that experience will really help. That's a chicken or egg problem for folks. Yeah, sure. New. Yep. They're gonna take you to the bank with them."

00:42:44,"Do you know what, I dunno about newest, but here a lot more, and this is probably coming from my residential circles, but there's a lot more private finance, you know, people that are, and this, a lot of this is about your expectations. So if you have the expectation that there's no money out there, there's a lack of any kind of money to do anything,"

00:43:04,"you're probably right for you. But if your expectation is there is lots of money out there, I've just gotta get it directed towards me. And you go out with that feeling and that approach, then there's actually a lot of private investors out there that willing to help people out. Yeah. But it's making the connection. No, I love that. Yeah."

00:43:23,"I interviewed couple that does Cohousing is co warehousing a a thing where you are yet? We've got one warehouse with 10 units in it. But it's all I would say has got a T point. It hasn't got any much effort. No, but you know, it's, you, I think you said this when we were recording, you know, the importance of hospitality and they talked about that a lot."

00:43:45,"And I think of warehousing as being a little grittier. Yes. Like very functional and gritty and their location is downtown, which is not always gonna happen because of, you know, real estate availability and whatnot. But they talked a lot about hospitality in terms of like how they support their members. I don't think they mean like, because they have the best coffee in town and you know,"

00:44:10,"they're, you know, hos I, I think part of hospitality is in our industry is still figuring out like what does that look like? What does that mean? You know, but really, you know, attentiveness to their members, understanding what they need, understanding you know, what more they can provide. Just being, you know, service oriented and friendly and connect,"

00:44:32,"you know, all the, all the typical things. But they said they're really focusing on that, you know, for member retention even in that business. So, yes. Yeah. Yeah. And that you've just reminded me of someone I should have brought up earlier and when you were talking about, you know, what do I see that's happening in the market?"

00:44:48,"I, and cuz hostiles remind me of it. I think that what's happened in the restaurant industry is gonna happen to us. And what I mean by that is that in the UK a lot of the casual dining locations have closed up. Mm. The margins have become too tight. They've really struggled. And there's been some pretty high profile casualties in the uk."

00:45:08,"I'm sure it's probably the same in the US where there's been some retraction. However, the high end and the functional end are both doing really well in restaurant spaces. And I think it's gonna be exactly the same for us in our space because the design element you're talking about and the hospitality and the creative and trying to really make the customer feel valued is definitely something people are willing to pay for."

00:45:33,"But equally there is an audience that's, that's not too bothered, they just need something functional, they just need to get the work done. But that middle bit's getting squeezed and I think that's also why that other location that I was talking about earlier on is struggling because we haven't been able to build in any kind of hospitality and it's kinda that middle section,"

00:45:50,"just in the Middle. Yeah, no I like that insight. I like that insight. So I just went to GCUC in Chicago, which is one of the Coworking conferences and there was a lot of discussion about that, like more functional layer, which I have a, I think that business model is hard to figure out unless you Right. Are in the right market and hitting the right segment."

00:46:16,"Like to your point like I just need what I need. I'm just gonna pay, you know, I'm in and out. I just want to, you know, easy. So yeah, I don't see a lot of that yet. It's hard to staff it because you don't, it's probably not a big space. You know, there's a lot of interesting things where it varies for I think model."

00:46:33,"Yeah. What, what do you think? I think though that you and I are more inclined to go towards the higher end partly cuz it's, you feel it's more fun, but also there is more of that hospitality and service element, whereas the other end actually is probably more a landlord's sector. Yeah, yeah. Because because you're, you're buying the building redeveloping it,"

00:46:54,"but the operations side or that fourth bit is not so important. Yeah. So it, it tends to be, I mean they won't light touch. Right? Yep. So, but what they do like from what we offer in, in our sort of the more high end is they like the flexibility, they like everything included, but they just like to be left alone."

00:47:12,"But yeah. Right. Exactly. Are you doing, are you, are you leaning into anything that's more operationally intensive around like food and beverage besides your tee point? Yeah, so, well one building we have got, I mean I was listening to your podcast about third locations and third place and I thought that was really interesting. And we have got a building that's got a restaurant in it,"

00:47:34,"which we operate. But the challenge is it's too small a building to support the restaurant. So it's pretty much supported by a local community, which is fickle and you've got, so really it's ended up being a pretty much a separate entity. So although I'd like to say we're in that kind of food and bev hospitality we are, but not really within our buildings."

