The Innovators: Localworks' Barry Greenfield
In this series, Bisnow highlights people and companies pushing the commercial real estate industry forward in myriad ways. Click here to read Q&As with all the innovators Bisnow has interviewed so far.
The coworking industry, like so many parts of the economy, has been challenged by the coronavirus pandemic.
A product type based on open floor plans and personal interaction found those two things anathema to the new reality. Nationwide protests have increased awareness of the persistent lack of gender and racial equity in all facets of daily life, including in business. Companies of all types have wondered what more they can be doing.
Perhaps the solution is not in doing more, but less. Localworks, a flexible office provider that started near Boston and has expanded into the Washington, D.C., and Chicago areas, doesn't do anything special with its offerings — and that's the point.
Localworks manages space left vacant by previous office tenants with minimal redesign and improvements, eschews common areas and hot desks for private offices, and its locations are so far exclusively suburban. Localworks CEO Barry Greenfield has avoided every bell and ditched every whistle, and in exchange his company rents private offices for as little as $250 per month, opens locations a month after signing with landlords and has expanded to 20 locations amid a pandemic and hasn't taken a dime from venture capitalists or private equity.
Localworks has been profitable virtually the entire time it has been in operation, and a majority of its membership is women and/or people of color. Greenfield has hit benchmarks that anyone in office real estate could be proud of, and his biggest innovation is in responding to the needs of underserved groups, not the wants of the biggest moneymakers.
This interview has been condensed and edited for clarity.
Bisnow: How did the idea for Localworks come about, and how did you then put it into practice?
Greenfield: I've been in the coworking world since about 2012, when I just opened up a small space with some friends after I had a company that needed to hire a couple of employees, and I just never was going to do that in my house. So I got some space in Downtown Salem, Massachusetts, and brought in a few friends to share the space with me.
From there we kind of just kept adding people by word of mouth, bringing in some friends and associates and acquaintances, and then things have expanded from that one office into a side business. In 2019, we landed a partnership with Cummings Properties, which is a huge property owner here in Massachusetts and had a space that had been sitting vacant in a pretty vibrant market. We tried repeating that [partnership] model pre-Covid, but the office market was just so hot and leasing was so strong that we just focused on those two or three properties that we had.
Then Covid hit, and we thought, “Well, there's going to be a ton of vacant space, so let’s redouble our efforts with this partnership model, but with little tweaks to give property owners a lot more flexibility. So let's not ask for any [tenant improvement allowance], let’s allow them to keep the property on the market, say that we're going to fill it up with individual tenants, and we'll run it — we'll do everything.”
That led to the model being adopted, starting last summer, pretty widely.
Bisnow: And where did you go from there?
Greenfield: We spend most of our time looking for previously built-out space, which we call second-generation space. We launched [at the Cummings Center] in June, and then we added one in Wellesley in August. As we started to see some success renting out these spaces, even in the height of Covid, there were still quite a lot of people looking to get out of their house to work.
That's when we started to talk to a ton of different property owners and also ended up heading down to [the] Washington, D.C., [area] and opening up our first operation there in Bethesda, Maryland, adding on Alexandria, Virginia, about a month later. As it all started to fill up more and more quickly, we realized that, you know, we're on to something.
Bisnow: Your expansion seems to have happened fairly quickly, and when one hears about quick expansion in coworking especially, it's easy to associate it with the issues with WeWork. So what makes your business different?
Greenfield: Our model differs so much from the typical coworking model, where there's a long-term lease signed and/or there’s significant TI or build-out. There's none of that with us, since outside of maybe a thorough carpet cleaning, some paint touch-up and furniture installation, there's not a lot that's required to get the second-generation space that we utilize up and going. So there's not a huge financial risk for the property owner, either. And with 20-plus properties, we've got these processes down to a little bit of a science where, in two to four weeks, we can get everything done that needs to get done in order to get a facility open, start marketing it and start doing tours. So it's just a different type of expansion than it would be for spaces that require huge build-out.
Bisnow: Was the intention from the start to just expand based on what you could pay for, rather than soliciting outside investment?
Greenfield: You know, we've been able to keep the expenses in line with where we can grow, to a certain extent, almost as fast as we want based on our cash flow. We felt that we did not have the background or the experience for venture capital to come in, especially after what happened with WeWork. If you look at most of the investment that's being made in this space now, it's coming from large brokerage firms like CBRE, Cushman & Wakefield; Newmark picked up the pieces of Knotel and CBRE is investing in Industrious. So, I don't even know if venture capital is investing in this space or not. But, you know, I think we were doing fine without it.
Bisnow: It seems like one of the defining features of WeWork and some of its competitors is branding and the feel of being in such a space. Based on your use of the term second-generation, I get the impression that it's not like that for Localworks.
Greenfield: I think there are a couple of different aspects to it. Second-generation could represent a really high-end build-out. For instance, our Wellesley space, which is currently sold out, is the equivalent of a suburban WeWork in terms of finishes. That being said, there's a lot of our locations that are definitely not what I would call the “Four Seasons approach” to office space.
We don't want to compete with WeWork, Industrious or Spaces, or any of the companies out there that are trying to reach the top of the enterprise pyramid in terms of clientele. It's not our focus. You know, we don't have the venture capital backing to afford those types of leases. And quite honestly, we felt there's a huge amount of business in an underserved market at the middle and the bottom of the pyramid, where people are just looking for an office that is clean and quiet and productive.
Bisnow: People who don’t care about the cachet so much as the price.
Greenfield: Yeah, it's definitely price at the top of the list for them, no question. If people have a budget, but they want service and high-speed internet, cleanliness and quiet, that’s what we provide.
