L. D. Cherre’s Salmanson on Real Estate and Short-Term Lease Data – Commercial Commentator

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One of the questions that needs to be answered in the “new norm” is the place that coworking will occupy in it. Not everyone can afford to rent office space for five to 25 years.

During the COVID interregnum, we learned that people can do their job at the kitchen table or from the couches, just like in the office, whether it’s rented for a week or a decade. This is there was especially bad news for a young coworking industry that relied on entrepreneurship and the willingness of workers to take subways and buses to connect with people they hardly knew.

It seems that the consensus is that coworking there will be some place in space after COVID startups will still need a startup space, not people’s kitchens but what this place is, it is still a subject of intensive data processing.

L. D. Salmanson’s life is based on his knowledge of trends in commercial real estate. As CEO and co-founder of startup Cherre, he sells commercial real estate data brought together to paint a compelling picture for investors. As a startup, he has personal experience with options that are available to small firms like him trying to influence the market, where they can develop their trade and where they can get people to work.

This can be risky if your firm is not well-established and you really don’t know how many people you can hire next year, let alone five years. Salmanson explained his situation to the Commercial Observer earlier this month. His comments have been edited for brevity and clarity.

Commercial Observer: Where do you get Cerre’s data, what do you do with it? It looks like you are taking raw real estate data and putting it in a format that is really useful to your clients, who are mainly real estate investors and real estate companies.

L. D. Salmanson: Right. So, a little background, we started this about five years ago after we sold the previous company Oppenheimer. And we raised about $ 75 million from really good investors. We are growing very fast, we have a really great customer group,

What we really did for them was find a way to link all of their data, both external and internal. The problem they really face is that all these data providers that they want to buy, such as Trepp and RCA (Real Capital Analytics), Reis and Compstak and many others, are excellent data providers in their own right. It is neither. They are all good for different things, but they don’t talk to each other. They collect their data in different ways.

You can find assets outside the market. Looking at the assets on the market, I think for the first time, you will be able to do two things. First, you can analyze an asset very quickly faster than my peers, and more importantly, I can see which assets can outperform our peers, and I am willing to pay more for that. The asset may seem cheap to me, but when I ask you to take a look at its performance, it may be ineffective and you really shouldn’t pay for it, even if it’s cheap.

Remember, if you buy them, you need to manage them. Unfortunately, managing assets, the way they perform versus my budget, is a gigantic operation, many people have to do things manually. A whole army of people should be reporting monthly, quarterly.

Cerre collects everything in a real-time dashboard – everything I own, where I own it, how it works – from the top of the portfolio to the smallest assets.

Lead me through what happened between you guys and Knotel

I really believe in the Knotel model [providing turnkey space on a short-term basis to companies that want to have a space to call their own]… I think it’s a pity with them. [It went bankrupt and was bought out of bankruptcy by the real estate brokerage Newmark. Newmark and Knotel did not respond to requests for comment. Observer Capital, led by Observer Media Chairman and Publisher Joseph Meyer, is a Knotel investor.] I think they have suffered from poor leadership… But overall I am very optimistic about this concept.

The concept was pretty simple. With a traditional lease, I take a place for a period of seven to 10 years. And the reason it was like that was because everything is shorter than this, when I want to raise capital from this building or finance it in some way, the lender will say that the shorter the lease, the more I risk. as a creditor. While the longer the lease term, the more stable it is.

If this is an annual lease with a company that may disappear tomorrow, this is a kind of risk. Capital markets traditionally reward big brands for long-term leases. Five- and 10-year leases with a large amount of collateral.

This is great, and usually the market behaves this way for a very long time.

On the other hand, I don’t think Knotel is a coworking space. Coworking is Convene, Industrious or WeWork. All these companies also work with us. I’m not talking about that. Some people don’t need an office for whatever reason, or they don’t need a permanent office. They just need a little space.

Convene, WeWork and Industrious provided a really good experience: this is your office, this is your place to work; It has coffee, beer, all the necessary amenities, maybe there is some kind of social life here. This is a good place. There is a market for that; I don’t know how big it is.

There are many reasons to believe that this could be more due to COVID. Many people need a permanent office. This is for discussion.

In the meantime, there is something else, but what if I want a two-year lease? I don’t know where I will be in a year. This is a very, very large and significant market.

We are a startup. We are growing very fast. We have more people on the staff, but we don’t need more space because not everyone comes into the office. According to our data, offices in New York are filled from 20 to 30 percent at best. In large cities in the US we are still somewhere below 30 percent. Before COVID, occupancy rates were below the 80s.

When people talk about full utilization, they really mean 80+ percent for the market. We may never return to this.

When COVID hit, we already had some problems with Knotel because they had their own internal problems with the management team. We, as a company, made the decision that while we could get out of the lease, and although we could stick with Knotel and say, “Hey, this is your problem, we’re not paying,” we made the decision that we wanted to be good. We are part of the real estate world. It is not the homeowner’s fault that COVID struck. If so, what would we like us to do if we were in their place?

We will continue to pay. I do not regret this decision for a second.

The problem is, I had the feeling that the Knotels were poorly managed, so I had a suspicion that they would go broke anyway. When COVID hit, it was 100 percent obvious to us that Knotel would not last long.

So we immediately went to our landlord and said, “Hey landlord, we’re going to fulfill the lease. If Knotel crashes, don’t worry about it. We will resolve this directly with you. “

They said, “They don’t pay us every month.” We ended up being the good guys, we sent our expenses to Knotel, and Knotel didn’t give the checks to their landlord. I got angry. So we went straight to the landlord and said, “Listen, kick them out. And we will negotiate the lease directly with you. “

Who was the landlord?

The landlord is PennBus Realties, but we worked with the very famous management company Olmstead Properties. Building at 39th and eighth [575 Eighth Avenue]… This is a solid class B building. But the entrance is on the main avenue, this is not a side entrance. So this is kind of the highest grade for the quarter. And it is in very good condition.

So, in your case, you were able to design a flexible short-term rental scheme, and the landlord was ready to do it.

We were in talks with manager Olmsted. And they went back and forth with PennBus, and they signed.

We agreed with them on a three-year lease. And they quickly picked a couple of options and basically said, “The next two years it will be empty here, now this is one of the worst areas in the city. We will sign up right now with you today. And we will hold out for three years. “

And we got a really very good rate, a fraction of what we originally paid. Literally 80-85 percent lower. I don’t want to give the exact number.

You guys weren’t the only ones doing this. Many users leave the middlemen behind and negotiate directly with their landlords. What evidence do you have for this?

It is generally much easier for a landlord to provide such services than it was two years ago. There are endless numbers of companies that can walk into Herman Miller’s phone booths or conference rooms. There is another company, Eden, that will open the place up for you.

So, if I am a landlord, if I want to be able to activate a return space, it is very easy to offer that space directly to the tenant without having a Knotel reseller or other company. I can go straight to them and get the same service. And it will be cheaper, because I speak directly with the owner of this premises, and I do not need to go through intermediaries.

The only problem that remains is that, to be part of the conversation, capital markets still reward long-term leases far more than short-term leases. So there is a lot of empty space right now; they will do their best to activate the space.

In the longer term, I expect capital markets to start getting used to short-term leases, as these types of leases are tougher to be transferable and rewarding.

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