Tampa Commercial Real Estate | Florida Commercial Property

EO: Good afternoon and welcome to today’s Market Minute. I’m Eric Odum, principal Real Estate Broker for Net Lease Commercial Advisory. Today we have Ken Evans with us. Ken is a friend of mine now, but we originally met three years ago. Ken came to us for office space and it was the first time I had worked with somebody in his industry. Ken has been in technology for 30 years and his expertise lies in technology development and product development (software). He’s from New York originally, he has worked in Atlanta, he was part of the big Seattle Tech scene, and now he’s in Tampa. Ken was one of the first people to bring the ‘co-working‘ concept to the Tampa Bay area and that’s what we’re going to talk about today. So, welcome Ken, appreciate your time with us.

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EO: So, you originally came to Net Lease to talk about office space and I was unaware of the issues affecting the Tech industry at the time and how technology companies were dealing with office space. I think the truth is, today, the biggest issue is that landlords do notknow how to adapt to the tech industry because they have very distinctive needs, don’t they?

KE: They do, and any small business has distinctive needs but by the very fact that technology companies are volatile, they also experience very high growth. When they catch on, they grow substantially in size. They have little need for distribution, warehousing, and manufacturing but in so far as staffing, they must expand very quickly when things do catch on. So with regards traditional office space as we know it, and projecting how big the tech company is going to be in the next few years, that scenario really doesn’t apply in the technology industry. Most of the time in the tech industry, people get together and you find a number of companies under 0ne roof until one of them spins out, which is one of the benefits of co-working. People work together in an office environment, the idea catches and the company and founders spin out and do their own thing.

EO: So if I understand correctly, essentially what happens is; you have an individual, he has an idea, the guy in the garage, the Steve Jobs type, and he graduates. He/she graduates and then they collaborate with other people. They then go the next step and go from maybe two or three people in a small office space, to 20 people working for them in year two and to 100 people working for them in year three.

KE: It can go that way, those cases are unusual – not everyone is going to be a Google or a Facebook, but they do grow very quickly when things catch on because the market takes over. If you don’t keep up with market demand, your competition will step in and take that share, so you do have to grow very quickly. Generally nowadays, tech companies start virtually, especially in the last couple of years, because it means you don’t have to invest in infrastructure, practically everything you need is available virtually and on line, as in on “The Cloud”. So all you really need is people. Most of the time it starts with people working remotely in their garage or in their living room.

EO: And those are people who can’t afford to sign a three year lease, right? It’s just impossible.

KE: No, they can’t and they don’t need to. You don’t want the fixed costs when you’re starting a new business. I’ve done a number of workshops and a lot of work with emerging tech companies and that’s the one thing you want to avoid – a lease and office space is a fixed cost. What you need to be doing is plowing any capital you have, whether it’s maxing out your credit cards or spending a little bit of seed capital from an investor, into the development of your product and your customer.

EO: So let’s talk a little bit about co-working because you originally introduced me to the idea. Tell me about what stage co-working is typically suited to the company development process.

KE: We see it for all stages of the development process. We were actually doing co-working when I came to you three years ago. We were doing co-working on an ad hoc basis in coffee shops where we would get together for a mini workshop or session, and people could come and discuss what challenges they had, what they were working on and ask for help from other people in the tech community. Co-working appeals to a broad range of people, from the individual that’s working on the idea, to the person that is actually growing the business. This doesn’t necessarily mean that a business owner is adding staff because people don’t add staff like they used to. They’re not adding full time employees; for example W-2 employees. They are adding 1099 freelancers because they have project based work. They are designing new web products, doing graphic design work, or web programming so they d0n’t need a full time hire. So, again, avoiding the fixed cost is a key component.

EO: Let’s back up a bit here and define co-working. If you’re a landlord and you’re listening to this, how would you explain co-working to them?

KE: Co-working is an office space where people can get together and use a desk for a day. That is probably the best way to describe it. Co-working started out in New York and the Bay Area at pretty much the same time….

