When Newport Beach-based Real Office Centers couldn’t pay the rent for several of its Orange County co-working spaces, its landlord, Irvine Co. was faced with two options: evict ROC and all of its sublessees or find another co-working company to provide a seamless transition.
It went with the latter, choosing Irvine-based Premier Business Centers, which has staked out a reputation as a responsible manager of co-working spaces since 2002.
How ROC Unraveled
All of ROC’s co-working spaces in OC have been at properties owned by Irvine Co. In June, ROC Chief Executive Ron McElroy told the Business Journal that he hadn’t paid rent for April and May because of a variety of reasons, including a “very aggressive” expansion plan with the expectation of securing a significant capital boost from an investment banking firm. That never happened, and the company found itself extended “well beyond” its operating budget. He also said the company sustained “huge losses” at its two Santa Monica properties—blaming a “continued negative drag from the hampered 604 Arizona site” in that city for the losses at that property.
ROC’s financial woes caused the company to be evicted from its other Santa Monica property and led Irvine Co. to file lawsuits to evict ROC from all of its OC locations.
In June, ROC and Irvine Co. said they were trying to work out an amicable solution before a scheduled June 12 trial date in Orange County Superior Court.
ROC has now voluntarily terminated its lease at three of its four remaining OC locations: 23 Corporate Plaza in Newport Beach, 15615 Alton Parkway in the Irvine Spectrum, and 120 Newport Center Drive.
The only location that ROC continues to operate is at The Vine in University Research Park. ROC occupies approximately 21,628 square feet at this location at 5151 California Ave. and uses an outdoor area in the back for networking events, pitch contests, investor forums and social events.
McElroy has not responded to requests for comment from the Business Journal since June.
Evolution of Premier
Irvine-based Bascom Group LLC, a real estate investor best known for its large apartment portfolio, created Premier in May 2002, when it purchased the bankrupt American Office Centers, which had been based in Irvine. At the time, American was managing office space at nine locations. Like ROC, Premier focuses on co-working spaces exclusively.
Premier has grown to 90 locations in 11 states plus Washington, D.C., with about 1.5 million square feet of leased or owned space. After taking over the three OC ROC locations, Premier now has 23 locations in OC with a total of about 500,000 square feet.
The company doesn’t disclose its financials, Chief Executive Jeff Reinstein said. Its clients run the gamut: from small entrepreneurs to professionals, to Fortune 500 companies in technology and financial services.
Premier also took over a roughly 13,000-square-foot ROC location in Santa Monica at 1541 Ocean Blvd., a building owned by Santa Monica-based Paseo Del Mar Group LLC. ROC was evicted from the location at 604 Arizona in Santa Monica. The owner there is Hudson Pacific Properties.
Premier’s been busy this year outside of stepping in for ROC. It took space at 260 Newport Center Drive, a five-story, roughly 25,000-square-foot center; a co-working space in Mount Laurel, N.J. of approximately 21,000 square feet; and a Beverly Hills space of roughly 15,000 square feet.
Staying in the Black
Reinstein said that most companies in the co-working realm that have run into financial trouble either took on too much debt, expanded too quickly, signed too many master leases at “top-of-the-market” rents, or took too much space at an individual location.
“Premier Business Centers has avoided debt by financing acquisitions through our cash flow or occasionally using seller financing,” he said. “We currently have no debt. If we can’t fund a deal with our cash flow or the seller won’t allow us to pay the purchase price over time, we will pass on the deal rather than taking on third-party debt.”
The Great Recession turned out to be a boon for Premier, Reinstein said. The company showed restraint during that time, not signing any deals for new locations between February 2007 and April 2009, because rents seemed too high and landlords wanted more than Premier was willing to pay, he added. Since April 2009, when rents started to drop, Premier was able to double the size of its business, he added.
“Our profit suffered short term, but the Great Recession ended up being the best opportunity I’ve seen in my career in this industry to grow a business like ours,” he said. “It’s very painful to honor the master lease when we are losing money at a location, but our track record and reputation for honoring every master lease with every landlord whether or not the individual location was profitable made Premier Business Centers the preferred operator for many landlords.”
Over Premier’s 15 years it peaked at 117 locations. On average, the company has acquired or opened a new location every 46 days, Reinstein said.
ROC opened its first co-working space as the commercial real estate market was starting its recovery in 2011. At ROC’s peak, it had six locations in OC and 13 altogether, including San Diego, Los Angeles and Honolulu.
Other significant OC co-working operators include New York City-based WeWork, which last summer rented two floors of Irvine Co.’s office building at 200 Spectrum Center Drive. WeWork has become the king of shared work space firms, forming just seven years ago and now valued at about $20 billion based on a recent $4.4 billion investment from Japan-based SoftBank.
Tenant Reaction
One of the co-working tenants at 23 Corporate Plaza said the tenants there were surprised to hear about the transition from ROC to Premier. Tiffany Bowne, manager of the Newport Beach office of L.A.-based All Star Travel Group, said the company had recently increased its office space and as a result, “had even more to lose if we had to vacate with no notice and lose valuable security deposits.”
“We are extremely grateful to Irvine Company and Premier Business Centers for coming up with a solution to avoid any disruption to our business,” Bowne said.
Irvine Co. issued the following statement on Aug. 30: “ROC has voluntarily surrendered three office locations in Orange County … and Irvine Company has teamed with Premier Business Centers to provide a seamless transition for about 450 small companies that had been ROC customers.”
