DHC Real Estate Services - Resources #CommercialDHC Real Estate Services - Resources #Commercialhttps://www.dhcres.com/blogs/tag/commercialSun, 08 Nov 2020 01:20:17 -0800http://zoho.com/sites/<![CDATA[SHOULD I SIGN A 'GOOD GUY' GUARANTEE?]]>https://www.dhcres.com/blogs/post/should-i-sign-a-good-guy-guaranteeAug. 26, 2020  When negotiating a commercial real estate lease for office space, you may be asked by a landlord to agree to a ‘good guy’ guarantee ]]>
WRITTEN BY JONATHAN LUTTWAK

Aug. 26, 2020 

When negotiating a commercial real estate lease for office space, you may be asked by a landlord to agree to a ‘good guy’ guarantee. This ‘good guy’ guarantee is a special type of personal guarantee that provides protection to landlords in the event a tenant goes into default or is otherwise unable to continue. 

While a ‘good guy’ guarantee is a type of personal guarantee, it only goes into effect under certain conditions and has a specific purpose, that of ensuring a tenant that is in default vacates the premises. While it may seem onerous, subject to how it is written, financial strength of the tenant’s business, and proposed security deposit amount, it is often reasonable for a landlord to ask for a ‘good guy’ guarantee and appropriate for a tenant to sign it. 

This article will help tenants and landlords better understand the nuances of the ‘good guy’ guarantee, what it does, what risks it imposes on the guarantor, and under what circumstances it should be included in a commercial lease negotiation.

What Is A 'Good Guy' Guarantee?

A “good guy guarantee” is a type of conditional personal guarantee. We describe it as conditional because it only goes into effect if a tenant that is in default fails to provide the required notice and vacate. The name is derived with the idea that a ‘good’ market participant should provide notice and vacate if they are going to ultimately default on the lease. Failing this, the guarantor, traditionally an officer or principal of the business signing the lease, assumes personal liability for the entire lease obligation. 

Therefore the ‘good guy’ guarantee incentivizes tenants to vacate the premises while providing appropriate notice to the landlord to avoid taking on personal recourse.  Most good guy guarantees ask that the tenant give the landlord some notice, stay current through that notice period, and then vacate the premises in the condition specified in the lease document. 

The key here is that a ‘good guy’ guarantee is conditional. As long as the Tenant vacates the Premises and is current through the notice period, then the landlord has no personal recourse against the principals or officers. 

The good guy guarantee is a short legal document and the language is negotiated by legal counsel. 

How Is A Good Guy Guarantee Different Than A Personal Guarantee?

While a ‘good guy’ guarantee is a type of personal guarantee, meaning that a principal or officer of the firm that signs it is effectively providing a personal guarantee and therefore personal liability for the entire lease obligation, it is entirely conditional.  As long as sufficient notice is provided, the rent is current through that notice period, and the business vacates and leaves the space in an appropriate condition, the guarantee is effectively terminated. 

In a traditional personal guarantee, if the business is unable to fulfill the entire lease obligation, then the guarantor becomes personally liable for the entire lease obligation. Especially if a lease is terminated early, the liability may be significant and can result in the principal’s personal assets being at risk. Given the personal nature of this risk, most tenant brokers warn against tenants signing a personal guarantee. 

How Does A Good Guy Guarantee Benefit Landlords?

Designed mainly to reduce holdover and squatting risk for landlords, the good guy guarantee ensures that landlords are protected in the event a tenant cannot pay the rent for the remainder of the lease. Good guy guarantees are typically requested during lease negotiations following review of proposed Tenant Financials.  In some cases, offering a “good guy” guarantee can be a means of reducing the total amount of security deposit. 

Without the presence of the good guy guarantee, a landlord may have to resort to legal proceedings to evict a tenant who isn’t up to date with their rent. Especially in New York, evictions are costly for landlords and means they incur more downtime and legal fees.  The time spent evicting a problematic tenant could be spent collecting rent from a new tenant. Adding the prospect of personal liability forces market participants to provide notice and vacate.

