Making Coworking Work: A Disruptive Hypothesis

Geekdom, San Antonio’s most successful coworking space has received a great deal of positive press over the past few weeks. The high-profile tech incubator launched by Graham Weston and located on the 11th floor of Weston Center was home to the inaugural class of Techstars Cloud start-ups. The recent Techstars Cloud Demo day was a high-profile debut for the power of collaborative working but even without the stage show, Geekdom has proven itself to be hugely successful. Under Nick Longo’s careful stewardship, Geekdom has signed-up 250 members, filling an entire floor with tech innovators, free-lancers, developers, and geeks who are together promoting an environment of mentorship and learning. Video testimonials by members and visitors celebrate the space and the culture it has created, which is described as a “YMCA for geeks.” The compliments are effusive, including the lofty “there isn’t anything like this in Austin.”

Geekdom is a fantastic addition to San Antonio, and we need more spaces like it. And so do lots of other cities, and this is where the disruptive hypothesis comes in. New multifamily housing developments are breaking ground in cities across the country. Many of these projects are built on high-traffic arteries, near universities and transit, and far too few include flexible commercial spaces. This is a function of sponsorship and financing. Apartment developers are specialists, they are not office or retail developers and the learning curve can be costly. With equity and debt difficult to procure, and entitlements costly and lengthy to obtain, making a mistake, building a floor of commercial space that will not lease is a risk that is often too great to take. The development of hotels, retail centers, and office buildings typically follows the same strict adherence to doing what you know will work.

Applying Luke William’s disruptive hypothesis model, I ask how can we disrupt the competitive landscape of the urban multifamily market by delivering an unexpected solution. In the multifamily market there are many rote similarities. Those include the same amenities and features, the marketing and leasing model which promise that one can live close to work and recreation, the organization of “community” within the development around the pool, bbq grill, or fitness center, and the way units are priced. What if you could effectively mitigate the risk associated with building a flexible-use commercial floor into your apartment building? And what if the mitigation strategy also enabled you to collect higher rents than comparable projects in your submarket?

One of the best ways to mitigate the financial risk associated with new construction is to pre-lease or pre-sell the project. Taking a signed lease with you to the bank is a great start towards getting a new project off the ground. Building commercial space into urban multifamily projects is a good long-term value-creation bet. Treat the commercial space as an amenity, as a cost that the developer can capitalize, and that will strengthen the underwriting of their project. By providing an amenity that other projects don’t offer- a coworking space- the developer will distinguish their project and be able to command higher rents without altering their business model, or increasing their risk.

Here’s how we make coworking work. First, we pre-lease the to-be-built commercial space on a predetermined percentage rent basis. The developer will assess a $25 per unit per month coworking premium ($.02 – $.05 PSF depending on unit size) and adjust rents accordingly. This $25 fee will be an off-set to the rent paid for the commercial space. Every resident will be automatically enrolled as a member of the coworking space and the space will also be marketed to non-resident coworkers at a market rate. The coworking operator will provide a turn-key product, furnishing and managing the space. Depending on how large the building’s commercial space is, the coworking operator may sublease a portion to a coffee shop, restaurant, or other retailer. This provides the risk mitigation and allows the developer to get his financing for a mixed-use project. This model also creates a new marketing platform. The coworking space is a collection of businesses and entrepreneurs whose clients and colleagues will visit the space representing a new flow of traffic to the development.

While I think the coworking space is an amenity that should be preserved, there is always the potential that the next Instagram, VidMaker, or Rackspace will outgrow their shared desks and ask to lease the entire space at a market rate. Thus, the coworking space may be an interim solution which enables a developer to deliver a mixed-use project. And while we don’t want to get too far ahead of ourselves, this coworking model can also be applied to condos, hotels, office buildings, and retail centers.

To launch your coworking space today, email us loomisburton@gmail.com.

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2 thoughts on “Making Coworking Work: A Disruptive Hypothesis

  1. I helped create Geekdom, under contract with Rackspace and Nick. It’s my business (non-profit) to help communities create collaborative workspaces. I completely support the thesis of your post and the disruption these places can cause. I started the original “health club for the brain,” Bucketworks, in Milwaukee in 2002. Cities like Milwaukee and San Antonio need places like this to support their creative and technical communities. Love to chat about it sometime!

    • James, my hat is off to you and the Geekdom team for creating a remarkable community. San Antonio needs more collaborative workspaces like Geekdom, and coworking spaces. DeskMag’s 2nd annual global coworking study tells me that San Antonio should have at least 5. I’d love to visit and learn more about your work soon.

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