This is a transcript of an episode of the LeaseSmart Podcast.
Craig: Hi! I’m here with Justin Belleme with the JB Media Group. I’m thrilled to have Justin here with us today because he has a booming company and lots of modern technology that he’s using with a bunch of millennials there who have special needs and who are doing things the modern way. I know that Justin recently purchased some office space and I wanted to see how that was working out for him.
Justin: Thanks Craig.
C: I’m so happy to have you on the line. So, I’m really curious because I read a lot about office layouts and some people absolutely swear by private offices and other people say “No, no, no. You need wide open offices and a mixture of types of space.” So we could start there. I know at your office you use the open layout. Has that been working out just right for you?
J: It has certainly been an adjustment and a work in progress where we are now. We started out in 2011 when I launched this company in a co-working space in the middle of downtown Asheville, North Carolina. We were also opening the company the same week technically that the co-working space was opening as well. I moved in a few weeks beforehand. I actually helped assemble the desk that we were using for our office. We actually started 4 desks and I chose one end of the room, one end of the co-working space, the most private space I could choose. We expanded into the space from the corner, the owner of the space had his own little agency, marketing agency. The other corner, he sort of expanded in the middle and he filled in the middle area with other telecommuters, startups, small businesses, solo-preneurs and small teams.
Then over time he built some private spaces inside that space then he outgrew that. We moved with him to a much larger co-working space that he purchased also in downtown Asheville where he had built a private, but still fairly small, space for us in the floor plan. The space that we had was very cramped from the very beginning. Actually, when I moved in to that second co-working space, was when I started thinking about buying my own real estate or being able to build something just right for us, but I was still in start-up mode so I couldn’t buy the perfect office.
I did buy a space that was unfinished so I got to design it. Basically for necessity I could fit more people without any private space except for conference room, storage closet, a bathroom and open kitchenette. So we built that way just to maximize the number of desks and now actually 2 years later we’re realizing that there’s actually some more limitations so we put a phone booth in the storage closet and we’re about to invest in more furniture to create a little bit privacy, a little more sound proofing inside the space, but when I bought it, I didn’t have the funds to buy the type of furniture or dividers that I really would have liked.
Now I’m realizing we really need them as we’re growing. We’re starting to really fill up the space even more. We’re deciding that we need even better furniture and better sound proofing inside the space but ideally, I think if I had unlimited resources, I would buy something one and a half times to two times the size of what we have now. I would have some semi-private nooks with more dividers where people could work and some more meeting spaces. We ran into a problem; our conference room is pretty cramped when we have our full team in it and there is only 1 conference room so we can’t simultaneously have an internal meeting and an external meeting at the same time.
C: Okay so you are hitting the nail right on the head for our listeners as far as if they were to design some space today. It sounds like then you do need combination of space. You like the open floor plan because you can put more people in it. I’m assuming that you also have good collaboration and exchange of ideas in that open space, but you do require some private quiet spaces also. Would that be true?
J: Yeah. We don’t have any right now except for the conference room which is actually where I’m making this call from and sometimes I find myself “camping out” in the conference room and working between my meetings, I’m often the one who has the most meetings and being the Director of Strategy, Director of Sales and running part of the operational side of the business, I’m in a lot of strategy meetings. I’m in a lot of sales meetings and I’m in a lot of management meetings where I’m coaching people one on one.
C: Do all of those meetings need to be private or are they just convenient to do while you’re already there?
J: Some of them have to be private, others can be non-private but the problem is that doing those meetings out in the open would be a distraction. We have an extremely open floor plan so we don’t even have semi dividers between desks. It’s almost like people are sitting at a cafeteria table across from each other, which is the inherent problem with our layout. There’ is not semi-private seating and it doesn’t leave much room for people to personalize their area. There are some advantages with that, and we have some desks that are basically flex desks that interns or part-time staff can use. We have a lot of standing desks that are not big enough to personalize. People can use them as they want. From Amazon we even have a couple of bike desks, which are basically exercise bikes with a platform for a laptop and people choose to use those when they’re doing some sort of work like writing content or research where they want to get a little exercise while they’re working. We have 2 of those and we have a bar that is a semi-circular, quarter circle that people can stand at. I stand there sometimes. We bought some floor pads to help people have a easier time standing.
We have a minimalistic style and design, partially for budget reasons, so when I bought the space it was a stretch to come up with the down payment and I had to finance some of the furniture and I just didn’t want to go overboard with all that.
C: Sure. Our budget always matters so that’s understandable. If you were to do it all over again, I guess you would do some sound proofing right upfront and a little bit more of a mixture of privacy. You know I saw a video of Facebook’s new headquarters. It sounds like they have a set up a lot like what you’re talking about, from what I saw, although they do have plenty of private little nook areas to go sit down and have some other quieter conversations.
