Co-working Is Changing Office Financing

Co-working office models are changing office financing, and not necessarily by choice. The popularity of co-working and flexible office leasing has forced lenders to develop new underwriting standards for these businesses. In some instances, co-working platforms, and the often household name clientele they attract, has a better credit than many smaller direct-lessees, and that can create a halo effect for office properties with co-working tenants.

“The way that buildings are financed is starting to change. Cap rates on office properties with co-working have a halo effect because that cash flow from a co-working operator is seen as high quality,” John Arenas, chairman and CEO of Serendipity Labs, tells GlobeSt.com. “It is a totally different situation than it was years ago.”

A big part of that is the quality of the brand’s members. Co-working companies like Serendipity Labs aren’t only serving start-ups that can’t get into or afford an office space. They are serving employees and project teams from major corporations. “I think that co-working operators are aggregating better credit than most small leases that a landlord would sign,” says Arenas. “If we have American Express and Netflix at a location, that credit quality is much better than a small law firm tenant than a landlord is going to sign in the building. That is the big picture of what is really shifting.”