Written by Mike Kriel, CEO of Launch Workplaces
In 13 years of opening and running coworking locations, I’ve watched more deals fall apart at one single, specific moment than at any other point.
Believe it or not, it’s not during negotiations or over agreement language.
It’s actually usually in the window between picking an operator and actually opening the space.
Most landlords don’t know what to do with that window, and that’s the problem.
The gap between signing and opening is where your capital conversation should happen
Once you’ve selected an operator, there’s a critical set of questions that need to be answered before anything moves forward:
- What does it cost to get your space to the operator’s standard?
- How long will it take?
- What return can you reasonably expect once it’s done?
These aren’t abstract questions. They’re the ones that determine whether the deal makes sense.
The right way to work through them is to physically walk the space together, office by office and wall by wall, alongside your ownership team, the operator, and someone who can speak to design and construction.
You don’t need to plan a gut renovation. The name of the game is figuring out the minimum viable investment to get the space where it needs to be based on the operator’s standards.
Maybe the offices are 120 square feet when the operator would prefer 110. Is it worth knocking down walls to move them two feet? Probably not.
The goal is a realistic scope, not a perfect one.
How ownership and the operator build the numbers at the same time
Once you’ve walked the space, two things should happen in parallel:
- Ownership prices out the work and comes back with a capital number.
- The operator builds a pro forma based on the same walkthrough and comes back with projected returns
Then you mash them together and ask the big question:
Does this thing make sense?
In most cases, the capital requirement is a fraction of what a market TI deal would look like.
That’s the good news.
Getting a second-generation space to operator standard at $30 to $50 a foot, rather than $150 or $200, is a very different conversation than a traditional lease negotiation.
But the returns are different too.
This isn’t a market rent with 3% escalators. You’re trading some yield for everything flexible space does for your building:
- Activity
- Tenant growth
- The ability for companies to shrink and expand without leaving
For the right building, that’s a good trade. For some owners, it isn’t.
Why misaligned expectations in this window kill deals that should have worked
The deals that blow up in this window are almost always about misaligned expectations on one side or the other.
Either the capital requirement comes in higher than ownership expected, or the projected returns come in lower than they were hoping for, or both.
Neither of those outcomes is a failure on its own. They’re just the reality of the deal in front of you. The problem is when owners and operators skip this step, or rush through it, and only discover the gap once they’re too far in to walk away cleanly.
Do this work early. Walk the space. Build the pro forma. Put the numbers together before anyone commits to anything they can’t back out of.
That’s how you avoid becoming another story about a deal that should have worked but didn’t.
For a full breakdown of how to structure a coworking deal in your building, download the Commercial Landlord’s Guide.