J: Yeah I’ve actually toured Facebook. Their center in North Carolina where they have a lot of staff; they do have desks for about a hundred people, but they don’t have a hundred people there very often and they have an open floor plan. Similar to ours except that they do have half dividers between desks at least on the backside. That’s the number 1 thing that I should have purchased 2 or 3 years ago is 24 inch or 30 inch foam or particle board dividers that could be attached to the back of these IKEA desks that we have, to give people something to stick things on, put pictures on it and have at least a visual and audio barrier. This is what we’ll likely get next, but we may have to upgrade the desks at the same time as well.
C: I hear you on the noise factor and it sounds that personalization to you is very important to your employees?
J: I don’t know for sure how important it is. It’s not that important to me personally but I do notice various people have their own stuff on their desk to some degree, and not having anything to stick stuff to, makes it hard, considering these are fairly small, very plain IKEA desks which we use. The style of desk we purchased was budget related, so there was limitation there.
C: What about your chairs? Are those working out for everybody? Would you recommend our listeners do what you did regarding chairs?
J: No, I wouldn’t. My chair selections were also very much a budget decision when I first moved in. We needed 25-30 chairs then; we have a lot more than that now. We needed quite a few chairs and I went with the cheap option because I was already over budget on construction by 20% or so.
C: What kind of chairs now would you recommend?
J: I don’t know. I was actually talking to someone about that over the weekend. You know I’ve read a couple of really interesting leadership books and business books. One of them was recommending spending $500-$700 per chair and going as cheap as possible on desks.
J: I chose one step above rock bottom on the desk and the chairs just because I didn’t want it to look cheap but I wanted it to be as inexpensive as it could be. Now, we’re probably going to take a step up on desks and take a step up on some of the chairs for this full time staff in the next year, just for people to have better quality equipment.
C: Now, what is your average age of employee?
J: I think it’s 30 – 35 much. It is basically my age. I’m a little under 35 and our average age range is late 20s to early 40s.
C: Okay, now what about standing desks? Are you playing with that at all?
J: Yeah we have some of these high tables which we got from IKEA that are wooden. We’ve got 2 or 3 of those. We bought a real standing desk similar to a receptionist’s standing desk.
C: Now, what I’m really interested to know is, is this very popular and do people just love standing for long periods while they work?
J: Yeah it’s increasingly popular because of how much better it is for your back and just your overall circulation and energy. I’ve been trying to do it more. To augment that, we purchased some equipment, some really inexpensive laptop and keyboard stands that we can use to modify a regular desk into a standing desk. I have that at home. We have 3 or 4 in the office. People use those as well so that they can sit down at their desk and they can stand up at the same desk. Those are about $200. You can get the full set up including the external keyboard, the keyboard stand and laptop display stand as well.
C: Okay. So the important part here is that you’re finding it worth the money. People are enjoying it and using it, it’s not just a fad or an idea that might not work.
J: If anything I would expect to continue to increase this type of furniture as the folks in our office maybe get a little older and start feeling some aches and pains. That’s what happened to me. I struggled with back problems since high school, but I was realizing what role my schedule was playing in that because I spend so much time sitting. The biggest problem for me is that I spend so much time in meetings and I feel that I have to sit for those meetings even if I do stand for all of the time I’m otherwise working. That might only end up being a couple of hours a day.
C: Right. Well I know if I came to meet with you, I’d be wanting to sit down, and I wouldn’t want you standing over me. Although maybe we could go for a walk around your office; I know you have a nice setting there so that works. Now before we get off the topic of the standing desk, do you need your employees to wear special shoes or have special pad or anything or do they just stand there in normal work shoes?
J: People stand in the shoes that they bring. We have a pretty casual office so people aren’t wearing high heels to work. They’re wearing comfortable shoes, but we have bought 1-inch foam mats that go on the ground. Those are critical, otherwise your feet start hurting after a couple hours of standing up.
C: Alright. That’s good to know. Let’s talk about your location. Why did you pick the location that you did?
J: When I was in the co-working space, in the center of downtown Asheville, I initially started looking somewhere close by. Actually I looked for what I felt I probably could afford, looking at size and looking at the number of people and the number of desks we felt like we needed. I was looking at 4-5 times the amount of space we had at the co-working space because we needed to duplicate public space, meeting space, things we were sharing with other co-workers. I wanted to do something that would be a good investment. I wanted to do something that I could get equity in by just being there. So I could borrow against that if I needed to and have some collateral assets for future financing from my own asset building process. So I was looking more for something that would have long-term value and stretch my budget to the maximum of what I could afford; get the most space with the most value with the most upside.
