The Build #19: Workspace (Live at the Curtis)

Our panel of experts examines the trends and offers insight into what founders can do now to ensure their teams have the right space to grow and thrive.

More about today’s guests:

• Jerre Riggs on LinkedIn
• Daniel Gummel on LinkedIn
• Elizabeth Morrow
• Michael Dolan

Transcript

Announcer:
From 2820 Radio in Philadelphia, it's The Build, conversations with entrepreneurs and innovators about their dreams, their triumphs, and their challenges.

Joe:
Workspace. From co-working spaces to entire property developments, Philadelphia's Real Estate Market has responded to a wave of interest from growing technology companies. Today on a special live episode of The Build, our panel of experts examines the trends and offers insight into what founders can do right now to ensure their teams have the right space to grow and thrive. It's the story of startups and spaces, coming up next, live, on The Build.

Announcer:
The Build is made possible with support from 2820 Press, providing business consulting and content strategy services to customer obsessed companies nationwide. More information at 2820press.com.

Joe:
Welcome to The Curtis, our beautiful building here on Washington Square in Philadelphia, my name's Joe Taylor Junior. I want to welcome you to our first ever live episode of The Build in front of a studio audience who braved the rain to come out and join us today. This is Philly Tech week here in Philadelphia. Our friends at Technically Media have put together an entire week of events, there's stuff going on all over the city and our focus for today is on Real Estate. We've got a fantastic panel assembled here today to share what they've learned about everything that's going on in terms of how technology and the startup scene is influencing how we pick where we're going to grow our businesses. Let's give a warm welcome to our panel today.

Joe:
We're going to start over here, let's just start in the middle. One of the reason's that we're here today is because Jerre Riggs from First Base is working out of the space here at Benjamin's desk, we've been talking about doing something like this for song time. Jerre, give us a little intro about you and First Base and what you guys are working on.

Jerre:
Sure, good morning everybody and sorry for skipping over you, Dan. My name is Jerre Riggs, I'm a recovering attorney. I hope there are no practicing attorneys listening right now, I don't mean it in a disparaging manner. My wife is still a practicing attorney. I practiced law for six years and then I transitioned over to commercial Real Estate brokerage several years ago, and I've been working as an office broker in downtown Philly since then. Last year I had a really unique opportunity to come over and to join Benjamin's Desk, where I am wearing two hats. First hat, I am director of real estate here at Ben's Desk, so I work with Ed O' Brian and our team to help grow Ben's Desk around the region.

Jerre:
The second hat that I'm wearing, which Joe alluded to, is co-founder of First Base, which is really a startup brokerage that was born out of Benjamin's Desk, and our focus is on working with entrepreneurs in startups and other emerging companies to help figure out what space makes the most sense for them. They are often in the early stages and critical stages of their life cycle. Before I pass the proverbial mic, I want to thank Joe for organizing this. He took the laboring ore with pulling everything together. I also thank my fellow panelists. I've worked with some of them, I've done deals with other ones of them. I consider them all friends. I think, more importantly for the audience, I think they are really terrific brokers. They care a lot about this community and I think you're going to hear some really interesting things today.

Joe:
Fantastic, welcome Jerry. Dan, let's get to a little introduction about you and your company and your experience in the space.

Dan:
Thank you, Joe. Dan Gummel, I'm with PernaFrederick Commercial Real Estate, I've been working in office leasing, representing both tenants and landlords in Center City, Philadelphia for just about 15 years now. Sometime around I think it was early 2010, I met two young entrepreneurs named Bob Moore and Jake Stein, they were coming from a shared work space in Camden, wanted to open an office in Philadelphia because they felt this was where they could attract talent and grow a young company. Their company, RJ Metrics, has since grown exponentially and they have been instrumental in introducing me and getting me involved in referring a variety of other early stage companies that I've been able to help, including Curalate, Uber, Snip Snap, Cloud Mind, a bunch of really great Philadelphia companies.

Dan:
Sometime around 2014, I got a write up in Technically Philly about my involvement with working with these early stage companies, which only helped further push me into carving out that niche and that space and wanting to grab onto that and make that my specialty, which I've found to be very rewarding. Not always the most financially rewarding deals, but to be able to see a company grow and to be able to help somebody who hasn't leased office space before, doesn't know the process, can be very personally rewarding.

Joe:
Fantastic, welcome. Liz, tell us about yourself.

Liz:
Hi, I'm Liz Morrow, I work for Colliers International, which is a full service real estate firm. Like the other panelists here, specifically Jerre, I was also a commercial real estate attorney, recovering attorney as we like to say. Primarily, I work in the CBD which is the Philadelphia region, and I do office leasing so I work for either landlords or tenants. One of the landlords I represent is actually this beautiful building here, The Curtis, hashtag The Curtis Philly. I also do a lot of small tenant rep for companies that are seeking space. I like to think of us as translators. We talk to companies and see what their goals are and we try to find them the perfect fit, and find a economic resolve for both the company and the landlord.

Joe:
Welcome, Liz. All the way at the end of the table, say hi to Mike.

Mike:
Joe, thank you. I am not a recovering attorney. Thank God. I'm with Stockton Real Estate Advisors, been working in Philadelphia for 24 years. The company that I work for, we're a boutique firm. We represent institutional owners and entrepreneur owners, such as 24 one Walnut Street, The Grand Building, 4 Penn Center, 1716 Market Street. Thank you for inviting me today, and I look forward to adding some value through the conversation.

