WeWork’s failed IPO created a lot of negative chatter about the co-working industry over the last few months. But alas, there is still a ton of potential for the co-working model to create real value for investors.
A year ago, we decided to take on our first co-working project, and it really opened our eyes to co-working potential. Here is how co-working added real equity and profit to an office building and why I still believe it’s the future of office space.
Co-Working Is Alive and Well—Here’s Proof
The project, which is owned by Matt and Liz Faircloth, started as a 12,000-square-foot traditional office building in Trenton, N.J. The office was roughly 80 percent occupied and averaging about $7K per month in rent a year ago. It wasn’t a bad investment for the owners, but we all believed there was upside in the building.
First, it’s a good location. The office is just off the main highway coming into Trenton. It is within walking distance to downtown Trenton, an improving urban eco-system. The core building is a good size and unique space. And there is even a great pizza place half a block away for a quick lunch.
Finally—this is actually a really big deal—there’s a huge parking lot across the street. The parking lot is owned by a church, which means it is fairly vacant Monday through Friday. The church agreed to let anyone park in the lot who also volunteers with the church.
After putting our creative problem solving hats on, here are the steps we took to turn the building into a co-working space. Co-working is more about creating a culture and less about expensive granite counter-tops. In fact, I want to highlight that the entire budget for this project was ONLY $15,000!
How to Turn an Office Building Into a Co-Working Space
- First, we moved our property manager receptionist to the front of the building, as opposed to inside an office. This gave the office building a presence at the front of the building. It also decreased the amount of chaos in the office.
- We thought the building needed a new name. So, we changed the name to “The Hive.” I personally am a big fan of giving buildings and projects a name to make it feel like a living, breathing thing.
- We wanted the office to have some fun things for tenants to do but also wanted to keep it under the budget for the project. So, we added an old school arcade game player, a couple flat screen TVs, and a ping pong table in the central open area.
- We typically use Appfolio to manage properties, but the tech is missing a few features that are important for co-working. So, we changed technology from Appfolio to Nexudus to better handle co-working tasks. The most interesting example is an easy-to-book conference room for all members. We also added a tablet next to the conference rooms to make it easy to book and see the schedule for each room.
- We re-painted a couple of the walls, adding a gray and yellow tone and some “Hive” logo signs to give it a more professional feel.
- We created a real estate investing meetup held monthly in the central area to give the space more exposure. We followed that by encouraging other events to be hosted there, often at little to no cost.
- In the central open area, we wanted more options for people to work. We added countertops to the sides of the central open space to create additional high top seating. We added a couple desks for temporary or full-time work. And we added a couple comfy sofas for more relaxed working.
- When a tenant moved out of an office, we turned that into a sweet multi-media room. The space includes podcast recording tech to make it easy to record podcasts and video taping for Facebook Live video creation.
- There was a lot of requests for coffee, so we added a Keurig machine in the central area. But we also wanted the space to be fun, so we added a beer keg. It’s amazing how many smiles you get from adding a keg and coffee to a room!
The results were slow and steady but have transformed the economics of the building. The offices are now 96 percent occupied, with additional demand coming from the improved culture of the building. Five desks are rented, and we now have 10 new “members” of the building.
All-in, we now have $12K in monthly rent coming in each month. This equates to about $50K in positive cash flow, taking into account some additional costs. At a conservative cap rate, the extra cash flow will create $500K in additional equity. The long-term vision is to create a network of spaces like this across the Mid-Atlantic.
We fundamentally think that open, innovative co-working spaces will continue to dramatically increase in the coming years to supplement traditional office rent income.
What’s your take on co-working spaces? Have you had any success with them? Do you have ideas that weren’t mentioned above?
If so, please add them to the comments below!