How to Buy a Building For a CoWorking Community
When setting out to launch a CoWorking community most operators don't purchase a building. Most lease space from a landlord on a long-term lease (5-15 years), and in exchange for this commitment landlords typically contribute some capital to pay for renovations (called a tenant allowance). That is the cash light and very sound way to get started building a space. We did something on the opposite end of the spectrum. We purchased our building. Why? Because, if you can figure out a way to swing it, it’s always better to own your real estate. It gives you options. You can stay for as long as you want, and ultimately, you need fewer approvals from others to get things done.
Here is how we managed to purchase VentureClub's first location at 275 Queen Street, Kingston with very little of our own money.
First, we found a site that was centrally located in our downtown. We knew that CoWorking spaces are most successful if they are close to transit, coffee, grocery, brewpubs, yoga, and/or a College/University. 275 Queen Street ticked all those boxes.
Next, we approached the owner of a building we liked. We liked it because it wasn't too old and not too new. It needed renovations but was unlikely to have too many surprises after peeling back the onion. I once heard that "Strangers have nearly everything you want, so go talk to them." We used that strategy, found out who the owner was, then dropped by their office to say hello. It took us three years of effort to negotiate a deal, and I'll leave that story for another day, but in short, patience is a virtue when seeking the best location and business terms for your CoWorking real estate acquisition.
Once we had a deal in place to buy the property, then we set out to find financing. It was not an easy task. Our deal with the Seller continued a vendor 2nd mortgage. (Basically, the seller would wait 24 months to get paid 15% of the purchase price) Few banks in Canada are keen to provide first mortgage financing for deals that have a 2nd mortgage attached to them on closing. The reason being is that they don't like the risk of the additional payments a buyer may need to make each month. Eventually, after much back and forth with several lenders, we decided to choose a more expensive option but one that would accept the presence of a 2nd mortgage and could close quickly. Why quickly? Well, one of the downsides of being turned down for mortgages and moving on to other sources is that you burn time. Our conditional period that the seller was willing to let us lock down the property was not super long (just a few weeks). In the end we found an expensive source of money, closed the deal and then focused immediately on replacing the expensive debt with a new less expensive mortgage that combined the two mortgages together.
Our permanent financing that replaced both the 1st mortgage and the 2nd mortgage was possible because we purchase the building at a good price. We were pleasantly surprised following an appraisal that we purchased the property nearly $800,000 under the appraised value. With this strong appraisal, we were able to approach a tier 1 Canadian bank and replace our expensive debt with an all-encompassing mortgage at normal (market) interest rates.
It was a stressful period, with lots of ups and downs. But over the course of three years, we got ourselves an amazing building, in a stellar location. We are super excited to welcome members who are motivated to build world revenue businesses. Please visit to say hello at 275 Queen Street, in beautiful downtown Kingston, Ontario, Canada.
By A.J. Keilty, President & CEO, VentureClub Inc.