Joe:
Fantastic. Welcome, panelists and for folks who are listening live at 2820radio.com, if you want to participate in our conversation, just hit us up on Twitter with the hashtag The Build Live, T-H-E-B-U-I-L-D-L-I-V-E. Folks in the room, let's hit up that hashtag The Curtis Philly as well, our friends here from Keystone are doing a great job making us feel welcome up here on the southwest corner of the building, which is normally flooded with natural light. Today we've just got a little bit of gray, but it still looks fantastic to be perched up here on the corner of a building that was for many, many years the linchpin of the publishing industry. Not just in Philadelphia, but for a good part of the United States.

Joe:
Jerre, I think one of the things that inspired us to start talking about this a little bit, we look at a building like The Curtis and it's legacy and what it means, and you're working with a lot of companies that are at the very, very early stage of their growth cycle. Tell me a little bit about how you find the needs of those emerging companies differ from the kinds of large institutions that populate a lot of the other big buildings that are in the neighborhood here.

Jerre:
I think there's going to be a couple of things that we'll probably talk about over the next few minutes; reasonableness of price, alternative locations being two of them. I think this is a case where flexibility really is king, and in my mind, flexibility has two related sub-parts. There's flexibility in terms of the length of time that a company is going to occupy this space. There's also flexibility in terms of the amount of space, physical square footage, that they're going to occupy. Think about working with emerging companies, they're really unique in the sense that they have a very real capability of going from one or two founders to a team of four or five, to a team of 10 to 50 to a hundred all within a relatively short amount of time. The ability to scale and expand within your space without necessarily having to pay for that space right out of the gate, is really important.

Jerre:
I think the converse is also true, we don't like to think negatively, necessarily, but the truth of the matter is not every company is going to be wildly successful right out of the gates. We see companies get to a certain point and sometimes they have to pivot. With a pivot sometimes comes contraction as a team boils back down to their core founders and they maybe regrow in another direction. I think the ability to both expand and contract within the space is really important. When you look at the length of time emerging companies can occupy space, it varies quite a bit from what maybe a more traditional or established company can do.

Jerre:
I think historically in downtown Philly when you think about a traditional office lease, most deals are in the five to seven year range and you are going to have landlords that will do three year deals. Certainly deals at 10 and 15 years, but as a rough rule of thumb figure five to seven and then you look again at these emerging companies. A lot of times they don't know where they're going to be six or 12 months down the road, so to think about five or seven years is really daunting and probably unnecessary especially when you think about the fact that you might expand and contract or get acquired. That would be my biggest take away, is they need to have flexibility in whatever real estate solution you decide is right for your company.

Joe:
What are the demands of that flexibility on landlords and building owners? I think landlords typically like to think about things on much longer time frames; five, 10, 15 years. What are you finding that you have to do as an advisor to startups and as someone that works with building owners to help facilitate some of that flexibility in a market like Philadelphia?

Jerre:
I think it comes down to being an advocate for the emerging company. Obviously, they're typically not a credit tenant as some of the competitors for the space might be. You really have to, I think, first buy into the story and the vision of what your company is doing and then a broker has to convey that story and enthusiasm and passion to the landlord so they really understand the value in biting down on taking a chance on your company.

Joe:
When landlords are thinking about taking chances on a company, and I'll throw this out to the entire panel. The landlords that you're working with, what do they look for in a company that feels like it's worth the risk to go all in and bend the rules a little bit?

Mike:
Joe, it varies. I predominantly work with landlords. They look at the burn rate of the company, they look at the company itself, they look at maybe there's an opportunity to invest in the company. It is risky with startups. There's a lot of capital that goes into building out space, the value of the building is based on a lease term. I've been fortunate enough to work with Dan on several startup companies and emerging companies and it's a balancing act for the landlords. Jerry did point something out that was very critical, is really is having a discussion with the landlord and really telling them why the value is by having the tenant in the space.

Mike:
From a landlord's perspective, we're trying to build space out that if the tenant does go belly up for example, or shrinks, or needs to give back space, we have space that we can move other tenants in without a lot of capital.

Joe:
We're accustomed to hearing conversations between startup founders and venture capitalists, especially folks that look at things like pitch decks and business plans. What are the signals to each of you that a potential tenant has what it takes to actually be a long term player in the market?

Mike:
I think when you're looking at who's behind the startup, right? Who are the backers? Again, I go back to the burn rate. I have a client who's an entrepreneur client, he owns 24th and Walnut. There's a lot of tech companies in there. It's a phenomenal building. He looks at the business plan, he looks at the burn rate, he looks at who's behind them. It's a simple calculation; what's the rent going to be over the term versus what their expenses potentially can be. The client that I work with, Chuck Block, is able to figure it out pretty quickly if that tenant is going to be around in the next six to 12 months.

Joe:
I think another interesting thing, we're seeing this in that building at 24th and Walnut, we're also seeing it here at The Curtis. There's also a lift that happens in the building or in the neighborhood when you start to see a lot of entrepreneurs and technologists. For instance, we're getting a lot of new restaurant square footage downstairs. Cheeseburgers, I'm told, right?

Liz:
It's a little more high end than that. P.J. Clark's is entering downstairs, at the Sixth Street lobby. They'll have about 12,000 square feet. I hear rumor that there will be some sort of speak easy associated with them as well as perhaps a bowling alley. They're trying to really make this a creative building. You're inspired when you look all around you. You have the national parks, you have Independence Hall. That's the cradle of the nation, right? What's more inspiring than that. The beautiful Tiffany mosaic. There is a fostering of a creative community, Benjamin's Desk is a huge part of that.