EO: San Francisco Bay Area

KE: …yes, and a creative agency, a marketing agency, or ad agency would have extra space and would work with a lot of freelancers and web developers, and they would rent them a desk. This would cover the cost of that desk, allow someone to come in and use the facility, and that agency could use their capabilities and work side by side with other people working on similar projects. That creation of critical mass, the gathering of people all doing similar things, creates a creative spark for people to work together and it’s better than working alone. Sitting at home on your couch with your cat doesn’t really do much for the creative process.

EO: And it’s happening now at places like Panera Bread or Starbucks.

KE: It happens at Panera around the country and at Starbucks, but those businesses have pulled back on catering for people that are keeping a seat for hours on end. Starbucks and Panera have closed off their Wi-Fi accesses during lunch – they are really trying to push people through and get traffic, so those coffee shops are not as friendly as they used to be. So people are moving to other locations where they can get together, which is why co-working has cropped up in a number of different areas. Its been very popular in dense urban areas like New York and San Francisco, but really it’s happening all around the world.

EO: Well what was interesting to me was the first time you introduced me to co-working, I said “that’s not going to work – it’s not viable” (for the landlord), but then my phone started ringing and everybody was asking for spaces to ‘co-work’. There were so many unemployed people, and people that had been laid off. They were all trying to get back to work instead of hanging around in their pajamas all day. And the vast majority were advertising people, marketing people, attorneys, tech people, it was amazing! You also had the landlords in the Tampa area, accustomed to getting $23/sq. ft on their space; and all of a sudden you had all these displaced workers and suddenly there’s a disconnect because the workers were let go and vacancy is increasing. The workers are still present….. Just not with the same company. You have to figure out a way to get them back into your space. Why don’t you talk about that a little bit? If you’re a landlord, how do you handle all these 1099 workers?

KE: The way you handle the displaced worker is, if there’s a migration – and this doesn’t apply to people looking for jobs, or people out of work – but those that have made a shift from being a W-2 worker to being a 1099 (a freelancer), when they’ve made that shift, they will need a work space, but they’re not going to step up to a lease because of the financial commitment. If a landlord can only provide a space of 5000/ sq.ft or more, it’s completely impractical for the small business owner. In fact it’s no longer practical for the Tampa Bay Area, because we don’t really have employers of that size any more (moving to the area), so it’s just not practical for a workforce that has moved from predominantly being W-2’s to being 1099’s. Freelancers are going to want very flexible terms; and flexible office space. Co-working is one of the things you can do to achieve that, Executive Suites is another, and then there’s a middle ground between executive suites, which costs $800 to $1,000 per month, and an office space with open areas, so essentially, the work force is driving a new type of office adoption. So it’s really not about the landlords adjusting to the number of people, but rather to new businesses, the solo entrepreneurs/two person shops that don’t require a traditional lease.

EO: It’s interesting you bring this up, I think it’s something that really should have started happening in 2000. It’s not an issue of a bad economy, it goes much deeper than that. Technology now allows people to work from home or out of the traditional office environment, and to say “Ok, I don’t need employees in my office 24/7/365.” I can use a freelancer and communicate with them just as effectively. So there is definitely a changing work force and technology has allowed that to happen (with Skype, email, etc.). So it really comes down to one issue [from a landlord's perspective] – they need to figure out how to adapt to this change. It’s not going to go back to the way it was in 1985.

KE: That’s right. And this has been coming for a long time. In 1994 Compaq got rid of a lot of their sales force and said ‘you go work from home, you should be outbound x number of days per week.’ So they got all their sales people together and said ‘we’re going to build you home offices, and we expect you to be on the road.’ A couple years after that, IBM followed suit, they did what was called “Hoteling.” They had an office where people could have a desk for a day, but the sales team didn’t need to go in to the office every day, so IBM offices shrunk dramatically. That was then followed by the ‘telecommuting‘ idea in the commercial sector. I think the Government is trying to encourage this practice – it has done a significant number of studies and put programs in place for their employees to telecommute. They don’t want people in the office and they don’t want people on the roads.