What Is The Impact Of A Good Guy Guarantee On A Tenant?

While no one appreciates the notion of taking on any personal recourse, a ‘good guy’ is not an unusual ask in New York and is far more favorable to a traditional personal guarantee. In the event that the lease obligation becomes untenable or the business winds down, as long as you give the landlord notice, and leave the space in good condition, you only have to pay the rent up until you vacate the premises and the risk is limited to the security deposit. 

One important thing of note is that this does not mean a commercial entity can simply provide notice and vacate with no recourse.  The business entity will still be liable for the lease obligation and if the business is not winding down, the landlord will have a legitimate claim against the enterprise that signed the lease.  The landlord therefore maintains the ability, like other creditors, to enforce their rights for the entire lease obligation but can only look to the entity.

Key Issues To Consider With Good Guy Guarantees

Deciding whether to sign a good guy guarantee or not is ultimately reliant on the terms of the lease negotiations. Not all good guy or personal guarantees are the same. Your broker will be working to get the best terms for you as the tenant, while your landlord’s broker will do the same. The organizational credit history and size are the key considerations used to decide what is appropriate.   

Notice Period

One main consideration that will be negotiated when signing a good guy guarantee is the notice period. While a three month notice period is common, landlords often try and negotiate for a longer notice period, and tenants try and negotiate for a shorter period. 

For example, a landlord may ask a tenant to give at least six months notice in the event that they must default on the lease. Should you agree to those conditions, it is important to keep in mind that you will be responsible for six months worth of rent, even if you only give four months notice. 

As a tenant, it is wise to give your landlord notice as soon as you have an idea that your business is not doing well. Not only is it helpful to your landlord, but it ensures that you will not be personally liable under any means.

What Happens If You Have A Good Guy Guarantee And Sublease Your Space?

In the event that a tenant’s business closes and they may have to default on the lease, they may choose to sublease the space to another tenant. This will allow them to collect rent payment from the subtenant to pay the lease, without breaching the lease contract. 

If you do decide to take this route, be aware that you will still be personally liable for the lease if the subtenant can no longer pay for the rent and will not vacate the premises. The last thing you want is to risk your personal assets because your subtenant is squatting in the space. 

Deciding Who Signs The Personal Guarantee

One of the last things to consider when signing a good guy guarantee, or a personal guarantee of any kind, is who will be the principal of the lease. If your business is a venture shared with other people, it may not be the best decision to assume the position as principal. 

If some time down the road you decide to leave the business, and the business ends up defaulting on the lease and won’t vacate the premises, you will still be personally liable for the lease.  

Alternatives To Signing A Good Guy Guarantee

Although it is common to sign a good guy guarantee, there are still other options that will work to protect both you and the landlord. One viable option is increasing your security deposit instead of signing a good guy guarantee. Although this will require a larger upfront cost, it will ensure that neither you or your business will be personally reliable for the lease should you need to default. 

Conclusion

While it is still a type of personal guarantee, a ‘good guy’ guarantee negotiated properly is reasonable for tenant’s to sign in certain instances. While no tenant wants to have any form of personal liability in a commercial lease, a ‘good guy’ guarantee is a market appropriate compromise to protect the landlord in an event of default, while minimizing personal liability to the tenant. 