Dan:
I always try to sell the extra value that comes with my clients coming into the building as well. Go back to something Mike said, he works with a couple local investors that are going to typically have more of an entrepreneurial mindset when they look at a lease deal whereas an institutional investor is going to look at it. If it doesn't paper, it doesn't paper and they're going to pay us on the deal. If the credit's not there, they may pass on the deal.

Dan:
A local investor may be willing to gamble a little bit more so and I think that what I try to sell them on is, when my guys show up in the building you're going to see there's a strong community within the Philadelphia tech scene, and you're going to see their friends and you're going to see other companies that are going to want to be here as well. Especially if you build the space right and they're going to host events in their space and the rest of the community's going to see it, and then they're going to want to be there and be part of the community. Especially in some of the buildings that have more vacancy, that sell can go a pretty long way.

Joe:
I think that's a great segue into the next topic I wanted to cover, because we know, for instance, right here in the middle of Philly Tech week, not only are we doing events here at Benjamin's Desk, but there are things going on at co-working spaces and at companies all over the city. We just had the startup crawl the other day, where folks just went from workspace to workspace. There's a little bit of feeling we want to see who's got the best spaces, because that impacts where we want to work and what companies we want to work for. Liz, I know you've done a lot of writing for Colliers, the Insight Magazine piece that you just published as well as on your blog. A little bit about that shift in how much more power millennials, especially, seem to be wielding in a city like ours about what employers are going to do to make an attractive workspace to attract talent. What factors do you think shape that kind of development? What are landlords, what are companies, trying to do to make their spaces really attractive for technology talent?

Liz:
Sure. I think a unique space is what it's all about, especially here at this building. You can see the beautiful windows here, I think they're about, I don't know, 10 feet. You have huge ceiling to floor clearance, you can make it very tech. You can do exposed brick in certain areas, you can do exposed duct work, which is very popular. It's all about the open layout because there's a lot of collaborative with the tech companies and a lot of other startups. They like the collaborative space, everybody's out and about, able to talk to each other. On big floor plates like this here at The Curtis and in other buildings around the city, there's a lot of unique space here which drives a lot of companies wanting to be here, especially Philadelphia's central location, as well, on the east coast. Philly's always had kind of a inferiority complex with New York to it's north, and DC to it's south, and I really think Philadephian's are now overcoming that and really realizing that the history here, there's a ton of things that Philly's bring to the table.

Liz:
Also, the talent force is located here. Millennials, I think, are 46% of the CBD, that's huge. If the market wants young employees, I mean, they need to be located where young employees are. The population since 2000 in Philadelphia has grown 17%. Even among millennials plus everybody else that lives here, we have the greatest concentration of an educated workforce. Even if millennials aren't your target and education is, Philly has those type of employees in abundance. Also, our retention rates from the universities, when people graduate they used to leave Philly. I think it's somewhere around 64% are now staying in this area, which is great for companies.

Joe:
I think the other thing that I am observing as a Philly native who went away and came back, there's a very different kind of mix of buildings within Center City now. It used to be that we almost rolled up the sidewalks at 5:15 every night, and everyone went out on the Regional Rail. Now, you can just walk around these neighborhoods. What do you feel like we're heading towards in terms of a mix of property types in the Central Business District?

Liz:
I think there's going to be a lot of mix use. Everybody loves the live work play environments. Sidewalk cafe's are huge. Philadelphia with it's transportation, the walk-ability. As you said, everybody used to leave, now everybody lives here, works here, and plays here. I don't know if you guys know, don't everybody leave the room right now, but it's also the CBC which is the Craft Brewers Conference is going on. Philadelphia is a huge beer and restaurant scene. We recently got rated as the next top food city. A lot has changed in that people want to stay in the city. You're right, the buildings have changed as well to suit those purposes.

Joe:
For the rest of the panel, what are you observing about the mix between the millennial workers that are staying in town and also, we've got some folks here at Benjamin's Desk that are studying what they're calling boomerang workers, who are folks who are in their 40's, 50's, 60's and coming back from other experiences. Maybe they've either left a company to start a business, or they've been surprised by a sudden layoff or a sudden closure at their company. We see this interesting bell curve between people who are in their early 20's, and people who are in their 40's and 50's who are showing up to work at co-working spaces, and then they're sticking around to go to places in the neighborhood here like Cooper Ridge or Talulah's across the street. What are you all observing about how that dynamic is changing what's going on in Center City?

Mike:
Joe, I lease the Grand building where pipeline is, they have two floors which I believe is the nicest co-working space in the city. It's interesting, when you walk through that space you see not only young people, but you see people that are my age, close to 50, 55 and 60 that have been successful in their career and now want to start their own company. I think what's interesting in Philadelphia, if you look back 10 to 15 years, I've been working downtown for a long time. When I first got in the business, if you walked down Market Street you would get hit in the face with a piece of paper. This city is clean, it's safe, the night life. This all attracts the young millennials that want to be in town.

Mike:
My wife and I were out to dinner a couple weeks ago on Saturday night here in town, and we were amazed at the lines that were out front of Misconduct. I don't remember that when I was young. The vibrancy downtown is incredible. Not only do you have the young people, but you have the older people too that had been successful, that had money, and ultimately at the end of the day, that had the ability to spend money, that had the ability to go out to these restaurants. It's all about amenities, right? Center City, Philadelphia, with [inaudible 00:21:17] has done an incredible job in making the city. We're not 24 hours a day yet, but I would say we're at least 18.