EO: You see law firms here too…

KE: Absolutely.

EO: …where associates are sharing office space and the lawyers only go in when they need to meet with a client. At Net Lease, I get those types of requests all the time. It’s really remarkable seeing the pressure on the downtown Tampa market because these law firms have shrunk in terms of space requirement. Law firms used to be enormous consumers of space because of the paper work they had to store and the amount of associates they had to accommodate. They are now finding ways to economize. So it’s even happening in law firms as well. The Tech industry has always been a little bit more on the edge, but you’re seeing the more traditional types of business follow suit.

KE: The footprint has shrunk across all industries. Tech has done it, law offices, accounting offices, they’ve all done it; they just don’t need to have a lease or a formal office. You can start in your living room. At some point you’re going to want to work with other people and that’s where co-working and executive office suites come in. Tech companies are not going to consume the same amount of office space they traditionally did.

EO: We are actually sitting in a co-working space today. Do you want to talk about that a little bit?

KE: We are sitting in Tampa’s newest co-working space, a space started by Tampa Web Ventures, or Tampa Bay WaVE. They have approximately 40 small tech companies that are all members of this organization. It’s a peer group, a support group of people that are all building web ventures together. They meet on a monthly basis and support each other and share ideas, war stories and their advice on how to do certain things. They were able find a landlord willing to give them some space to take their companies to the next level. So as part of that, there would have been some co-working involved. The organization is not just made up of companies, there are individuals as well: web designers, web developers, freelancers etc., that will be using this space to come in, rent a desk for a day, sit on a couch to enjoy free Wi-Fi and some coffee and just add to the critical mass that this type of space caters for, without having to go to a Panera or somewhere like that. And it’s not just about a place to sit, it’s about sharing ideas and collaborating and, as we’ve seen with co-working, a lot of good ideas, products and companies have spawned from that creative critical mass.

EO: So essentially, just to summarize, for those landlords out there wondering what to do with their space, not every space is going to be ideally suited for co-working, but co-working definitely suits that type of creative 1099 individual that needs to collaborate with somebody. It could be a win-win situation for both landlords and the individual entrepreneur alike. So if I’m hearing you properly, that’s the direction things are headed in.

KE: Well the market has adjusted down, so really, if the market is a lot of solo entrepreneurs, whether they are tech employees or attorneys, the market has shifted regardless. This has happened across the country and around the world. It has certainly happened in Tampa, where we are heavily dependent on the service industry, tourism, and construction – that market has shifted significantly, so a lot of those people working for big companies, or for medium size companies are very different to solo entrepreneurs because entrepreneurs are not going to be looking for traditional office space, leases, and the traditional footprint. So really my advice to your clients is to adjust down to the market because that is the growth curve going forward.

EO: Ken, appreciate having you today, appreciate your input. I know you’re out there every day trying to help the cause of the entrepreneur and we appreciate your time today.

KE: Happy to be here. Thanks.

Keep up with future guest interviews on our Facebook page covering Commercial Real Estate for the Tampa Bay Area!

Tampa Weekly Commercial Real Estate News:

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Highpoint Holdings, JMG Realty and Hendricks and Partners all closed business at the end of 2011

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Jefferson Apartment Group set to redevelop old Wenczel Tile Factory

USA Visa Opportunities for Foreign Nationals: Restaurants

Eric Odum — Fri, 30 Dec 2011 14:25:25 +0000

Attendees: Eric Odum with Fernando Perez III, ESQ
Date: December 16, 2011
Subject: The Market Minute

EO: Good Afternoon! Welcome to Tampa’s Market Minute. I’m Eric Odum, principal Commercial Real Estate Broker for Net Lease Commercial Advisory, in Tampa, Florida, and today we have with us Fernando Perez. Fernando was actually with us two years ago. He is an immigration attorney here in Tampa. He’s been on Fox News and Univision talking about immigration issues. He has recently been named the top immigration attorney by Tampa Bay Magazine and also in the top 5% of Florida attorneys by Florida Super Lawyer – so thanks so much for joining us today. I appreciate it.