If you have any questions regarding a good guy guarantee, as either a tenant or landlord, feel free to contact us at DHC. Our brokers are experienced in negotiating key provisions in commercial leases in New York City, and are committed to protecting our clients in real estate transactions. 
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]]>Sat, 29 Aug 2020 16:45:38 +0000<![CDATA[DOES CO-WORKING SURVIVE? NOT IN ITS' CURRENT FORM]]>https://www.dhcres.com/blogs/post/does-co-working-survive-not-in-ts-current-formEvery day we see new predictions of WeWork’s demise. Articles with headlines like “Is  Coronavirus the Knockout Punch for WeWork” are commonplace ]]>
Every day we see new predictions of WeWork’s demise. Articles with headlines like “Is  Coronavirus the Knockout Punch for WeWork” are commonplace. It has been a spectacular story and a slow-motion train wreck that is ending with a cataclysmic head-on-collision with COVID-19. The story has everything. Colorful characters, a wealthy investor that bears similarity to a comic book villain, disruption, a meteoric rise, an embarrassing public implosion, billions made and lost, and a pandemic that hit them at the worst possible time. 

Just yesterday they announced another round of layoffs in a town hall Like other space-as-service providers, notably Knotel, they too have failed to pay April’s rent and are in talks to renegotiate their existing leases. If they somehow rise from the ashes or implode, there is a more important story to tell.   
  
That story is that of their impact not just on commercial real estate, but the long-lasting implications of their disruption on startups, small businesses, other tenants, and landlords. Even with this spectacular implosion, they deserve credit for the monumental impact they had – some of which will persist – even if they do not. 

The word to remember is agglomeration - a heap or cluster of usually disparate elements. They did that — they fostered a community of new companies and innovators and put them in close proximity to each other. This is not fluff, I have witnessed the impact firsthand as a member in that community. Together we will dig into what WeWork did, why it was so disruptive, what will have to change, and what this means for its existing membership base including startups, small businesses, and enterprise clients. 

In this article I want to focus specifically on the following concepts:

  1. What WeWork did for small businesses and startups 
  2. WeWork’s impact on the commercial real estate industry 
  3. Will WeWork and other co-working firms survive and if they do, what will that look like?   
  4. The potential consequences of a WeWork and broader co-working implosion for start-ups, small businesses, and commercial real estate 

What WeWork Did For Small Businesses And Startups

WeWork transformed the economics for startups, small businesses, and provided businesses with the ability to scale quickly and inexpensively. It is something that people don’t often talk about, but I believe that WeWork has had a massive impact and deserves recognition for what they did to empower the startup community and the effect they had in fostering innovation, growth, and creativity. 

In addition to providing an environment where professionals can collaborate and network with one another, they also reduced the risk, time, and cost of starting a business. While Regus may have popularized the initial versions of this model, WeWork redefined it and created the category we know as co-working. WeWork’s impact reduced cost, brought together the community, changed meetings, and delivered value to its members.   

WeWork significantly reduced the risk, time, and cost of office space for startups and small firms.

Prior to the rise of WeWork, small businesses and startups faced a similar problem; the risk, cost, and time associated with finding office space was high. Besides the longer lease terms associated with traditional commercial leases, it also took a long time to get a deal done and move into a space. With WeWork, companies could find a space to work and move in within a day without having to make a long term commitment. 

Outside of speed, WeWork delivered its offering with dramatically lower upfront costs. In a traditional commercial lease, security deposits for a startup can be as high as a year’s worth of rent; a huge cost for a small company just finding its footing. With WeWork, companies not only saved themselves this enormous expense, but they also saved themselves the money and hassle associated with furnishing an office, installing IT, designing and decorating, and stocking pantries. 

Furniture costs alone are anywhere from  $25-$65 per RSF delivered, amounting to $6,000-$12,000 per person to fully retrofit an office when factoring in amenity spaces, conference rooms, soft seating, delivery, and installation). Wiring and IT, signage, design, are other additional costs, not to mention project management dollars and time considerations for a young growing team just launching a growing enterprise. Prior to WeWork, finding and negotiating an office space, especially for a small enterprise, was a significant undertaking requiring time and money.   

In 2014 and 2015, WeWork’s offering shifted from 1 to 5 desks and transitioned into supporting teams of 1 to hundreds at scale and they did it efficiently. It was fast, flexible, cheap, and incredibly scalable, allowing companies to scale from 5 seats to 40 seats in weeks or days at minimal cost. 

