longest lease for coworking place?

[Alex Linsker]

What's the longest lease for a coworking place or other businesses that you know of that works well? Anything 15 or 20 years or more?

Context:

After getting paid to do this for 6 years, and having experimented with not actually leading coworking for a portion of that, I can see doing it for 50 more years or my entire paid work, whichever is more.

Why not buy: I don't currently personally have resources to buy a multi-million dollar building, and we're not yet where I see us buying a building as a group, and I (and most members) see us growing into multiple locations, so we could always buy buildings in the future. 

Why not do a shorter lease: When a lease ends, my sense is that rents go up, and in Portland Oregon, rents have gone up quite a bit and seem to be on track to go up quite a bit. I haven't found owners would would put a renewal option into the lease other than to renew at 'market rate' which isn't really a renewal option.

The plus to a shorter lease could be that the business model is revised in 5-7 years (moving out totally benefited us after 5.5 years at our first location, when we moved to two very different locations), but right now we are doing well with the current business model, and while I see how that could change, it doesn't seem likely.

So I could see a longer lease being better than a 5- or 7- year lease. Do you know of businesses, or coworking places, that have signed long leases and enjoyed that? The longest I know of for coworking are 12-year leases, and that seems like it can work great; I know one company where it makes total sense. I could see doing a 15- or 20- or even longer lease, with the option to sublease or assign the lease. I've heard of one big retail company that does 75-year leases, which seems too long to me, but where I'm at right now, I could see between 15 and 20 years feeling good. I could also see doing 7-year leases, and renegotiating or moving every 7 years, and having rent go up 15% every year until we hit peak, whenever that will be (I don't think we will for at least 15 years).

A related question is risk management; if we have 2 venues now and grow to more, what are the risks of growth and other risks (obviously not growing too fast or overcommitting -- which could be what a too-long lease does -- but under-committing seems to be what a too-short lease does, so it seems to balance out), and how does one balance that. 

Would love your perspectives and hearing about your own experiences.

--

Alex Linsker | Business Owner

Collective Agency

(503) 517-6900 office | (503) 369-9174 mobile

3050 SE Division, Suite 245 | Portland Oregon 97202

1410 SW Morrison, Suite 850 | Portland Oregon 97205

[Ivan Pope]

Sorry to send this to the whole list but I can't find any source of info. How do I unsubscribe from this list? (It should really be on the end of each posting)
Ta,
Ivan

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[Alex Hillman]

Hey Ivan,

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-Alex

[Liz Trice]

Alex,

One thing I've thought about with my own building is getting the community - a combination of members and neighbors - to buy the building. I know that equity crowdsourcing is legal now. Anyone with experience with this? 

Liz Trice

PelotonLabs

Portland, Maine

[Jerome Chang]

Restaurants will sign for 20-25+ years.

Hotels might lease for 50+ years, as they do not always own their own buildings.

Anytime where the location is critical, as in business cannot transact elsewhere, you’ll want to stay put.

In these past 5-8 years, I can completely sympathize with itches to lock in lower rates, as rates have only gone up. But cycles do happen, and this bull run has been some 8+ years. I would say that building ownership is only for those with iron stomachs, or those like you, who are committed to staying put with one particular building for a long time. This is no different than those who own vs rent their homes.

Be careful re:sublease. Landlords can sometimes require that they get 50% of the sublease rent increase, which quickly evaporates any profit you might take. And then as the sublessor, you effectively become a landlord, without any of the perks of being the landlord.

Having more locations is like having kids: each has its pros/cons. You just hope the average is better, and/or one’s pros more than compensate for the other’s cons.

JEROME CHANG

talk to us: (323) 330-9505

chat w/ us: http://www.BLANKSPACES.com/chat

WEST: Santa Monica | 1450 2nd St (@Broadway)

CENTRAL: Mid-Wilshire | 5405 Wilshire Blvd (2 blocks west of La Brea)

EAST: Downtown | 529 S. Broadway, Ste 4000 (@Pershing Square)

[Angel Kwiatkowski]

I have a 10 year lease at Bandwidth and that was purely because our construction was so expensive and the space so specific that the only way we could make the math work was to pull it out over the course of 10 years. 