FP: My pleasure.

EO: Fernando has one of the most popular blog items that we’ve had in terms of hits and traffic volume. So, we wanted to come back and follow up and focus on one particular issue of the E2 Visa in regards to buying a restaurant. Why don’t we start off first by just giving a brief recap. We went in pretty deep last time with the E2 Visa, so why don’t you give a real brief summary of what the E2 Visa is and then we’ll go from there in terms of a restaurant.

USA Visas: Restaurant Investments

FP: Sure. The E2 Visa is also called the Treaty Investor Visa and it is a categorical Visa that is available to nationals of certain countries. Not every country. Certain countries with which the United States has a qualifying treaty, and for those countries, nationals of those countries who make an investment in the United States that is able to generate enough money for that investor and their family to live in the United States as a result of that investment-that foreign national can come to the United States and live here really indefinitely.

EO: Is there a minimum amount essentially that they’re having to put in to be able to get that E2 Visa?

FP: That’s one of the big myths about the E2 category. The information that’s on the Internet actually doesn’t help, because there are a lot of attorneys when you look at their websites, that tell you it requires a $250,000 investment or it requires a $100,000 investment. The fact is, there is no minimum amount. I’ve done them for as little as $7,000. Now, there are other things that are going to be involved to make a $7,000 investment work, but the key point here is that there is no minimum amount that a foreign national needs to invest. I also want to interject that this should not be confused with the EB5 Category which requires a million dollar investment. That one does have a specific investment threshold. We’ve talked about that one before, that’s a whole different animal.

EO: I think that’s where people get confused – they get the $500,000/the million, what does this mean?

FP: E2 – no minimum.

EO: E2 no minimum…since we had the original interview there have been a lot of follow up questions, and I think most of them for me personally, have been in regards to convenient stores, gas stations and restaurants. Why don’t we focus a little bit on the restaurants and go through a step by step – lets say you’re an Italian national, and you want to open an Italian restaurant here in Tampa, Florida. How would you go about doing that?

FP: Well, the first thing you would consider is, am I going to start one from scratch, in other words am I going to go and lease space and buy the equipment, or am I going to buy an existing restaurant which is maybe already Italian and change the name? The reason that’s important in the E2 context is because one of the things that you have to do is; even though there is no minimum investment amount, the immigration office here in the United States or the US Consulate, needs to be convinced that whatever amount you’ve invested, whether it’s $7,000 or $700,000, is the amount that is required to make that business viable. And the reason that’s important is, if you buy an existing restaurant, which you are buying at fair market value prices, the government is not going to question whether you invested the correct amount, because obviously whoever you bought it from is selling it for the maximum amount they could get. On the other hand, if you are starting from nothing, then you could have a situation where the government comes back to you and says, “Ok. Prove to us that the $50,000 you put into this space is enough to really make this a viable business.”

EO: So it almost sounds like it’s a better option to consider buying an existing business, is that a fact?

FP: Generally that’s what I recommend to clients. Obviously if you’re investing three, four or $500,000 to develop something from the ground up, they’re not going to question that, but most people aren’t doing that. For most people, their investment might be substantially less than that, and I always tell clients, we can do it either way, but it’s going to be a lot tighter from the standpoint of getting an approval than if you’re buying something on the open market.
EO: What about franchises?

FP: Franchises are great. The reason franchises are great is because one of the things that is very key, and we’ll talk about this probably later, but one of the things that is key to the whole E2 category is the ability to show that whatever your investment is, it is going to have the ability within 5 years to generate more than a minimal living income. The nice thing about franchises is that they have all the documentation. They’ve done all the feasibility studies. They really do most of the work in connection with that 5 year forecast that you’re going to prepare when you submit your application showing that Yes! Obviously if this franchise information showed that this thing was never going to make money, you’d never buy it. So franchises are great…..love them.