Service And Community

WeWork was one of the first companies to deliver office space and sell it as a service focusing on an experience traditionally reserved for hospitality, not office buildings. From happy hours to breakfast on Mondays to random amenities, speakers, health and wellness offerings, business conferences, and meetings, there was a very real emphasis on community. 

This may sound gimmicky, but it is not just marketing. It had real implications for business. People enjoyed it. I can tell you firsthand as a mid-40s business executive that I enjoyed it. Moreover, there was a tangible benefit for companies in WeWork. By connecting with others at events, WeWork companies did business together. Members met and created new ideas, new companies were born. I personally am working with two companies that I met at my WeWork, both of which are creating revenue for both myself and those companies. 

This community agglomeration simply did not exist in traditional office environments and certainly was not part of the space-as-service model for legacy providers like Regus that were more suited for a small collection of individuals hidden away behind sheetrock offices. Ironically, the Regus model feels more appropriate now in a post-COVID world, but, in the long view, the idea of services and community is here to stay. WeWork may not be delivering it for us in the future, but landlords and other providers will have to. 

Meetings And Collaboration

Another impact WeWork delivered in the market was the ability to set up meetings, conduct interviews, and host events in virtually any city, and for cities like New York, London, and San Francisco, in many different areas within the city. 

The technology was top-tier, allowing users to easily book rooms and workspaces in various sizes through a WeWork app. Conferencing spaces were included in membership, or cheap if utilized beyond the allotted amount. At a moment’s notice, a member was able to work from Los Angeles, Denver, or even another neighborhood in New York City and set up a space for the day. 

Although companies like Regus had provided some version of working in other markets, WeWork changed it, made it easier, more accessible, and cooler. WeWork members used these amenities often, with impact, and it facilitated business, community, and relationships. 

It was a great value.

WeWork’s overall business model was a bargain for small businesses, startups, and users looking for swing space, or a temporary surge of people. Yes, per foot it was expensive, but the amenity access through utilization compensated for the density, as did the ability to subscribe monthly by seat. They didn’t nickel and dime for conferencing, internet service, or printing, while many competitors did. Offering everything at a fixed price rather than monetizing each service made things easy and accessible for members. 

Was the model financially viable for WeWork? One could argue no, but my sense is that had they grown at a slower pace, tempered market expectations,  and had not been hit with a pandemic, it was surprisingly successful even with the risk of matching long term liabilities with short term revenues.   

However, even pre-pandemic, there were many concerns with respect to their business model. While there will be time to discuss the viability of such a model, the one thing that is true is for many of its members, including startups and even enterprise clients, WeWork was an exceptional deal. 

WeWork's Impact On The Commercial Real Estate Industry

It is difficult to overstate the impact that WeWork had on the commercial real estate industry. First, just the sheer volume of real estate WeWork took on is mind-blowing. In New York City alone, WeWork is the largest single occupier, with nearly 9 million feet of space. If (or perhaps the appropriate word would be ‘when’) WeWork and other providers do implode, it will have a huge impact on the New York City commercial real estate market, and many other markets around the country and the world. 

But their real estate impact is not just the potential fallout of an implosion for vacancy, rents, and leasing activity.  WeWork created huge changes that transformed the industry and some of them will persist, even if WeWork does not. Some of the things WeWork did for real estate included: 

  • Making old, tired buildings cool
  • Pushing the envelope on utilization and space standards 
  • Defined and popularized space-as-service business model 
  • Transformed tenant buying behavior and disrupted preconceived limits on flexibility in the workplace 
  • Changed the pre-built small space market 

In key cities, WeWork quickly grew into a dominant tenant and improved the appeal of class B&C buildings.

In 2018, co-working accounted for more than 10% of all leasing activity. WeWork surpassed JP Morgan as the top occupier of space in New York City. WeWork, and other co-working providers became a significant driver of new leasing activity in the market, a trend that ended abruptly with the outbreak of COVID-19. 

