As Industrious continues its management takeover of other flex office spaces nationwide, the New York-based operator is set to shutter some of its own locations operating through leases.
Industrious is planning to close up to 150K SF of leased space that it couldn’t convert to management agreements nationwide, including its 20K SF Costa Mesa, California, location at 3420 Bristol St. and its 17K SF Chicago location at 320 West Ohio St., Bisnow has learned.
“Our business suffered just like every other business, people were coming to the office a lot less than they were pre-pandemic,” Industrious President and co-founder Justin Stewart told Bisnow in an interview this week. “There's a certain threshold that Industrious is comfortable doing without bleeding money month after month after month.”
Neither C.J. Segerstrom and Sons, Industrious' Costa Mesa Landlord, nor C-R Adlake Limited Partnership, the owner of 320 West Ohio St., responded to requests for comment. The two locations had less than two years left on their leases, an Industrious spokesperson said.
Several months ago, the company shut down its roughly 12K SF Chicago West Loop location at Stockbridge Capital Partners’ 600 West Jackson Blvd. The landlord sued Industrious for unpaid rent in December, alleging fraud and breach of contract, Crain’s Chicago Business reported at the time. The lease term was until 2030, according to the lawsuit. Stockbridge didn't respond to requests for comment.
“This location was a legacy leased unit that came to us via an acquisition and as such, we made the difficult decision to shut it down,” Industrious spokesperson Corey Chambliss said in a statement. The company declined to comment further on the suit.
Roughly 50% of the members previously at these locations have signed new agreements with the company, Chambliss said.
Industrious is expecting to shed up to 101K SF more of leased space around the country, but Chambliss and Stewart declined to say where they were, citing ongoing negotiations. Industrious' total portfolio is roughly 3M SF.
Industrious was founded in 2013 and fueled its initial growth with leased locations, but four years ago pivoted from signing leases altogether to expand exclusively through management agreements, Stewart said. Under these agreements, Industrious operates the space while it and the landlord share the revenue.
This model proved appealing to office landlords this past year and allowed Industrious to take over space from competitors that were forced to give up leases. It expanded its footprint by 1M SF last year and is expecting to add more than 1M SF this year. Months before the coronavirus pandemic hit, Industrious began talks with landlords for some of its earliest locations to convert the leases into contract management agreements and since converted more than 30, Stewart said.
“With a lot of our landlords, they saw the silver lining that coming out of the pandemic … more groups were going to want to work with us with flexible arrangements,”' Stewart said. “So they were willing to sign an agreement that shared in the revenue that we were receiving during the pandemic, which is a lot less than it would be out of the pandemic, but they realized that out of the pandemic, they'd be making a lot more money than they would be under the traditional lease.”
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