I feel the same way about not really ever wanting to do anything else but coworking for the rest of my days though I'm sure it'll evolve over time. 

I'm currently working on the feasibility of buying my building we've been in for 5 years. I'd much rather be building equity in a long term investment even at low margins than lining someone's else's pockets while we implement our vision in his space. He's a great, wonderful landlord but I'm ready to turn him into a seller :)

Since Cohere started in the worst economy and thrived, I'm not concerned about the market. I think it's a safer bet than most types of biz.

Angel

[Alex Linsker]

Thanks Jerome, I didn't know about restaurants and hotels for those lease lengths, that makes sense and is helpful to have perspective. I think I'd be happiest right now with 17 years total (including free rent, and including various benefits in the lease for length) and less would feel slightly stressful and more would feel slightly heavy.

Liz, the most I've heard of for a place getting crowdsourced contributions for a building purchase or improvement in Portland Oregon is $25,000 and $50,000, and the rest from banks. I think in a few years we would be able to do $2.4 million from members to buy a building, but I don't see how that would benefit us as a community compared to leasing or loans, since members would want individual benefit to outweight risk and reward compared to (or similar to) their best alternative options. We're part of the US Federation of Worker Cooperatives and the vast majority of building purchase capital of our sister organizations comes from banks. (At least in my limited knowledge on this.) We've always had 100% of our financing be from members and visitors (which until recently included meetings).

[Rik Ahlberg]

We are negotiating a 99-year lease on a municipal building for an arts-focused creative workspace. It's a nonprofit effort which will have a signifigant education and economic development focus, so it different from a typical coworking space.

You can find out more about Provincetown Commons at our web site:
http://commonsptown.org

Cheers,
Rik

[Alex Linsker]

Rik, 

What do you get with a 99 year lease that a shorter lease wouldn't do as well, other than number of years? 

What options if any do you have for an out, other than the nonprofit entity closing down? 

Is the lease a token dollar amount like $100 per month, did you bid for it along with other nonprofits for a somewhat reduced rate, or is it market rate? 

Thanks, Alex

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[Shelley Delayne]

We opted for a middle-ground lease: 5 year initial lease, with (2) 5 year renewal options with fixed/pre-negotiated rent increases for each. So, a total of 15 years that I know what our rent would be in the space where we are. It gave our landlord some assurance that we're in it for a reasonable length of time, without totally locking me in for fifteen years from day one. 

:) 

Shelley

[Jerome Chang]

Wow, sounds like a great deal. In LA, typically a renewal option rate is set to 5% below the new market rate. Did you lock in based on your current rate?

JEROME CHANG

talk to us: (323) 330-9505

chat w/ us: http://www.BLANKSPACES.com/chat

WEST: Santa Monica | 1450 2nd St (@Broadway)

CENTRAL: Mid-Wilshire | 5405 Wilshire Blvd (2 blocks west of La Brea)

EAST: Downtown | 529 S. Broadway, Ste 4000 (@Pershing Square)

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[Alex Hillman]

Our current deal is similar to Shelly's.

When we moved last year, we signed a 5 year (with 2.5% annual increases) with a 3 year renewal option, with rates locked in. I know that since we signed, new leases in the same building have increased by 20-25%. Whew. 

We just signed a lease amendment to grow by ~50%, and in order to make the TI budget work we decided to extend the base lease to 10 years. That structure is a little more complex just to make the numbers work...but after my crash course in "grown up" leases last year I felt a lot better navigating the extension. 

For me, it's all about what the long term deal (10 years+) enables that a shorter lease doesn't. Prior to this deal, there wasn't really an incentive to sign longer except protecting the space we're in, and for me that's not enough. 

-Alex

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[Team Orange]

Yes. I don't remember the exact percentage increase, but it's a small percentage increase each renewal from our current rent. Given the way Austin is growing, that felt the safest route to protect against rising rents in the future! 

I also have an additional 5 year renewal option, but with no rent protection; so depending on market rates then… who knows? 

:)

Shelley

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