Joe:
How do you think that ripples out from Center City? Are we going to start to see similar developments in other neighborhoods in Philadelphia?

Liz:
I think the fringe locations in Philadelphia will see a lot more activity. There's already a huge buildup in northern Liberty's fish town, a lot of the fringier spaces. When companies are coming to Philly and they're looking around and they see where these millennial populations are living and they also have the ability to take say an old warehouse or an old some sort of facility that they can change and make their own and adapt it, I think we'll see more of that as companies move downtown.

Joe:
What about those adaptive reuses? What are you observing in terms of buildings that used to be one thing and now they're going to be something completely different?

Dan:
I've seen some fascinating things in that regard, just by way of example I can think of a building that's situated in Midtown Village that was historically considered a class C building. It was mostly home to nonprofits, folks that were looking for low rent. For a long period of time it was really just collecting dust, owned by a New York investor who was content to leave it the way it was. I believe he witnessed what was happening in Midtown Village, and realized he had more of a valuable product on his hand. Went in, demoed it all, brought back out the original barrel vaulted ceilings, exposed brick, the original wood floors that were under carpet for so many years, and then was able to command, compete with Market Street west buildings on a rental rate basis. I would have told you five or 10 years ago would just have been absurd. There's such a demand for that kind of space that if you build it, they'll pay for it.

Joe:
Dan, what do you think that landlords need to do to attract more of those high profile technology tenants?

Dan:
I think they have to understand, number one, what their workforce is all about. There are simple things like the bicycle storage and things like that. Obviously, Liz touched on some of this earlier, but they've got to be willing to spend the money to convert the space into something that's more akin to loft space. If you're willing to do that, you've got to maybe look at the transaction in front of you and say "It doesn't make sense for this one deal, but in the long term, it will pay off." It's going to be expensive to deliver that kind of space, but whether that tenant rides out the duration of their lease or they don't, the next tenants going to come in and you're not going to have to spend that kind of money again and you're going to have a high demand for your product.

Joe:
Thinking beyond what we now think is a little bit of a cliché of the startup space that has Foosball tables and nap rooms, what are the amenities, what are the architectural elements that you all are seeing that technology companies really demand in the spaces that they're taking on?

Liz:
I think light. Light is a huge factor, it's shown to increase employee productivity. If you have the ability to have that kind of environment, that's great for companies. Specific architectural details, history. There's a lot of things that go into that type of space outside of Foosball tables.

Dan:
I think there's also, I hear John Conner's at Brickstone Realty, local landlord, speaks often about how it's become just as important as what's outside of your space, as to what's inside your space. People want to be able to walk outside after work, grab a drink, grab a bite to eat, sit outside on the sidewalk on a nice summer night and have all of those things right at your doorstep. Our strongest office [inaudible 00:25:38] again is Market West. Traditionally, none of those things were there.

Joe:
For folks listening at home, this is The Build live, we are broadcasting live at 2820radio.com and on Twitter, we are tweeting at the hashtag the build live. We're going to have some time for questions and answers coming up from our in studio audience as well as from Twitter, but if you want to get your question in right now, tweet it out and our team is going to put it on our list. Dan, while we're on that subject thinking about, again, those elements that folks are looking to get when they're moving into a space, really specifically, what do you observe and I think you touched on this a little bit, but I want to dive deeper on it. What are some of those lease holder improvements that you're seeing? What are those things that build up the value of a landlord's property over time that just makes the space more and more attractive.

Dan:
As Liz alluded to, it's maximizing light. We see, oftentimes, what could be viewed as a crime when you see a drop ceiling that's cutting off a foot or two feet of a window line, you've lost all of that light because of the suspended ceiling. Maximizing light, which again, it's very expensive to go in and have to tear out the drop ceiling and redo everything that's above that. A lot of the finishes are floor and ceiling, open ceiling, everything that comes along with that with the exposed ducts. Doing something with the floor other than traditional carpet, those are big things that I think tenants look for, although it's something you've got to be careful with.

Dan:
I think I've seen some people learn the hard way, multiple hard surfaces, a hard ceiling, and a hard floor can often lead to sound attenuation issues. Generally, that's the kind of look that I think they want. They also, I think, want the greatest piece of space in the most traditional office building may not be quite as attractive as one that's not quite as tricked out, but in a building that has a bunch of other like minded spirits, other entrepreneurs. We talk about this obviously a lot with co-working, but collaboration and I think there's a lot of value in that.

Joe:
I think Jerre I'll pick on you right now because I observe you sitting out in the open space here on the 11th floor of The Curtis, the 12th floor is in the process of being built out right now and it's going to be even more open space. For you, as both a person that's advising startups and as someone who's leading a startup, what is it like for you to actually work in an open, collaborative space?

Jerre:
We kind of eat our own dog food, right? When we first moved into the 11th floor, I was in a private office with the rest of our team. As Anthony, our CEO, was selling them we just kind of kept moving on down the line. We went out into an area that we have on this floor where we have pods, so it's not an office, but it's not quite the open desk. You still have some privacy. I worked my way through those as they got sold, and then I went out to the open area. Actually, I told Anthony I would kill him if he ever let people know, but I love it. It feels like you're just more part of the community. I've gotten to know our members much better and much quicker than I did when I was sitting in the private offices, or even in the pod because they were basically passing me when they would go to the kitchen. Now, it's you have a question or somebody says something, you're all just chiming right in. It's a lot of fun and relationships build a heck of a lot quicker.