Initially, their model included leasing cheaper class B and C buildings with limited appeal. They took these old assets, sleepy tired buildings, and made them cool. It is easy to forget that they really helped shape the Midtown South market along with Google and took these old tired buildings, midblock buildings, and unlocked value in assets that traditionally underperformed. Will these buildings all retain a ‘cool’ factor in a post-COVID-19 world? Some will, but many others may not. 

Moreover, a WeWork implosion will mean a significant amount of space coming back to the market, downward pressure on rents, and, in the near-term, a hit to leasing activity with them effectively shedding as opposed to leasing space. 

They Pushed The Envelope On Density And Utilization Of Space

WeWork pushed an impossible density nearing 44 square feet per person, compared with a traditional Regus model of 130 square feet per person. 4-foot desks packed tightly together became acceptable in a shift from individual space to the so-called ‘user experience’ in the amenity spaces. 

They pushed density with the idea of fostering collaboration and community spaces. Candidly, they made a laughable space standard a generally accepted practice for startups and small businesses. Even pre-pandemic, this did create consternation. Tightly packed spaces along with limited privacy may have reduced and not improved collaboration. In larger team rooms, it was common to see employees with headphones messaging each other due to the noise considerations. There were implications on infrastructure, too, especially in the older buildings with limited HVAC and elevator capacity. 

Even if you bought into the density they popularized, there will be no tolerance for that type of density in a post-pandemic world, at least in the foreseeable future. 

As emphasis shifts to health and de-densification, this implies a functional obsolescence in the installation of existing WeWork and other co-working providers. 

Further, the capital required to transform these existing spaces, as well as the implications in the form of higher cost to users to make the economics work will significantly drive down user demand for co-working providers. This will add additional economic strain as they work to transform their offering. Ironically, the density they popularized may be their undoing. Meanwhile, legacy providers like Regus, which favored individual offices, may do far better in what will be our new normal.   

They Created The Space-As-A-Service Category

WeWork’s emergence was disruptive and they had provided small businesses and the startup community with the ability to take office space quickly and inexpensively. What they did was more than just real estate. They changed the model. They combined the idea of physical space with services and amenities like coffee, beer, and community and sold it in a software-like subscription model. Minimal long term exposure and very low initial investment. You could pay for what you need, grow when you need to, and take advantage of useful amenities.

This was a revolutionary idea that didn’t exist before. Sure, Regus technically popularized the idea of a short term office and the reselling of space is not a new idea, but it was not the same. The old model was an office by office concept with fees for services, hourly rates for conferencing, egregious printing costs, etc.   

WeWork changed the game. They sold a seat-based model. Everything from virtual membership, a hot desk, a dedicated desk, an office for 1, 2, 5, 10 or 100 people. Prior to WeWork, that model simply did not exist the same way. While that model will change, even in a world without WeWork, we do believe that the space-as-a-service category is not going away. It may look different, and the providers will be new companies or existing landlords, but space-as-a-service will continue to be an important part of the market into the future.

WeWork Changed Buying Behavior And Expectations of Flexibility

WeWork’s model permanently changed expectations in the marketplace. It is hard to imagine going back to a pre-WeWork world where the only options companies have to quickly find space for teams on a short term basis require finding a traditional office space, or built sublease. WeWork changed the pace for these types of transactions and the need for that type of flexibility is not going away.   

It is amazing how few people remember that before WeWork, solving for a short term need for a team of 10-50 people quickly was a near-impossible task. You would scour the market for subleases, the term would be what it was. The built space was a legacy installation for another user and it took weeks at best and more likely months. 

WeWork upended the model. You could get a team of 20 people into a spot in a day or a few weeks.  You could do it one month at a time, or for a year. You didn’t need furniture or to turn on an internet provider. There was no need for a large security deposit. You could be a new business or an enterprise. It didn’t matter.  This level of flexibility changed expectations. It was a constant pain point for tenants and that fundamental need for flexibility will persist.  Changes to GAAP accounting rules requiring long lease obligations to be added to balance sheets, too, which drove more users to seek shorter leasing obligations. 