00:47:54,"You definitely need a certain size I think, to make that work because you need consistent customer. Yeah. I mean what I would love to do is have a food and bev operation that actually didn't need any external customers. It was, there was enough critical mass to support it on site because then everything changes. Right? Yeah. Agreed. Very hard,"

00:48:15,"Very difficult and, and the skill you need. But interestingly doing up the older buildings, cause I like particularly buying older, but like 200 year old buildings where you got loads of character is that when you, There are no 200, I don't know if there are any 200 old buildings. Of course there are Go, I'll just think some, the couple of ones that we bought are 200 odd years old."

00:48:34,"But basically they're stone built and, and over the years had loads of layers and things put in them and they don't look great. But when you strip all that out, it can become really inspirational. Actually you, I did pick up some really interesting, what you said earlier, previously was that it's not always about inspirational spaces, it's about energizing spaces,"

00:48:55,"which I thought was a really good cover. And these indus industrial, semi-industrial, but these older buildings, they just have so much great character that they kind of give everybody a bit of a grounding, but equally they're just uplifting places to work in. But the thing is they, because they've often been built for different things, you'll have spaces that can be quite voluminous."

00:49:17,"So you can have a venue type space or a coworker or you know, whatever different guys it has, depending what time of the day it is and all the private offices. So that mix, when you've got enough scales, just fantastic because it's so sticky for customers. Totally. Once they've come in Yeah. You know that it's like, does anybody else offer anything like this?"

00:49:38,"Yeah. Yeah. Oh really? I don't wanna move. Yeah. Yeah. All feeds into marketing, doesn't it? Yeah. I mean, but it's also just more, there's a lot of complexity. That's what I, you know, think is a little bit ahead of us is I, so I do like what you're saying, that there, there's a segment and we'll see this play out that's less,"

00:49:59,"you know, lower touch, simpler. That's a model that's approachable to more people. The really high touch, high hospitality, high amenities, food and beverage. Like woo, That's a proper business. That's a proper business. Yeah. And you need, I need to that Business, I need to let investors know it. That is a trading business."

00:50:22,"Yeah. Yeah. It's fun. Teaches you a lot of stuff. But the fundamental at the end of the day is still letting, we're in the space business and we're about making space either create more margin than we're having to pay out to the landlord or obviously more margin we're having to pay for our mortgage. And it could be that the space use is totally different in different buildings because you're trying to optimize for what that local market demand is."

00:50:48,"Yeah. But I guess for me, I, I just love the creativity of it all. You have to like the creativity I, it's a right, right. How do we, yeah. How do we solve this challenge? Okay. I tell us a little bit about what you do in your programs. So you have some, you have a membership,"

00:51:06,"you've got a mastermind, you do some one-on-one mentoring. Tell me about how you work with folks who, yeah, So I, I started my podcast for three different reasons. One, to get more exposure and meeting more interest interesting people in the industry, yourself included. Right. So just being able to meet other people and, and learn more. The second one was to build a network of people that are actually investing in commercial property."

00:51:33,"Cause it's quite challenging to find other people that are doing it, unwilling to talk about it. And then the third one was to find potential opportunities, either buildings or people to work with in terms of finance too. So look, that was kind of what I was trying to do with it. What it's ended up doing is, is creating this audience saying,"

00:51:53,"well actually Jerry, can you tell me how you do this? Right? You've done this, what do you think about? Yeah, right. What do you think about that? And as much as I like working with individuals, because you get into the nuts and bolts about buildings is the frustrating thing about that is it's not the same as working with a group."

00:52:10,"Because when you're working with a group, there's that whole peer-to-peer stuff going on. So it's not all about you or I, it's about what everybody else has learned and sharing and everything else. And then I can learn more selfishly. And you've got the, you've got this peer network who are supporting each other, going through different problems, bringing different challenges."

00:52:30,"You can learn so much faster. Whereas when you're looking at one building and doing one-to-one, you're only really learning that two dimensional way. Yeah. So I really like doing masterminds and the membership group. That's the bit I've really enjoyed because the membership group, although most of it's online, we do meet once a quarter for those that can come. I mean we do do it online as well."

00:52:53,"And then we, that's for a full day. And then on the masterminds a bit more intense. That's for people who actually really want to do this. They've probably bought a building already. Okay. They're looking at scaling up and it's more about accountability, 90 day planning, being a just a little bit more, I guess focused on, on making things happen."