Joe:
I think there's something to be said for the trust that you can build when people observe you operating in public. For you, how are you helping client companies navigate that shift from being, say, part of a very open co-working space to shifting into what may be a new culture for them where they're bottled up in their own space? How do you ensure that they're still going to maintain that community feel, and the connection to other members of the community?

Jerre:
We have very organic conversations on a pretty regular basis. They don't have to make an appointment to come sit down with me, they just say, "Hey, we think we're going to maybe need to get a private office. What does that look like, where do we go? Do we stay in a co-working space, or is it time for us to go out and look at an office market?" We work through the pros and cons of the different scenarios, but it happens just sitting out there in the open.

Joe:
Fantastic. Mike and Liz, what are you observing along those lines? What are your tenants telling you that they want more of in terms of collaboration space?

Mike:
I lease The Grand Building, David [inaudible 00:30:34] the owner, what we're seeing is it's just not the space, it's really the building, it's the amenities that Dan touched on. You can walk out of The Grand Building and you're right in Dilworth Park. People want yoga rooms, they want bike stores, they want buildings that are pet friendly. They want 24 hour accessibility. Those are things that my clients are delivering to the tenants in the building. From a tenant's perspective, all tenants are different.

Mike:
It's interesting, though, to watch a tenant move from co-working space to direct space because there is a shift and there's a challenge in their mind, that they're no longer around all these other people. I'm representing a company right now called Tempest, they're moving in The Grand Building actually, and they were in a co-working space. I took them through the space, they were like, "Oh my gosh, this is our space?" They were so surprised that no one else is in it. I think to what Jerry said, you really have to communicate properly and make sure they understand that you can come back, you still can visit, but you're going to have your own environment now.

Jerre:
I just want to jump back in on that, too. One of the things that we're discussing frequently right now as companies are looking to take the next step and to leave co-working space, one of the things that we realize we can do is that next step with co-working memberships. Maybe they don't have to go take as big of a space as they were initially contemplating. They can take smaller space, still hope to control their cost, and keep a few co-working membership so they can stay part of the community and the ecosystem here. It gives them the flexibility to expand as they need to, without losing ties to the community that they've really gotten to know and where they got a lot of their initial support.

Joe:
I think, Jerre, you're bringing up a big change that we've observed in the last 10 years about how people work. Not everybody works in the same office. You have some folks that are completely remote, working from home. You start to see this hybrid worker, we would call it something like a distributive workforce model where there are folks that we see here at Benjamin's Desk, are apart of larger companies but they've essentially opened up a satellite office because maybe someone doesn't want to relocate to the headquarters. Maybe it's part of a team that wants to establish a foothold in a new market. What are you all observing in terms of companies that are trying to figure out how to manage fractured spaces; lots of spaces under one big umbrella?

Dan:
One of the things I've seen, which is somebody who obviously has a big, vested interest in Philadelphia is suburban companies that have traditionally been headquartered in Wayne and Conshohocken and Exton that want to set up outposts in Philadelphia. The thought is, we're going to look for a short term small lease here and see what happens, but we have a pretty good feeling and we're going to offer it out to whoever wants to work in town can work in town. We have a pretty good feeling, just about everybody's going to say they want to work downtown. Hence, the short term because then we eventually plan to shift that and have a small outpost in the burbs and our larger office in Philadelphia.

Joe:
Go ahead, Liz.

Liz:
I was just going to say in addition to what everyone else has been saying with the co-working space, you brought up a great point. It allows startups to really incubate and it also allows a lot of outer market users, it doesn't have to be just Philly suburbs but they want to see if there's a demand in Philly for their product, so they either use co-working space or they get smaller spaces and they want expansion rights or they want something like a Benjamin's Desk in the building, so that they can have a smaller space somewhere and also be able to bring people in. We're seeing a lot of that, a lot of expansion rate requests as well as smaller area than they normally would take.

Joe:
How closely do you collaborate with your tenants on their forward planning? How early in the process do you start to hear from them saying, "We think we might not want 50,000 square feet all in one place. We may want five 10,000 square feet footprints." What does that planning process look like?

Liz:
We try to ask that as quickly as possible. They don't always know so we talk to them about options that we have in the building. If your owner has a portfolio, maybe options that are in other buildings. It's definitely something that you want to explore and see what their game plan is. Which is why I said in the beginning, I think we're translators where people sit down with us and they tell us their business goals, because a lot of people don't know how that translates into real estate demands. We like to plan as far ahead as possible, but build in enough flex that you're able to move with your demand.

Joe:
Fantastic. Mike, what's your sense? How do you find the right match between a tenant and a landlord? How do you know it's going to be a good fit?

Mike:
I would say that if I'm representing the tenant, you have to have the understanding and knowing that that landlord can deliver. A lot of these small tech companies want really unique space and the build out is expensive, it's not inexpensive. You really need to make sure that the landlord can deliver. I'll go back, just to the couple buildings that I lease. The Grand Building, 24th and Walnut, there are certain users that want to be in there. I've had many prospects come through with other brokers, whether they're an accounting firm or a law firm, they're not the right use for the building. My owners don't want to put 40 offices in with a drop ceiling with carpet everywhere.

