Coworking Space Business Tips - Asset Valuation & Management Agreement

[Music] hey everyone today we're going to be talking about building valuations and how that's impacted if you're putting a co-working or a flex operator in there under a management agreement um there's two things that I want to address and then we'll finish with what does it look like in the future because as we know valuers like to work off data and not you know look to the Future and forecast based off Blue Sky Thinking which is totally appreciated the first point is one thing that a lot of owners are doing to kind of get around the whole valuation piece under a management agreement because again at the end of the day that is variable income right even if you underpin a third or half of that rent you do have the rest under a variable style of arrangement depending on how much flexible income comes into that co-working or Flex bace is by if you've got your whole building try and keep it to you know less than 10% of the asset we we're finding that if it's under 10% that's uh allowable amount of risk to have under variable income because the rest of it you'll underpin with traditional leases and especially if this 10% is helping you underpin the rest of the asset and helping you fill that you know that's where the real value comes out of this space not just the dollar per square meter return you get out of the co-working space so I know this is a bit of a iffy percentage because it works for the big buildings but if you've got a small to mediumsized one you're kind of scratching your head going well even if I only put in 2,000 M or 1500 which seems to be the economies of scale size of a co-working space that a lot of operators need suddenly we're starting to hit 20 30% of our building you know that's where you can start looking at well how do we approach Flex a bit differently do we really need the 2,000 or 3,000 s m because what I'd like to think is if you've got your usual 2,000 M of flex why isn't there a 600 squ met option called flex light which is something that we're looking into because when tenants ask for Flex which is a big reason why buildings are going oh we need to put flex in the building because our tenants are asking for it they're not asking for 2,000 s meters of co-working they're asking for maybe 600 square meters of bookable meeting rooms private event spaces you know those types of amenities that they don't have to put within their own tency so I would explore this if you're one of the smaller assets because if you have to do a management agreement and you want to stay under the 10% ratio is the flex light is probably your solution right I was going to say something else I'm trying to remember what was the second point oh okay so the second Point here I'll I'll write it in this box because I drew this way too big in a very silly manner we actually did um 2 or 3 years ago now a flex deal with an asset in Melbourne where the way that the value approached the co-working space and the variable income and it was around 12% of the asset well was that because we were able to forecast and we designed the co-working space to a degree that after it hit its 85% occupancy you know after this 12- Monon to 15-month ramp up period it was going to hit uh rent per square meter Target that was the same as Market rent if not more okay so what the valuer did when they first looked at it because he likened it to parking cars in a garage that style of management agreement was that we will value that 12% it was around a 3500 met site at a I think it was a 10 to 15% discount or whatever of Market rent okay but because we were saying oh if we fill it it's going to make you know a market rent in itself so he's going if it's variable and not a fixed lease we'll value it at 10 to 15% of a traditional lease however the intention was to check in after a couple of years to see if we're actually hitting our targets and our rent targets and then that valuation would bump up back to 100% it would get rid of the 10 to 15% discount so that was a way that was looked that 2 3 years ago so I'm hopeful moving forward you know the way that valuers look at management agreements because there's this whole Narrative of dude if this is helping you fill your whole building in a in a world where you need to differentiate your assets can we stop just looking at the value of that isolated floor and the money it makes when it's really an amenity to the whole building come on so the last point I guess I want to make is that I think moving forward and we're spending quite a bit of time now looking into this we really want to help I'm not going to say change because we don't have that power but guide The Narrative of these co-working in Flex spaces under management agreements delivering more value to the building by putting some data behind Okay we're not just saying it's going to help you fill the building but let us start demonstrating cases over the last 3 to 5 years of putting this has actually helped let up the whole asset you know and I'm very happy to say that I've met with some you know senior people within the industry recently who have shared case studies of their own but that's not my story to tell I'll wait for them to to announce it where they've had some really great cases of putting some co-working spaces within the building under a partnership style agreement which are hitting the 85% to 100% occupancy he's making great amount of money but it's also been part of a lot of the lease negotiation deals for the rest of the building helping helping close those deals so I mean come on that's that's money in the bank that's really good so hopefully that was helpful [Music]