While our coworking agreement model is a great starting point for both operators and tenants to learn about the contractual side of the coworking equation, an experienced coworking advisor can also be an invaluable advantage. Do your due diligence, do a thorough and organized research, and coworking can be one of the best business decisions you`ve made for your organization and team. Management agreements will be an important part of the future of the co-work and flex space, due to the benefits for all stakeholders involved, including the community that uses this space. Of course, nothing is absolutely perfect, and although coworking is an extremely attractive option for most organizations, it doesn`t come without potential drawbacks. For many companies, the lack of long-term stability due to the reduction in contractual conditions is a major drawback for coworking, where companies, despite the restrictive nature of traditional leases, still want the comfort of knowing that their offices are closed for years to come. Don`t be surprised to see some headlines about this type of deals in your backyard in the coming months, as there is a healthy appetite from all parties to create more flexible jobs. Although this is new for co-working, this type of agreement is common in the hotel industry, where many well-known chains do not actually own the properties in which they operate, but enter into a management contract with the owner. When trying to predict the future to invest, it often looks into the past to understand how and why the current industrial structure exists, to understand if there are simple reasons why an investment strategy might fail in the future. Venture capital funds and sovereign wealth funds, which have supported unprofitable coworking operators in perhaps the strongest economy in history, have understood that the business model in which they have invested is a failure, and so they are now looking to turn to try to save their investments. The idea that coworking operators are in place now is that coworking operators will create similar brands and hotel management structures. It is no coincidence that the markets attribute very high multiples (9-15x) to EBITDA/EV to hotel brands because of their high margins and long-term contracts. These multiples are the opposite of those seen on the typical CRE property management site for companies that, due to their low margin and contractual instability, generally act for 3-5x EBITDA/EV. In an interview with Bisnow last year, Charlie Green, co-founder of Office Group, gave an overview of the kind of revenue decline that flexible workplace companies can expect in times of recession, depending on how they manage their portfolios, and said that good asset management limited sales declines during the last recession to 12%.
While the flexible space industry is not as advanced as the hotels in these agreements, this year will be an exciting year for further case studies in order to build confidence and progress on how these agreements should be structured.