On the second day of GCUC USA 2017, Frank Cottle of Alliance Business Centers Network and Martin Senn of Davinci Virtual Office Solutions engaged themselves in a spontaneous conversation with the audience. They shared various experiences and strategies regarding different models of growing and expanding a business in the coworking industry.
Felina Hanson of Hera Hub explained how her company got the money from SBA’s business acceleration fund. She decided to invest it into a coworking space for special programming, instead of getting free space from somebody. However, she discouraged the audience to follow her footsteps on creating a separate non-profit for business acceleration program. It took up her company’s valuable time worth of thirty thousand dollars.
Real Estate Investment Trusts (REITs) – Dos & Don’ts
The audience brought up REITs, and Frank responded that one should only go for the REITs with a subsidiary fund that allows them to take rental income. Otherwise, they can’t benefit from the enhanced services of this coworking industry. He also encouraged to get a management contract with the REIT to convert to a standard lease.
Third Party Entities are good for you!
Frank also recommended creating a structure to get around the covenant limitations of the landlords or the bank or institutions behind them. This structure usually involves a third party entity – a joint venture company between the land development company and the management company. This third company will be the one committing to lease. These buildings should be family buildings instead of institutionally owned buildings. People there look for an enhanced field as opposed to the covenants of a lease. By creating a powerful enough brand structure, you can get an independent investment group to buy the license that owns the brand and agrees to return to the project. Then, there will be no debt in the form of a lease on increment, which would be a liability in your balance sheet and would depress the value of the business. Thus, you can have a real revenue stream company.
Also, if you license the brand, the investment group is responsible for paying you to develop the project. Then if the relationship between you and the landlord or asset-owner ends, it breaches the license agreement, and you can withdraw from it.
Frank’s Model – Development Schedule
Frank then talked about the model his company follows to handle marketing grade management regarding the license fee and development fee. He stressed the importance of a development schedule. If you don’t capitalize a certain number of projects over a given period, the growth will stagnate. Cairo, Ghana, Uganda, Nigeria like places are large markets with massive active economies but nervous politics and business. They go to these countries because here the investors do exceedingly well because of the returns and the well-defined community.
Market – Efficiencies & Density
He also discussed the scale of efficiencies and the density of the market. You need to observe the density and decide how much risk you are willing to take to challenge that assumption. Frank encouraged fearlessness while adding a model which can increase the potential market share.
Purchasing Real Estate
Then there was a brief discussion about Cambridge Innovation Center (CIC) and its astounding success. Buying real estate to finance something is the easiest way to attract partners. You can offer them a better deal by bringing the revenue of the center into the building. The next best things are partnership and management contract with the right to convert to lease.
WeWork Vs. Regus
To answer a question Frank proceeded to draw a comparison between WeWork and Regus. According to him, despite all the similarities, Regus is still the more prominent company because of a history of track records and better cash flows. But WeWork is more popular because it sells itself as a lifestyle brand as opposed to coworking or business center.
The speakers closed the session by advising everyone to become a student of their industry and their marketplace. The more you observe the models and patterns around you, the more possibility you have of finding the right way of proceeding with your own company.