Industrious wants to grow. It has more than a dozen new locations in its pipeline this year, but the co-working player does not want to own offices or pay rent for every square foot of its locations, Industrious CEO Jamie Hodari said.
Instead, Industrious is exploring a leasing model for future locations more akin to the way hotels operate.
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“I'm not sure the ownership route is the right strategy for our business,” Hodari said.
The co-founder of Industrious — which now operates more than 20 co-working locations in some 15 markets across the U.S. — is exploring the possibility of entering into operating agreements with landlords in which Industrious would get access to space in an office tower. But instead of paying rent based on square footage — the traditional lease structure the industry largely operates under — Industrious would split revenues with the landlord over a period of time, he said.
Industrious' main competitor — WeWork — is exploring the possibility of ownership through an investment fund for its growth. Hodari said Industrious is not interested in that strategy because owning buildings requires a different set of skills.
“It's a different core competency and it requires a different capital structure. I think growing businesses tend to do best when they double down on what they do uniquely well,” he said.
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Industrious is fresh from a $62M Series B infusion led by Riverwood Capital and recently acquired online short-term office rental platform PivotDesk. It is looking to grow even more, with another 14 locations planned for 2017, Hodari said. Most recently, Industrious secured two new locations in Atlanta, and it is eyeing an entry into South Florida. By the end of this year, more than 1 million people will have worked in a co-working location, according to a recent Forbes article.
Eschewing ownership and instead pursuing management contracts is likely about flexibility, said Atlanta-based Seven Oaks Co. Principal Bob Voyles, one of the city's larger Class-A office owners. Instead of fixed payments, Industrious would shell out based on the revenue of the number of clients for a given location. That amount could fluctuate depending on how a location performs.
But Industrious may have an uphill battle convincing landlords into the arrangement. The trick, Voyles said, will be for a landlord to convince its capital in the building of the pros of an operating partnership versus a traditional lease agreement.
“It's interesting that they're thinking about that trend,” Voyles said.
CORRECTION, JUNE 8, 5:15 P.M. ET: A previous headline to the story has been changed to reflect Industrious CEO Jamie Hodari's comparison to a Four Seasons in regards to seeking lease structures akin to a hospitality model.
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