It is a need that is not going away and companies who are used to a new form of space buying behavior will seek such providers. Will it cost more to buy that flexibility in the future? Probably. Will that drive some businesses to work remotely? Yes. 

With that being said, I would not bet against human nature. Humans are social and the need to collaborate, build trust, and connect in a physical space is not going away. I get that this is not a popular idea now and it may look different, certainly in the short term. But in the long run, people will come back together again and will need space to do it. Does WeWork survive to deliver that service? That seems less likely as they will need to transform their business model or go through a restructuring.

Their Impact On The Small Space Market

In 2015, WeWork started to affect the small space market, namely the 2,000-10,000 RSF market. At that time, we witnessed the small space market for direct spaces taper off dramatically. It was about then that co-working companies started catering more to teams of 5, 10, and even 100 seats. 

The cost savings and flexibility pushed tenants that would have ordinarily looked for 2,000-10,000 square feet out of the conventional leasing market. In 2016 or 2017, it became commonplace to hear a broker say, “I had a 7,000-foot deal die and go to WeWork”. Initially it was confrontational with brokers, but ultimately transitioned into a partnership model where WeWork was shifting to cooperate with the brokerage community. 

Still, the rise of co-working and space-as-a-service hurt the market for traditional spaces in that size range and buildings that catered to small office suites. Even for users that preferred conventional space, it was hard to overlook the upfront cost savings, flexibility, and amenities that co-working provided growing teams. 

As WeWork and Knotel continue to hemorrhage and transform, many of their existing members are viable businesses and I believe we are likely to see a near term resurgence in the small space market. Businesses that are doing well and still want to work in an office will seek to reduce density and favor autonomy over their enterprise in their own space over a community of other companies. 

For landlords, we see an opportunity here and think it may be a good time to think about planning and pre-building small furnished suites. In my view, small pre-built spaces built with a higher ratio of offices vs open space will do well in the short to medium term as tenants scramble to find a replacement for their co-working space once we begin to reopen our economy. 

Will WeWork And Other Co-Working Firms Survive? If They Do, What Will They Look Like?

For WeWork, certainly not in its current form. It is hard to imagine how they come through this without some form of restructuring and more likely bankruptcy.  They will need to change their business model, layout, cost structure, and more. Those costs seem unrealistic without the ability to offload debt and give back space. 

However, that does not mean that all co-working providers implode, nor that WeWork will not restructure and somehow come back into the market. I believe that flexibility and the changes in buying habits for tenants will be long-lasting. Companies will need physical space and tenants will continue to seek flexibility and service.  Landlords, too, see the value in having part of their portfolio dedicated to flexible space and may fill the void directly or retain co-working providers to manage part of their portfolio for a fee rather than resell their space.   

The question is: who will become the provider for this need? Will it be WeWork, Regus, landlords themselves? Perhaps software aggregation companies will emerge, allowing for small space owners across the country to offer quick and easy office space for professionals and small businesses.  It will look different, the players may be different, but we believe co-working is here to stay. 

A Thought On Regus

It is important here to talk about Regus. Over the past decade, they came out of vogue as the cooler co-working model came into vogue. However, I believe that Regus has a sustainable business model in the long term and in the short term may come out of this a winner. Some companies that use space-as-a-service will decide to work in a decentralized way for a period of time and they may seek to work with providers like Regus to provide options for people to work in off-site offices. 

Regus is an older model, somehow a more corporate environment with lower density.  Small users and independent firms may seek to still work in an office environment but will want it partitioned as the idea of community spaces falls out of favor for a time. For enterprises that may require space in various markets simultaneously, Regus also has the scale and reach to deliver. 