Mike:
When you're trying to piece together the right tenants for those particular buildings, you're really looking for startups, technology companies, companies that want that open floor plan. On the flip side, i lease Four Penn Center, which is an institutional owner. As Dan said, they're going to put everything in a box. If it doesn't check, they're not doing that transaction. I know that certain companies that look at Four Penn Center, we're never going to be able to get a transaction done. It's really making sure you understand what the landlord's trying to achieve and what the tenant ultimately wants to achieve.

Liz:
I think, too, once you speak with the management in the company, a lot of them if it's an older company, say an accounting or a law firm, and they know they're going to retire soon and the old offices and mahogany was very important to them but they want to move to space if their lease is up that their younger, future partners will want. I've seen a lot in the market of companies that are traditional office based, really considering these open layouts for their future plans. We've also seen a decrease in the amount of square footage per person that a lot of people think that they need. This is something that's interesting, also, to law firms and accountants once they do the math.

Joe:
I love the vision of the old wood, mahogany, offices that we're used to seeing. Even law firms that I've interacted with lately want things that look and feel more modern, it's not about scurrying away into this dark wood, windowless room. It's all the things you mentioned; light, air, availability. One thing that you touched on earlier, Liz, I want to come back to is that sense of that modern space surrounded by history. I find it really funny that I talk to a lot of entrepreneurs that are very, very concerned with things like legacy and also the positive vibes of being in a space that's got some history behind it.

Joe:
If we look out to Silicon Valley, I know there's some competition for some of the old spaces that some of the vintage startups worked out of. There's still a building that Google used to be in that's very, very popular for folks to go into for six months or a year because you hope that some of that old magic is still there. As each of you have been shepherding a variety of companies through different spaces, how does the history of Philadelphia play into it, and how does the heritage of successful startups in Philadelphia play into how you market those spaces?

Liz:
I think the story is hugely important. Everybody loves a story. When you have history behind a building or you have a story to tell, it innately makes it more interesting and then you think, "Oh, I had these titans of industry behind me, how am I going to make my mark?" You become inspired. For this building, Norman Rockwell did the covers of the Saturday Evening Post. That was huge, people like to stand in the atrium and picture that happening here and the grandness of it all. I think that happens at a lot of buildings in Philadelphia. There's a lot of buildings in Philadelphia that, as you mentioned earlier, had been re-purposed to either office space or to residential or to something else, but people still hold that, "Oh, I work at The Curtis." Or, "I'm at the Wanamaker Building." Something like that that has that historical backing behind it. You can't really find another city with as much history as Philadelphia.

Joe:
It also feels like there's a way that you can build credibility for your company by being able to say, "Oh, I'm at The Curtis." It's not a bad thing for a prospective client to come visit you and walk past the Tiffany Mosaic.

Liz:
Oh, no.

Joe:
Hard to argue with that.

Liz:
Sure.

Jerre:
Just to chime in on The Curtis in particular, I think this building does a fantastic job of telling the story that Liz was just describing. We think about this being one of the original publishing buildings in the city, if not the country, then you look at current tenants. We have Technically Philly, vis a vis Ben's Desk, we have Philly Voice. We have 2820 Press. It's really fascinating to watch the evolution of historic industries go into space and they're the next generation of it, taking that industry forward but doing it in a home that has really historic and deep, cultural roots to that industry.

Joe:
We've got about 10 minutes or so left in our live broadcast. I'm not going to do all the work today, so audience start thinking of your questions. If you have a question, raise your hand. [inaudible 00:40:46] is going to walk around with a mic in just a moment so you can signal to her while I look this way at the panel. This is the fun of radio, no one knows outside of us what's going on in here unless you're looking at photos on Twitter, and we're at hashtag the build live. Jerry, you're looking at this continuum, this lifecycle of a startup. What's your vision for how you think a startup can effectively manage their space needs over time? How far ahead should a founder be thinking and how do they find who's going to be the right broker or advisor to be a good fit for them?

Jerre:
Sure, I think you have to always think long term. I know for startups, that can be very difficult as we talked about scaling and you don't know if you're going to close a round of funding, whatever it might be. You have to have the end goal in mind and then think about where you are right now. I tend to think in terms of making a stage based investment in your company. You don't necessarily need the space that you think you're going to want to have 5 or 10 years down the road. You want to take the space that's going to make the most sense right now in this lifecycle of your company and really think about ways that you can control cost by taking that space but also enhance your brand and attract the talent that you need to help propel your company forward.

Joe:
Philly has this reputation as an ed's and med's town, right? One of the things I heard for the first time in a meeting about a year ago was the phrase, "wet lab." I didn't know what that meant. It sounded like something you wouldn't want in the building. How are you managing these diverse needs? Some folks are going to need access to actual laboratory space in the building. It's not unlikely anymore that you would see ap publisher on one floor and a biotech startup or a 3D, there are folks down the street here that are attempting to print organs, right? A year ago, you wouldn't even have thought to do. How do you mix and match those needs, and make sure you've got them all settled out?

Mike:
Dan, actually, is representing several tenants right now that need a wet lab. He brought them to several of the buildings I lease. That's a tricky one. The client's that I have do not want to have a wet lab in there, just for the fear of disrupting the other tenants. It's more the fear of the unknown. They're thinking there's bio-hazardous material in there, people are going to be walking around in white vests with hoods on, stuff like that, which is most likely not the case. I think it's really educating the owners. Dan and I have been on several calls with my owners trying to explain to them. We've had the CEO, CFO of Dan's clients on the phone, as well. It is tricky, but Dan you have first hand experience in this.