So I looked at three or four different spaces in just as many different parts of town. Two of them were downtown in older buildings that were pretty much in the middle of the action. The upside was probably not as high. They also needed more work and more headaches down the road with repairs and upgrades because of the age of the spaces. The per-square-footage was expensive because it was downtown and the other big challenge was parking. With hidden costs like parking passes or day parking for the whole staff, higher propriety taxes and higher potential long-term costs of maintenance everything started looking prohibitive.
So, I started looking at some newer structures in neighborhoods that looked like they were going to be getting more popular, having more developments, more housing being built, more restaurants and shopping being built that would increase the value over time and increase the multi-model use of the space over time between office or retail. I know that square footage for retail is higher from a lease perspective so if I’m trying to lease out my space in the future, I’m looking for something that could be used for both. So I looked at only two spaces that met that criteria outside of downtown district. One was overpriced and had some tax credit situation where it couldn’t be released into an actual sale, it had to be leased-to-own that didn’t serve as very well. Then, the space I ended buying which was in a depressed project that have suffered through the recession, but it looked like the area was about to turn around. It was the right price. It was unfinished so I could make the space what I wanted it to be color and design wise from scratch, which made the price go way down but I had to borrow and do a construction loan.
C: Okay so basically it just worked out from a financial standpoint. It was an opportunity to own a building, build some equity and it wasn’t so much about the location decision. I know with a lot of location decisions it’s all about the employees, or at least it’s supposed to be, sometimes it doesn’t work out that way: keeping them happy, hiring and retaining, etc. Has the location your picked worked out well for hiring and retaining quality employees?
J: Yeah it has. There’s a little bit of coincidental nature to this but one of the places that I was looking at, the one that was lease-to-own was even more convenient for where I was living at the time. That was one that appeals to it; I could have walked to work. It was also even more centrally located between our folks who live south of town, east of town and the majority of our staff lives on the west side of town and the first place I looked at was right on the west side of downtown so it was close to the west folks but sort of near the main corridors that go south and east.
C: So how many people that walk to work and bike ride to work, and do you feel that’s important to them and helps build loyalty and job satisfaction?
J: Yeah, I think that right now we have two or three people who are in walking or biking distance and that one of them bikes everyday. One of them walks a couple of times a week at the most. Another one runs, bikes or walks a couple of times a month but I do think that the walkability to west Asheville business district, north Asheville main street is really beneficial. I think a lot of people can go to lunch without driving. Which is probably equally important. Another thing is that within a mile there’s 10 or 15 restaurants and within a mile after that there’s an unlimited number. So that’s helpful and I think that of the four locations I looked at, this one’s got the most walkable shopping and dining of all of them. That’s been helpful. I think that also it’s really helpful for the value of space as well.
C: Right. That’s good to know. Also when we get to amenities there, too. You’re not in what would be considered a real big city. What about public transportation? Does that have any impact on your employees or customers or anybody coming to or from your business?
J: We are located on a bus stop. The bus stop is directly outside our window. That was a benefit when we saw the space in case we have employees who wanted to ride the bus. We never had a client come in on a bus. So far we haven’t had any employees coming on the bus but we happen to have a bunch of interns coming on the bus. So we could have a college student at the university get here without a car. And for high school students, we have high school interns every summer, they can get here from any of the housing projects, any of the developments, or any neighborhood, really. They’d understand the bus routes. We do an internship program for the City of Asheville that tends to favor really bright children, kids within the public housing and under-privileged neighborhoods, so they’re able to get a free bus pass through the internship. They can get here on a bus. It’s an option and quite convenient that we are located on a major route. So it’s good.
C: Sure. This may be out of left field, but do many of your employees bring animals to work, like dogs?
J: We’ve had two staff in the past. Right now I think we have one in the office today. So yeah, it’s definitely convenient to have a dog in the office.
C: What do you think about having dogs there? Is that a real good thing or negative in any way, neutral? What does that do for loyalty and ambiance, etc?
J: I think it’s nice. Occasionally, the dog will bark at someone walking by, but it’s not that big of a deal. That’s only certain dogs. Some of our dogs in the office don’t bark at all. Some of them are a little bit more protective, especially when they see another dog being walked by the office. We have big windows and we’re on a major walking corridor so people walk their dogs by.
C: All the time?
J: Yes, especially at the end of the day.
C: You’re in a first-floor glass facility. It really could be, or is, retail. You’re using it as office space. You had more of a noise issue, I think, than average because of your exposed ceilings, your concrete floor, and your windows. It could hardly get any worse, but somehow you’ve made it work.
J: The reason why it works is because most of what we do is fairly solitary and digital work so people are typing, browsing, doing research, writing reviews and recommendations for people’s websites so it actually works out pretty well. If we had any sort of sales or bullpen-type setting it would be harder. We have one person who’s on the phone a lot with clients and on the phone with Google and other vendors we have fairly often and that’s why we created the collapsible shelf inside one of the closets where we would have people go to make phone calls.
