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Shared-Space Survivor

TechSpace Inc. was WeWork Inc. before WeWork was WeWork.

The Aliso Viejo-based shared-space provider, whose roots date to 1997, can take claim as being one, if not the first, national firm to offer cutting-edge, amenity-heavy flexible work space to smaller companies.

“We always wanted to be the solution for small- and mid-sized businesses and their owners,” said Chief Executive Vic Memenas of TechSpace, which has nine locations across the country, including two in Orange County that total about 80,000 square feet.

The company ranks No. 5 on this week’s list of Orange County’s largest coworking space providers, based on square footage leased in the region (see story page 1, list page 13).

The overall value proposition for companies like TechSpace has always made sense, although how individual coworking space operators go about their business can vary, Memenas said.

“If you are an entrepreneur, you don’t have the expertise or time for legal matters [in a lease], or have the brokerage experience,” said Memenas, who serves on the board of directors of OCTANe, the Orange County life sciences and technology accelerator.

“How can an entrepreneur expect to do a five-year lease? They can’t project that far ahead.”

TechSpace and its peers rent out office space with long-term leases, then sublease it for a month, quarter or year at a time.

A typical customer at TechSpace stays at the location for 2.7 years, Memenas said.

The flexibility that coworking spaces offer is a big draw for tenants, many of which don’t necessarily need dedicated office space, Memenas noted.

“Because of technology [improvements], they don’t have to go to an office—they can stay at home.”

That’s where the amenity packages and customer service play a big part in the success of a coworking operator, Memenas said.

In the case of TechSpace, the goal is to bring hospitality-like services to the traditional office model, he said.

Costa Mesa Makeover

Last week Memenas gave the Business Journal a tour of TechSpace’s Costa Mesa location, a two-floor spot at C.J. Segerstrom & Sons’ 3420 Bristol St. at the intersection of Bristol and Sunflower Avenue across the street from South Coast Plaza.

It’s the largest tenant at the seven-story office, which is getting a major makeover by its owners, with the goal of modernizing the 1960s-era property and adding a number of tenant amenities.

The upgrades will bring 3420 Bristol’s exterior and ground floor in line with the interior of the TechSpace offices, which sport a variety of creative-office flourishes now becoming the norm across OC’s higher-end office market, including open areas for impromptu meetings, plenty of glass and windows, and shared meeting spaces.

TechSpace moved to Costa Mesa in 2012 and is about halfway through its initial 11-year lease of about 30,000 square feet.

The space is more than 90% occupied, according to Memenas. Tenants include a variety of technology, marketing, finance, and healthcare-related firms, which currently pay about $850 a month for a one- or two-person office and around $5,000 a month for offices that can hold 10 or more people.

The individual offices at a coworking location are much denser than your typical fully occupied office.

A few years ago, typical class A office space in Orange County averaged about 225 to 250 square feet per employee.

That figure has shrunk over the past few years—150 to 180 square feet per employee isn’t uncommon at some locations—as open workspaces and fewer traditional offices allowed businesses to fit more employees in the same amount of space.

TechSpace and other coworking firms often have customers that take up less than 100 square feet per employee.

Competition

The company’s not the only game in town anymore, with coworking options surging of late; the county’s base of shared-space providers saw total square footage jump nearly 20% in the past year.

New York-based WeWork, the country’s largest and fastest-growing coworking firm, set up shop this year a few blocks away in Costa Mesa at Irvine Co.’s Pacific Arts Plaza, where it occupies about 40,000 square feet.

Rents that WeWork is paying at Pacific Arts Plaza are believed to be in excess of $3 per square foot, and are estimated to be at least 25% more than what TechSpace pays for the 3420 Bristol space, commercial brokers tell the Business Journal.

WeWork’s hyper-growth the past few years—in OC and other major markets—has resulted in plenty of national press, as well as questions about the long-term viability of the coworking market and its better-known operators.

WeWork, which is estimated to have some 14 million square feet nationally, this month reported a $723 million loss in the first half of the year, triple its loss from the year-earlier period.

Revenue for the first half of the year more than doubled to $763.8 million, according to the privately held company, which reports its results for bondholders.

It’s been estimated that nearly half of the country’s largest coworking firms aren’t profitable, according to Deskmag’s 2018 Global Coworking Survey.

TechSpace is profitable, said Memenas. “You have to be a good operator; it’s a management-intensive business.”

Making long-term leases poses a threat for some operators, assuming a downturn in the real estate market will come sooner rather than later, Memenas said.

“We’re in the 12th inning of a recovery,” said Memenas, who said his firm is looking at selective opportunities to grow. It also has locations in New York, Los Angeles, San Francisco, Austin, Houston and Arlington, Va.

Reinvention

TechSpace is one of the few coworking firms that navigated multiple real estate downturns.

The company got its start as Enfrastructure, and was backed in large part by Scott Blum, co-founder and owner of internet retailer Buy.com Inc.

Enfrastructure, armed with venture capital and ambitious growth plans, initially focused marketing its flexible work space and ready-to-use technology to internet and other dot-com-type startups.

The dot-com bust forced the firm to retrench, and the one-time incubator for technology companies began to evolve into a more traditional landlord role.

In 2002, it bought a similar firm based in New York called TechSpace, and rebranded the firm under the latter’s name.

The company’s operations remained solid amid the Great Recession, as a number of execs who were let go from other larger businesses started their own ventures.

The firm also benefitted from not getting ahead of itself in terms of inking leases at the top of the market, a strategy it’s trying to adhere to in the current market cycle.

“We want to build a business that’s profitable,” Memenas said. “If you get upside-down on rents when the market turns,” that task becomes nearly impossible, he said.

Memenas took over the top spot at the company in 2011 from James “Watty” Watson, one of the area’s best-known real estate executives.

Watson, who along with Blum remains an investor in TechSpace, stepped back from the firm to focus more time on CT Realty Investors, a Newport Beach-based company that’s grown into one of the country’s largest industrial developers. He’s currently a managing partner at the firm.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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