Dan:
That's funny, Joe. I don't historically have a lot of experience with that, but most recently, I do. It's been a new experience for me, and as Mike alluded to, it's all about educating because my clients will very quickly say, "Get us in front of the landlord and let us speak with them, and I promise when we walk away, they're going to feel a lot better. They may still not want the [inaudible 00:43:53] but they're going to feel a lot better when they understand what we're actually doing in there and that most of what we're doing in the lab, the safeguards we're putting in place are not to protect the other people in the building from us, but to protect what we're doing from the other people in the building." In other words, the contaminants would come from us, the humans. It's been an interesting process in trying to get landlords, because the gut reaction is, "That doesn't sound right for our building." They've got to dig in a little deeper to get comfortable with it.

Liz:
I think there's also some buildings that are being developed or in the development stages in other locations that are taking things like that into consideration, future needs. It may not be something that's currently populous in the market, but I think it's definitely in the minds of developers.

Joe:
Do you try to curate spaces that are going to specialize in one kind of use case or one kind of industry so that folks with similar needs end up in the same space?

Dan:
On the biotech, that stuff traditionally has all been in University City. The one group that Mike was referring to specifically just didn't want to be in University City. I think that you can find a concentration of that kind of space there. Otherwise, I don't think that's really the case.

Joe:
Great. We have our first audience question.

Louise-Audience:
Good morning, Louise [inaudible 00:45:21] great panel, thank you very much for coming today and talking to us.

Liz:
Thank you, Louise.

Louise-Audience:
I'm an interior designer. We are seeing in the industry a backlash with the open office plans. It seems that, and this is painting it with a broad brush of course, as an industry you're differentiating between the dark, closed box and the open office plan. Are you seeing any startups that are now segueing into their secondary space, the third space they need to move into, that want the combination of both? We're seeing this in the interior design business and furniture manufacturing; movement away from completely open office because it's not productive enough.

Liz:
Sure, we absolutely are seeing that. People requesting a mix, sound is a huge part of it. I think Brian mentioned, when you have that huge, open environment, sound reverberates everywhere. If you need to constantly use a phone, people are getting very creative in the ways that they're asking for their space and how they're thinking about designing it, particularly for that reason.

Mike:
I would say I've been involved in a couple startups, just from the landlord's perspective where they moved in and they had a completely open environment and it wasn't working for them. They needed to put more offices in, so we relocated that group to another one. I think they're learning as they go. I don't think there's anything written in stone but I do think when you go to just strictly an open environment, the next time around they're able to fix the problems that they've had. Dan represents Curalate they've had a similar situation where they didn't have enough offices, we had to give them expansion space that was open, that they went with offices. We are seeing these startups that have started out fix the problems as they go on into the next lease, and so forth.

Dan:
I've definitely seen that, it's a great question. I had an intention to speak about that today. I've seen a lot of my clients initially go with a very open layout and then realize they didn't account for enough meeting space, and therefore they've got employees that are wandering the halls or taking a walk to make a phone call, and regretting that they had not built in enough call rooms or conference rooms or small meeting rooms.

Joe:
Great. Do we have another question from our audience?

Brian-Audience:
Hi, Brian [inaudible 00:47:34] with [inaudible 00:47:35] just looked at the stats from the city, it sounds like 130,000 square feet of co-working space has been delivered in the city today, not including Regis which isn't included in those stats, and then 150 to come that's being built and or the lease is signed. Where do we see the bubble?

Joe:
Do we see a bubble?

Mike:
It's interesting, JLL is saying there's going to be 600,000 square feet of co-working space by the end of the year. Having leased buildings that have co-working space, like 24th and Walnut, [inaudible 00:48:09], five years ago I wasn't sold on it. I'm an older person, so I want my own office. I look back now, and it's amazing to see what the younger generation of employees are doing to the workforce environment. I think it's here to stay, I don't think it's going away. It's a huge driver in our market, and I think it's going to continue.

Liz:
I also think if you look at the total office space that's available in the Philadelphia market and the co-working space that's come available, I think it was last year about this time, co-working space was only about 2% of the entire office availability. Now it sounds like it's a bit more, but really not a majority or anything like that. I wouldn't say it's a bubble, we've seen the percentages in New York be about the same so I can't imagine that there's some sort of implosion that's going to happen. If anything, it's going to bring more companies to the city because it has that flexibility.

Jerre:
I might be a little bit biased with the Ben's Desk hat on, but I don't think we're anywhere near a bubble or bursting point of any sort. I think as Liz indicated, it's still a relatively drop in the bucket compared to the amount of square footage that's available in the city and in the broader region. I think it is here to stay, and it's fostering this collaboration and this innovation that is part of the innovation economy. I think it's going to continue to grow, and I'm not really at all worried about us getting to a bubble point yet.

Liz:
I think with the innovation districts that they're building over in University City, Pennovation, there's going to be a lot more product. Maybe not identical in business structure to a Ben's Desk, but that type of collaborative space.