EO: Let’s talk a little bit about buying an existing business and owner financing? How does that fit in? Frequently the issue is how you are going to do that – it might be $500,000 to buy this business and how you do that?

FP: Well, there are a couple of ways, and one of the things that’s unique to the E2 category, because the E2 category is premised on an investment. As a result, the regulation limit is the amount that can be financed. The limitations are a little stricter than what you would normally find in the open market. So a 20% down, 80% financing; from an E2 standpoint probably wouldn’t work, but you have to understand what the limitations actually apply to. The limitations on financing only apply to loans that are secured by the investment itself. Ok, so let’s look at the restaurant example. Let’s say that it’s a $300,000 restaurant. I only want to put $100,000 down and finance the other $200,000. There are a couple ways you can do that. If the owner finances that $200,000 and it is an unsecured loan, that’s going to be classified as cash, that’s going to be ok. This is something that comes up with a lot of my clients, they’ve been coming here to the United Sates……

EO: But realistically, you’re not going to find owners that do that – finance without collateral.

FP: No, but I’m going to get to that. There are other options. A lot of my clients have been coming to the United States as visitors for years. Let’s say they own a condominium or home, and it’s worth three or four hundred thousand dollars and they’ve paid cash for it, or maybe there’s $200,000 equity on it. You can finance the investment and secure the $200,000 loan with your home. And that’s ok, because you’re not securing it with the investment. That’s also treated as cash. If you borrow the money back home, so that it’s secured by your assets back in the UK or wherever your from, in this case Italy, again, that’s going to be treated as cash here. So there are methods that you can try and use to be able to structure that financing.

Another thing that we’ve done sometimes, and the business would have to be feasible for this, is we split the transaction, and if the person, for example, is buying a business that includes real estate, we separate the real estate purchase from the purchase of the restaurant management business as a going concern, and by doing that, because most of the money is in the equipment and the real estate and all that, we’ve put the bulk of the financing there and then we can pay the $100,000 as an all cash purchase to buy the restaurant management business. Then the restaurant management business, not holding company, the “restaurant management business” basically rents the space from your other company, and that works. So there are a lot of things that we can do. We can get creative with that.

EO: We talked about the difference between convenience stores and restaurants, and you said to me that from an E2 standpoint, a restaurant is a better selection. Why don’t you talk about that a little bit?

FP: Well, the benefit of a restaurant over a convenience store is that in my experience, convenience stores have very few employees. Restaurants, and obviously it depends on a lot of things, but restaurants will usually have more employees. The potential benefit, although not an absolute benefit, but the potential benefit is the key to the E2 – like I said before – the amount you invest doesn’t matter as long as you can show that the investment within 5 years is going to generate more money than what the investor needs to live on. So that’s sort of the first threshold and the term that the government uses for that is marginality – a business that doesn’t have the ability within 5 years to generate that kind of income is deemed marginal, and doesn’t qualify for the E2. So what the regulations say is; if a business can’t generate that kind of income within 5 years, but has employees, then you can say, “Ok, maybe I’m not putting as much money in my pocket as I’d like to, but I’m creating jobs for 6 U.S. workers,”…. I say 6 just to pick a number – there’s no magic number in the regulations. If the business is still in the process of developing to the point where its generating the kind of income you want during those years, you can rely on the fact that you’re creating jobs as a way of keeping those extensions going until you’ve really gotten the business developed. And that’s something that nowadays might be more crucial because given the economy the way it is, it might take a little bit longer.

EO: How about family members? How do you compensate family members and who can you compensate? I mean, can you bring your second and third cousin over with you off this E2 Visa, or is it just immediate family that’s able to come in on that visa and work in that restaurant?

