News

Landmark Links July 20th – Alternative Use

 

Lead Story…. Every once in a while I like to write about real estate related startups that seem interesting – either in a good or bad way.

As I’ve written previously, restaurants are facing a difficult business environment as upward wage and rent pressures mount and delivery services continue to eat away at the most profitable part of their business – booze sales.  Far from being the savior of retail as they are frequently portrayed, I believe that restaurants are entering a period where their margins will be under even greater pressure once we hit a period of economic weakness.  One particular area of concern for restauranteurs is the demise of business lunches, leaving many upscale establishments formerly reliant on the expense account crowd in a bind where they can’t cover overhead due to slow traffic if they open before dinner.  As a result, more restaurants are staying closed until dinner but rent doesn’t get pro-rated only to times when the establishment is open, making the slope to break-even all the steeper.

So what’s a restaurateur to do in the face of revenue and cost pressures?  A new startup called Spacious with locations in NY and SF has a plan to marry underutilized restaurant space with the need for cheap and flexible office space.  From The Seattle Times (emphasis mine):

The company that laid the extension cords and power strips across Elite Cafe’s copper tables is called Spacious. Since it was started two years ago, Spacious has converted 25 upscale restaurants in New York and San Francisco into weekday work spaces. Membership, which allows entry into any location, is $99 a month for a year, or $129 by the month. With $9 million in venture capital it received in May, Spacious plans to expand this year to up to 100 spaces.

A restaurant makes for the perfect conversion, the Spacious team argues. Bars become standing desks. Booths become conference rooms. The lighting tends to be nicer, less harsh and fluorescent, than an office, and the music makes for a nice ambiance.

Originally, the founders of Spacious thought they would have to sell restaurateurs on the idea. Instead, restaurants, struggling to pay rent and wages and frustrated with disappointing lunch traffic, are coming to them, eager to strike deals for a slice of the membership dues. Only 5 percent have made the cut to become Spacious spaces, said the company, which is unprofitable.

Spacious is part of a broader debate over how to use spaces in cities as people increasingly buy items online instead of in stores and as labor costs make restaurants an even more challenging proposition. A membership model is the future for bricks-and-mortar spots, according to the Spacious team, and restaurants are the easiest first step.

“Actively consuming isn’t what we want to do with the space in our neighborhoods anymore,” said Chris Smothers, 30, a Spacious co-founder and its chief technology officer. “Retail spaces are designed for you to come in, make a transaction and get out, and that’s why you feel weird in a coffee shop all day, because all of these spaces are designed for you to leave.”

As stated several times previously, I’m not a big fan of co-working business plans that take on long term lease obligations and invest their own capital into tenant improvements yet rely on short term revenue – all while offering premium services.  This idea seems different in that restaurants – who are desperate for revenue to cover their costs are much more likely to cut tenant-favorable deals than office landlords who are experiencing high demand and low occupancy.

One aspect of Spacious’ business plan that I find interesting is that it’s not exactly high tech – at least by today’s startup standards.  Yes, there is a website that allows subscription purchases, shows locations and provides real-time data on how busy each one is, but other than that it’s mostly just sandwich board signs, power strips, wifi networks and coffee.  One of the hallmarks of recent successful startups is the monetization of excess capacity in society – whether than means seats in a car, bedrooms or server space.  Underutilized restaurant dining rooms certainly seem to fit this category and the result is potentially win-win: restaurants generate some revenue without any additional overhead and workers get access to a flexible work space for substantially less than half of what WeWork would charge for a hot desk.  The company isn’t yet profitable but has raised $9mm in venture funding and I think its one to watch as monetization of excess building capacity becomes more mainstream.

Economy

The Long Wait: Inflation is once again eating away at gains in nominal wages casting doubt as to when real growth will finally materialize.  See Also: America’s wage crisis no longer looks temporary.

Hang Loose: Despite much hand wringing, monetary policy is still incredibly accomodative by historical standards.

Commercial

Space Wanted: US warehouse supply is at it’s tightest level in two decadesSee Also: Industrial land prices are near parity with multi-family prices in some markets.

Tag Team: Walmart and Microsoft are deepening their tech partnership in an effort to compete with Amazon.  See Also: Amazon’s share of the US e-commerce market is now 49% or 5% of all retail sales.  And: Google takes aim at Amazon with it’s $550mm investment in Chinese e-commerce giant JD.com.

Residential

Missing the Mark: Housing starts fell 12.3% last month on a seasonably adjusted basis, missing projections by a wide margin and dealing another blow to a housing market struggling with an acute shortage of properties available for sale.

Profiles

What Really Matters: Time (and how you use it) is the most valuable asset in the world and it’s not even close.

Authentic: Contrary to domestic opinion, Chinese tech is not an imitation of its American counterpart, it’s in a universe all it’s own.

Titans of Junk: Masayoshi Son, Elon Musk, Michael Dell and European telecom mogul Patrick Drahi have leveraged their companies up to their eyeballs in risky debt, making billions in the process.  However, the Federal Reserve’s rate hikes are bringing new financial pressures that could lead to disaster.

Chart of the Day

Home buyer sentiment is tanking

WTF

Like a Boss: A Memphis man stole his date’s car and then used it to pick up another woman and take her on a date.  Does anyone know when Man of the Year nominations are due?

Gotta Hear Both Sides: A Texas woman was arrested for biting off another woman’s nose and swallowing it after getting in a drunken dispute.  Mike Tyson was unavailable for comment.

Plan Ahead: A man who purchased a guillotine at a French auction is now having a difficult time figuring out what the hell to do with it.

Finger Licking Good: A man was arrested for swinging a boat anchor a group of other men due to a dispute over grilled chicken on the 4th of July because Florida.  Also, because Malibu rum, apparently.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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