Jerre:
I'd also just point out, there are a lot of players coming into the market, obviously Make Offices, formerly Uber, they're putting up some big square footage [inaudible 00:49:59] entering the market. I think there's a lot of flavors within the co-working industry and we're all a little bit unique and there's plenty of business to go around. Somebody might be a great fit for Benjamin's Desk, they may not be a great fit for We Work and vice versa, or Pipeline, or Industrious. The list goes on and on. I think we're all serving relatively unique segments of the market. It just adds to the fact that there's room for the market as a whole to continue to grow.

Dan:
I agree, one of my colleagues and I just represented a company called The Yard in a lease for about 24,000 square feet. They're coming from New York and they're going to set up shop in Midtown Village. We think what they're going to do there is going to be very unique and very different than what some of the other co-working shops are doing. Not that it's necessarily better, but different. I also had last year had an opportunity to witness how co-working isn't just about startups always, it's not just about a sole entrepreneur who wants to sit at a desk. I was involved in working with an atypical client for me, but a high credit, national, international, a company that needed office space immediately for six months. Without co-working, I don't know how we would have solved that problem. It was an excellent solution for what they needed to do for a short swing space.

Joe:
Does anybody feel like there's a target percentage for how much space in a market should be co-working, in a healthy market? We don't know yet.

Liz:
I don't think we know yet. [crosstalk 00:51:40]

Joe:
I'll bring this back to Jerre, but for everyone to pitch in as well; we're still learning what co-working really is. There are a lot of different folks that do co-working. We see spaces that are very, very community driven around a particular space or a particular industry. We also see some platform industry agnostic spaces where the bigger the mix, the better. I think the question as we get ready to close out our session today, what do you feel is the right path? How long does a company incubate in a co-working space before they're really ready to bounce out on their own?

Jerre:
It's sort of a loaded question, because it's so company specific. We have law firms, for example, within Benjamin's Desk space, they easily have the capital to go out and take on their own space, they just don't have the desire to. They get a lot out of being in the community, they can save money by staying in the situation that they're in. There's other companies that see themselves growing pretty quickly. While co-working and the soft incubation that goes on here can be fantastic, they are thinking about how do they start building their own culture, their own brand, their own identity as opposed to just being part of the co-working brand and culture. It varies by company and what they're looking for in the long term.

Joe:
Great. We're going to wrap things up in just a few moments, but I do one more round robin on the panel. It's 10 years from now, we're reuniting to talk again about what we've seen. What does Philly's business district look like? Is it still centered in Center City, have things really exploded out? What's your vision for Philadelphia 10 years from now? We'll start with Mike.

Mike:
I will be retired, so I won't be here 10 years from now. Having a young daughter who's 20 and going to be in the workforce pretty soon, I really think this city with Comcast, and we really didn't touch upon that with the innovation [inaudible 00:53:43] they're building and what that brings to the city. The younger generation are really supporting Philadelphia, and I really believe 10 years from now this is going to be a phenomenal city that will be competing to get not only companies and employees from New York City. The cost of living here is so inexpensive, if we can just fix the school district, I think that will take care of a lot of things. I think 10 years from now we'll all be looking back and like, "Hey, that was a great ride."

Liz:
I agree, and I also think that the Philly wage tax and business tax structure, which I know that they're working on now. If they give Philly that additional boost by restructuring, Philly will be unstoppable.

Jerre:
Again, not to be redundant but I echo those comments. I think there is so much potential within Philly in general and I think we are starting to see that happen. We're being recognized as a bit more of a national player in terms of the VC money that's coming into town. We're certainly not Boston, San Fran, New York yet, but we're on our way. I think as Mike said, Comcast, which we didn't really talk about, I think that's huge for town. I think great things are in store, and Philly is well on it's way to becoming a national player.

Liz:
International, I would say. We're seeing a lot of international investors and tourism is increasing and also, we got named The World Heritage City by [inaudible 00:55:03] which is the only one in the US, so that's creating a lot of international tension as well.

Dan:
I agree, I think that the schools are obviously a big part of it and improving that situation is necessary to continuing our progress. I think the one thing we'll think about 10 years from now as being a little different than today is our concept of maybe what Center City is, will be a broader picture; that it's going to keep continue to push out. We see gaps that are starting to fill in and whether it's between Center City prime and University City and everything that's filling in there.

Dan:
I've got a project that I'm working on at 10th and Spring Garden Street, which probably would have been considered an out of the way location at one time and we're seeing a lot of demand for a creative office space there. We're very pleased with what we've seen. I think in every direction, what Brickstone's doing right now and some other folks who are filling in the gap between Midtown Village and Old City, which really was just kind of Jefferson for a while and not much else happening there. I think they're all great things and we're going to think of greater Center City Philadelphia as a much bigger piece of space.

Joe:
Sounds like an exciting future to look forward to. I want to thank our panel today, we've heard from Dan Gummel, Liz Morrow, Jerry Riggs, and Mike Dolan. Let's give everyone a warm round of applause. My name is Joe Taylor Junior, I want to thanks to all of our team and to everyone who tuned in on 2820radio.com. You'll be able to pick up a recording of this show, as you can all our shows, if you subscribe there. You can get alerts about new episodes and events at thebuild.biz. Thanks so much for coming out, thanks so much for tuning in. We'll see you next time on The Build.

Joe:
The Build is a production of 2820 Radio in Philadelphia, Pennsylvania. Our producer is Lori Taylor. Our associate producer is Katie Cohen Zahniser. Our talent coordinators are Katrina Smith and our post production team is led by Evan Wilder at [inaudible 00:57:16] Audio in Detroit. My name is Joe Taylor Junior. Thanks for listening to The Build.

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