FP: At a base level, the only people that you can bring in with you, is you, the investor, and then the investor can bring in their spouse, and any unmarried children under the age of 21. Spouses can get permission to work once they arrive in the United States. And the permission to work that the spouse gets allows him/her to work anywhere. The investor, however, can only work for the restaurant. The spouse could work for the restaurant or if the spouse, let’s say, is an IT professional – they could go work and do something else, because they might make more money doing that. Children will never get permission to work. They’ll be able to go to school, but they’ll never get permission to work. However, that doesn’t prevent your family from volunteering. Your not paying them anything. They are just there and that’s ok. Now as far as other family members: Aunts, Uncles, things like that, you can’t bring them in unless you do something – well, there are two things: A treaty investment only requires that the investor own 50%. Obviously they can own more, but the minimum is 50%, which means that a single investment can accommodate two investors.

So let’s say this restaurant, is worth $300,000 now and that you and I are brothers. We each have our own family. So instead of me having to pony up $300,000, I’m only responsible for $150,000. You’ve got the other $150,000 covered. So then we’re both coming in, we’re both bringing our families, and let’s say we’ve got a third brother, and we have a way of bringing him in as a manager of the restaurant, because he’s the one that’s had management experience back in Italy for the last 30 years. You and I have been doing something completely different. And that’s something that’s also very important: You don’t have to have any prior experience with the type of business that you’re investing in to get the investment visa. You can make the investment which is the only thing that is required and then you can hire other people to actually run the business for you. So you can be as involved as you want or if you want to be out playing golf the whole time and have your third brother who has the restaurant experience actually running it, you can bring him in in a managerial or executive capacity with his own E2 visa and he brings his own family in.

EO: That really plays right into the franchise model, doesn’t it?

FP: Sure.

EO: Subway Sandwich or McDonalds or anything like that. That really plays into that very well. So now we’ve got a pretty good summary of how the E2 works in relation to a restaurant. Why don’t you give us a real quick summary of how that works? Essentially it’s an investor’s visa, you can be as involved as much or as little as you want. It really plays well with the franchise…. family members, in terms of being paid, kids not being paid, the spouse having another job and there is no minimum investment, but realistically you’re going to have more than a $7,000 on most..

FP: It really depends – I wouldn’t want anyone listening to this to focus on how much they’re going to have to spend, because it really depends on the business. So, don’t let that be your focus. By the way that was a great summary. There’s really not a whole lot for me to do. The only thing is, and this is sort of the key point with the investment, the key point on what an investor needs to focus is what the potential profitability of this investment within 5 years is. That’s really the key point, because if you have something that’s got a profitability factor, and it doesn’t need to make a lot of money like I said we’re talking about minimal living requirements, which I characterize as what I call hard living cost. This isn’t what your actually spending to live in the United States. This is what it’s going to cost to put a roof over your head, and to feed yourself and your family, and pay utilities and gas. So, for example, I have clients who already own a home here, so they don’t have a housing expense. But, the bottom line is, they may only need $1,000 or two per month for their minimal living costs, which means that that investment, at the end of the day, doesn’t have to generate that much profit for it to work.

EO: To close out, this really is not suitable for the European restaurant chain that wants to expand, like “Pret A Manger” the great UK sandwich shop or some of the other chains (Porcão – Brazil, Señor Frog’s – Mexico, Coffee Republic – UK, Giraffas – Brazil) that are going to be establishing over here. Why don’t you give a 15 second overview of what we’re going to talk about next time?

FP: Okay, next time we’re going to talk about the L1A Category. It’s for multinational executives, so that’s where somebody who owns a business overseas, creates a US subsidiary or affiliate and by doing so is able to transfer an executive or managerial person over to personnel with specialized knowledge. The big difference with that is that the L1A does have the ability to be converted to a green card at a certain point down the road.

EO: So, hold that thought, and we’ll come back to that with the next part of the series……