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Flex operators and landlords need to rethink their relationship, said Max Jezierski, co-founder of Frameworks, which operates 13 managed workspaces across London. What started out decades ago as an exciting way to monetise commercial space, landlord-operator partnerships have since soured as a result of how some operators have handled deals.
“Whilst no one believes that antiquated leases are the future of operator-landlord partnerships, the way that operators have struck deals over the last couple of decades is just not conducive to a happy relationship,” he said. “But this can change.”
For landlord-operator relationships to thrive, there are three rules that the industry needs to adhere to, Jezierski and co-founder Sam Roberts said.
The first rule is no pain, no gain — for both operators and landlords. When the pandemic arrived, it shone a spotlight on how some operators used special purpose vehicles to absolve themselves of responsibility in a deal when times are tough, Roberts said.
“This works like an unfair prenup,” Roberts said. “They have no real skin in the game. Equally as important is the principle that there needs to be a fair allocation of return based on risk exposure and capital invested.”
If an operator is not committing capital to a deal, returns should reflect that, while a lack of performance should result in a landlord option to terminate, Jezierski said. Equally, when an operator puts capital into developing an asset, they should be fairly compensated with term security and commensurate returns.
The second rule is “cards on the table,” Roberts said. Every element that goes into ascertaining the performance of a deal should be entirely open-book at every stage.
“Fixed fees, hidden costs, opaque profit accounting — all of this leads to a lack of trust between landlords and operators,” he said. “If there is any scope for ambiguity in who earns what in what scenarios, the relationship is going to fall at the first hurdle.”
The final rule is “no win, no fee,” Jezierski said. To this end, Frameworks never charges a management fee because operators shouldn’t take such a fee when they are not performing.
“Operators’ role in the relationship is to bring home the bacon — monetise landlords' assets,” he said. “A cast-iron rule should be that operators can only profit from a partnership when the landlord is getting their return.”
By sticking to these rules, there is a much greater chance that operators and landlords can live a long, happy life together with a fair balance of both risk and rewards, Roberts said. It is on this basis that Frameworks is founding its continued expansion across London.
“Rather than just saying to landlords, ‘This is how we work,’ we understand that it’s the landlords who own the asset, putting the cash upfront,” he said. “We’ve got to have a more respectful relationship if we are to have the privilege of working with them in their buildings.”
This article was produced in collaboration between Frameworks and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
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