Bisnow: So what is the market at the bottom of the pyramid like?
Greenfield: So typically, it's 30- to 60-year-old business professionals, and for whatever reason, almost two-thirds of our membership is women. And probably closer to 60% are minorities. I think a lot of that is not necessarily because of the way we market the space or the way we brand it, although I can tell you internally, our company likes to think of ourselves as democratizing office space. I think just because of our price points, it allows for more people who normally would not have access to corporate office space to have access to it through us.
Probably 25% of the companies that become members with us are doing it because these days, in order to have a Google business listing, you need to have an address that's not a P.O. Box. So it's important for people who come in to have the physical address as well as an office space.
Bisnow: So you operate in a partnership model with landlords — what is the structure of those partnerships like? Does it depend on the landlord?
Greenfield: We typically do a five-year management agreement, and we offer an out after a year; we don't want to tie someone down if it's not working for them. Or, you know, the location may not work for us either.
In terms of the type of property owner [we work with], it's the same amount of work for us to work with someone who has one property or 40 properties or 100 properties. So we definitely look for property owners who have a portfolio, because then there's an opportunity to prove what we do and to try and position ourselves as their in-house coworking management company. We want them to feel like they're bringing us in as a partner to help add this service to their portfolio.
That being said, we have locations with just an owner who just has one property that has space that they just haven't been able to fill, and we’ve been successful filling any of the spaces that we've opened.
Bisnow: Has having the bulk of your expansion and openings under pandemic conditions affected the nature of negotiations? How has the opening process been affected by pandemic conditions?
Greenfield: The pandemic has not affected us negatively in any way. We've been averaging about 5% vacancy across all of our locations. This month and last month have been incredibly vibrant for us reaching out to new property owners, and we're getting more inbound calls now from owners saying, “Listen, this is something we're very interested in. We're familiar with you guys through word of mouth.”
The agreements will unquestionably evolve over time. They haven't in the last few months, just because there hasn't been a need to. But in terms of the properties themselves, I think the market has so much space to absorb before you even get into subleases. So while we grew significantly during Covid, we don't see any reason to think that there won’t be enough space out there for us to continue to expand.
Bisnow: The subleasing question is an interesting one. Because from talking with some office market experts, you know, I feel that top enterprise companies, having deeper pockets, aren't terribly interested in taking a subleased space unless they're in a time crunch. Could subleasing be a niche you can plant a flag in?
Greenfield: Yeah, definitely. So we just opened up our first [subleased space] about six weeks ago: a second Bethesda location that's a sublease from a company that shrank its footprint during Covid. We worked out a deal where we're responsible for filling up the other half, with the intent being that we can help them recoup the rent that they're paying for that space they’re not using. And we think there's a tremendous value proposition there, especially as the number of subleases is just going to skyrocket in the next six to 12 months.
For us, it's really just a matter of getting the word out there so that companies with space they're not utilizing know there's a way for them to easily start to bring revenue back in without losing any of the space that they want to use.
Bisnow: Are these straight subleases, or is there still a management component? What’s the landlord’s involvement?
Greenfield: The sublease we've done is directly with the tenant and the landlord was not involved. Now, in a lot of cases, the tenant is going to have to go to the owner to get permission, but ownership is trying to keep people in leases as long as they can. So we don't foresee that as being a big issue.
The revenue-sharing operation that we have is directly with the tenant, so in the end, rather than being a traditional sublease, it's a revenue-sharing agreement.
Bisnow: When we talk about coworking or flexible office providers, it's that leap to another market, away from home base, that often trips them up. What do you think are the common issues there, and how does Localworks face those issues?
Greenfield: When you first open that new plant-the-flag location in another area, there's a whole host of issues that come up that you face that for the first time you're not personally there to oversee. So you have to have someone in that market on the ground who can basically be your eyes and ears.
While that's important, there are things that we can rely on property owners to help us get up and running, because we're partners. But we don’t need our members to know who the property owners are. They contact Localworks support, they use our phone number, our email, so it's really a hands-off operation for the property owner once things get up and going.
In other markets, I think part of it is luck and part of it is skill. But we just created a concept that can be duplicated relatively easily. We're already doing self-guided remote tours, we're already doing all the bookings online and we already didn't have a receptionist on-site. So a lot of the things that would have presented hiccups or hurdles or speed bumps from far away were eliminated or reduced to nothing, because we're already doing that here.
Bisnow: The receptionist part is interesting to me, because even the largest operators in coworking have elements or trappings of being an incubator or an accelerator space. So a receptionist becomes a community manager, and that's a big part of how these spaces market themselves. That seems to be another way in which Localworks is more hands-off, just letting people get in and get out once they've done their work.
Greenfield: It's a big differentiator for us. Quite honestly, [community building] is an awesome concept; it's just a little more expensive to operate. I think because we're primarily in the suburbs, and we primarily deal with 30- to 60-year-old professionals, a lot of those people aren't necessarily looking for community. A lot of our members aren't in the office every day, for whatever reason — they've got appointments, they might work from home one day, they might be there at night.
Bisnow: Is an urban location on your radar?
Greenfield: We're starting to get opportunities to take over subleases as well as vacant spaces in downtown locations in Chicago, Boston, D.C. and on the West Coast. We just haven't had the bandwidth right now to take them on. But I do think they'll continue to present themselves to us, but my gut says that it'll probably be a similar concept in that it's not going to necessarily be community-based. It's going to be just people who need to get out of their apartment to go to work. I just don't see us trying to compete with WeWorks, Industrious, Spaces and so forth.