Knotel by the Numbers
As a part of my regular weekly routine I go to at least one broker breakfast / lunch per day on average to preview space. Since I was in advertising for the better part of 25 years I try and figure out the unique selling point for each space.
This morning I went to Knotel's new space at 12 West 27th street. All of their spaces look similar, this is mostly due to they bought the furniture company they use. Of the half dozen Knotel spaces I've seen they all price out at a mid-nineties all inclusive deal.
This morning I was talking to one of their employees of how they justify their pricing from a quantitative standpoint to tenants vs. a direct deal. What I came up with was to compare it on a net effective basis with a direct deal with a landlord.
So if the Knotel deal is $97 / sf for a two year license. What is this number on a net effective basis, deducting all of the elements they pay for that you would have paid for on a direct deal. The following is what I came up with:
Gross Rent - $97 / sf
Less "Tenant Portion of build out (40%) - $150 / sf * .4 = $30 / sf / 2 = $15 / sf
Data - Electric - Operating Costs - $15 / sf
Property Taxes - $.25
Total Deductions -$30.25 / sf
Net Effective Rent - $66.75 / sf
The ownership of this building is asking $65 / sf and they are probably cutting deals at no less than $60 / sf.
On a apples to apples basis Knotel is looking good, but wait quantitative analysis isn't the end all be all what about the intangibles. Many of the tenants that are leasing Knotel spaces are fast growing start-ups or rapidly expanding divisions of larger companies. When they outgrow their current space they can transfer their license to a larger Knotel space with minimal moving costs. Also, what is the pain point of having to deal with the office manager's role. In a direct office space this role is either assigned to someone or the owner deals with this role or an office manager is hired with all of the costs involved.
A net effective deal of $66.75 / sf is looking pretty good right now, right?!? Well why isn't everyone signing up with Knotel / why isn't every space a Knotel space? Knotel services a tenant segment called TAMI (Tech.Advertising.Marketing.Internet). The spaces do not work very well from a layout perspective for other kinds of tenants like FIRE (Financial Services.Insurance.Real Estate) or law firms, accountants, recruitment companies. These tenants like private offices Knotel does not provide.
If your lease is coming due in the next two years then let's set up a meeting to go over your options and develop a plan. Remember people don't plan to fail they fail to plan.
Michael Adler - 212-687-5154 x. 133