C: We have got to rename that to the room pretty quick.
C: You’ve covered most of the questions that I had. My biggest interest is know if there is any advice you have for people who are out there looking for space. Things that you did right or wrong. Is there anything that I have forgotten to ask you that you think would be important to say?
J: Well for me, you know I felt like I had a good support team around me with real estate agents and financing. Because we were so small and so new to it I had to go to my 3rd or 4th option for financing and it came down to the wire. My biggest anxiety during the process was getting my financing in place and qualifying for a loan. So fortunately my agent suggested I ask for the longest possible due diligence period and I needed most of that time. I had three people lined up initially and actually I think it was my 4th option that worked out. So be prepared to get lots of loan packages together if you’re fairly small or new to real estate.
C: I think I remember giving advice similar to that to clients also. I just recently did some interviews with some other big companies, and it’s amazing how many people attempt this themselves when it’s not their expertise. I say, “Hey, fine with me, do what you want to do.” But, the feedback that I receive from them uninitiated on my part was, “I wish I hadn’t done it myself.” It sounds like you’re very happy that you did have expert help on this.
J: Yeah. I mean there was no way that I was going to walk into it without a real estate agent helping me, and it turns out my agent was the one who actually eventually got me in touch with the lender, but I tried through my bank where I had my business finances first and they gave me the impression that it wasn’t going to be a problem so that was my first mistake, trusting them when they said, “We can do this loan.” Later, they said, “No we can’t.”
Then the second hurdle was the fact that it was a construction loan. That made it more difficult. And, then the construction process was way over budget, which is typical; so I had to finance the overage myself with another bank and also dip deeper into my cash flow and reserves. I half expected it to be like that, but it’s still hard.
C: You’re hoping it wasn’t going to go over budget, but it does happen. No doubt.
C: Well that might be the biggest surprise take-away of this discussion, and I’ve seen it constantly, that your own bank doesn’t want to make you unhappy so it’s much easier for them to say “Oh yeah yeah! We can do that. Don’t worry about it.” Then at the end of the day they say, “Oh we can’t! Because of x, w and z.” By leading you down the happy trail they can leave you holding the bag, so to speak, and it would be good for all our listeners to realize that their own bankers, in awkward situations, don’t want to say, “No” but they may not be able to say, “Yes” and you need to get multiple sources of funds in motion so you’ll be able to close the deal. I guess that would be accurate, correct?
J: Definitely. With my situation, I realized that my banker referred me to their commercial mortgage banker in the bank, they both told me they thought they could do the deal, but it was the underwriters at the corporate office who asked for more information because of the size of the loan and the loan’s equity ratio and my cash flow. So, then I went to other banks and some of them said, “We can finance the purchase of the building but not the construction.” and others said “We can finance the operating capital for the construction but not the purchase.” I didn’t really want two different loans with different terms. It was all confusing and I wanted to borrow exactly what I needed for the project from one source.
C: Right. No doubt. I think everybody would. That would be another take-away. If people are new at this, they may not know that all the different lenders have just an enormously different amount of parameters. Why? Who knows? But you’ll need to find one that likes exactly what you do and make it happen through them.
J: Yes, that sounds right.
C: Okay, so this worked out well for you then. You bought something in a growing market. You did have to stretch I guess, but now you feel the value of your building is higher than what you have invested into it. Do you feel pretty good about your net worth?
J: Definitely! The following year, about a year after we bought the building, I did annual planning. I realized that we we’re going to need some cash for growth and the easiest way to get that was actually to get an operating loan, using the office as collateral, and I did that. We needed every dollar we borrowed from that effort. Now I paid it partially down. During that time, you know what happens, we bought into an approximately 10-unit structure. I’m the majority commercial owner but it’s actually more residential space than commercial space in the building so overall I own about 20% of the building. It was the only building on 4 acres and now there are six other buildings on the property that are complete that came after I bought my space. I think that buying into a depressed and stagnant project at the right time was critical, and though I haven’t had it reappraised, I think it’s probably already increased 30%-50% value in 2 years and a half years and I think it will be another 50% in the next 3 years. I even think 5 years in, I’ll be looking at 100% value increase if the economy continues the way it’s going. There are some examples that are better than that, but it’s outpacing the market because of the position of the project.
C: Right. Yes and there are a lot of examples much worse than that. So in this case, investing in your own real estate has and should continue to work really well for you. Great! Alright. Well I know you’re a busy busy man. I appreciate the time you spent with us today and we’ll let you go.
J: Thank you Craig! I appreciate the time and opportunity. Yes, absolutely. Look forward to talking to you again soon.