The Potential Consequences Of A WeWork Or Co-Working Implosion

It is easy to talk about the obvious implications of a co-working implosion — a deluge of space hitting the market, largely unusable in its current layout. Decreased leasing activity with the exit of an industry that dominated leasing activity in key markets. But there are far-reaching consequences for the startup community and small business activity. In my view, the collapse of co-working in the short run will hurt innovation, creativity, energy, and vibrancy of our startups and small businesses.

Startups And Small Business Activity At Risk

No matter how you felt about WeWork, they helped startups and small businesses succeed and reduce the cost of failure. Even if co-working firms survive, tenants will need to invest more in a physical space than they have had to over the past five years. That will be offset by a potentially weaker leasing market, but if a company or startup does need physical space, it will need more space per person. 

Those that decide they can’t make the investment and choose work remotely will find challenges in building culture, recruiting effectively, managing a growing team, and fostering the type of collaboration and knowledge transfer that only happens in a physical environment. 

For companies that do decide to place a larger investment in their real estate needs, the higher upfront and monthly costs will likely result in a lower investment in talent and other resources young businesses need to thrive. Like them or hate them, WeWork helped enable entrepreneurs to start and grow businesses over the past decade. 

The Collapse Of An Ecosystem

The increased risks and costs of space will reduce new business formation activity in my view. That lower activity, combined with a move towards larger offices, more space, and less personal interaction will hurt the creativity in the ecosystem, especially for younger workers who come to the office not just to work but for the social stimulation that drives innovation. 

Small businesses operating in co-working felt like a community of entrepreneurs. Yes, that was a lot of sales sizzle, but it was also a real sense of community.  There was a familiarity in walking the halls, talking to someone from another industry, a different set of experiences. It is impossible to replicate that chance interaction on zoom calls. Co-working spaces presented a unique experience for businesses to network with one another, collaborate, and share ideas. Losing that energy will undoubtedly affect how startups and small businesses find each other, generate ideas, and grow. 

Filling The Need For Flexibility In Real Estate

In the long term, tenants will still be willing to spend a premium for reduced initial investment, a lower security deposit, and flexibility. Landlords increasingly understand that there is a benefit in having some of their portfolio dedicated to flexible space. While a co-working/space-as-a-service model is more like an operating business than a real estate business, landlords are positioned and incentivized to capitalize on a direct relationship with growing firms who can then grow within their portfolio into a traditional lease structure. 

We have already seen a long term trend to “amenitize” office buildings and offer services that are more hotel-like than an office. One solution for landlords who are facing the prospect of getting back space from a co-working provider is to transform the space themselves, and work with existing members to create solutions for them directly as market activity resumes. Further, without a provider between the landlord and tenant, they may be able to drive better value for tenants while extracting a premium relative to a conventional lease.   

The Return Of The Small Space Market

No matter what happens, the flexible portion of the space market will change and de-densify in a way that will move closer to equilibrium with the economics of the traditional space market. 2,000-10,000 square foot spaces will become more popular than they have in the last five years. Even if only 20% of WeWork’s portfolio still needs space after COVID-19, that is still a huge need for small businesses that will need space. 

Conclusion

WeWork deserves credit for creating an agglomeration of people, industries and ideas. They transformed the industry, enabled thousands of small businesses to get their start, and created a community of people who would ordinarily not have connected by any other means.

It is impossible to appreciate the true impact that WeWork had on the knowledge economy. Despite all of the justified criticisms of WeWork, their impact was real. There is reason for anger and there will be a lot of pain ahead for their investors, former employees, members, partners, and landlords. 

As we all deal with the fallout, I hope that we can also reflect on the positive contributions that WeWork had. They enabled innovators to take risk and build companies. Our world too, is better because of the creative ideas, moments of inspiration, innovations, new directions, energy, and relationships created in various WeWork offices around the world. 
CATEGORIES

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Commercial Leasing

Loss Factor

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]]>Wed, 26 Aug 2020 16:03:47 +0000