00:53:16,"So it is quite interesting cause I've been on a couple of master masterminds myself, I've tried a different couple of things and improved on what I think. Thoughts Rephrase that Jerry. I've taken some bits and pieces from other peoples that I thought actually if I did that on my own and maybe wrapped it in this, it's gonna work better, at least for me."

00:53:35,"And during that experimenting I've discovered that this approach that we're at right now with a, an ongoing mastermind with the accountability sessions is really the bit that people are after. Yeah. They want the knowledge, but it's that thing about actually, once all the enthusiasms die down, who's there to help actually make sure this stuff happens. Yeah. Yeah. So That's where I'm,"

00:53:58,"that's where we're at at the moment. I'm sure it'll change a little bit. Again, I'm, I'm really enjoying the group stuff. That's the bit I really like. Yeah. Do you find sometimes people are resistant to do the group even though you know it's better? Yeah. Yeah. Absolutely. Yeah. Yeah. Definitely. And I like I and you and you know,"

00:54:15,"at the end of the day I do do some one-to-one stuff, but yeah, I try and steer them towards the group. I just think that the only time that's slightly different is when they have a very specific building they're buying. Yeah. And it's like, right, this deal's, I've got this deal. I need to make this happen. And then it's just going through the analysis and everything on the specifics of that."

00:54:33,"That's a little bit different. Do you get female investors in your groups? Yes. Do you know what? I've been really lucky because in our masterminds, let me just think now, the last, cuz we were doing nine months now we just do continuous. But the last nine months I think there was more females than males. Oh, I love this."

00:54:53,"Okay. And the previous one was 50 50. Oh, Good. Okay. So I'm Surprised. Yeah, I'm too, and actually, when I look at our podcast listeners, I'm disappointed because according to the stats, how the hell they work all these things out. There are, there is a less proportion of females that are listening. Interesting. But,"

00:55:13,"but It seems to me that the females, the ones that are taking action Right. And know they want, like, they don't want make a bunch of mistakes. Yeah. They, they want to do. Yeah. And maybe the guys are thinking, do you know what I, I've already done residential. I'm not gonna listen to you Jerry. Yeah."

00:55:28,"Well listen in private, but I'm not gonna tell you I'm, That could be the case. Yeah. I have up for your Coworking stats. Cool. Okay. I'm gonna put your website in the show notes so that if folks wanna speak, Great. Thank you. Appreciate that. Yeah, they can, can learn more about that. Yeah. Anything else we should cover before we wrap up?"

00:55:48,"I don't know. I'm trying to think. Not from my stuff. Funnily enough, I was speaking to somebody from California yesterday. Oh, Where? In California. Oh, I can't remember. That's as much as my geography goes. He, he said, to be fair though, he's wanted to invest in the uk. So it's like, okay."

00:56:07,"All right. Really. Let's have a conversation. Yeah, yeah. He's got ties over here. Oh, okay. So, But it's not, I mean there's also, I've worked with people from Hong Kong, some in France, you know, it it, the geography doesn't matter too much cuz the underlying principles are the same. Same. Right. No,"

00:56:24,"no, a hundred percent. Yes. Yes. There's Technicalities, but I'm not a lawyer. Right. So I'm not gonna be able to give you as good as a lawyer. But the tech, the, the, the fundamentals of how to find space and work out how the mar what the market wants is the same everywhere. Yeah. And then you just find a local team."

00:56:44,"So if you need a Yeah, yeah, yeah. Just like in residential, you can do long distance. I think most people in California tested another market. Yeah. Commercial real estate probably. Yeah. Yeah. Anyway, thank you for making the time to do this. Let's do this again. Not in less than two years. Yeah. Okay."

00:57:03,"Deal. Yeah. Yeah. And so I'll link to your website and your podcast cuz every, you know anybody who's listening, who's interested in Yeah. Potential investing. Should, should listen to your podcast. So we'll link that up and we'll do this again soon. Fantastic. Thanks Jimmy. It's been real good fun. Thank you for listening to today's episode."

00:57:26,"If you like what you heard, tell a friend, hit that subscribe button and leave us a rating and review. It makes a huge difference in helping others like you find us. If you'd like to learn more about our education and coaching programs, head over to Everything Coworking dot com. We'll see you next week."

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Jamie RussoComment