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With Scott Orn

A Startup Podcast by Kruze Consulting

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Scott Orn

Scott Orn, CFA

David Bergeron of T3 Advisors on the Startup Real Estate Market Heading into 2019

Posted on: 01/08/2019

David Bergeron

David Bergeron

President - T3 Advisors

David Bergeron of T3 Advisors - Podcast Summary

David Bergeron, a second-time guest (!!!) discusses T3’s analytical approach to the 2019 Startup Real Estate Market, how bigger companies like Amazon, Facebook & Google are changing the market and the rise of Remote Teams.

David Bergeron of T3 Advisors - Podcast Transcript

Scott: Welcome to the Founders and Friends Podcast. This is Scott Orn at Kruze Consulting and today my very special guest is David Bergeron of T3 Advisors. Welcome, David.
David: Thanks for having me, Scott.
Scott: You are one of the very select crews of two-time podcast guest. Are you gonna go home and tell your wife about this? Or what? Throw a party? Or you go celebrate?
David: It’s instantly updating my Linkedin profile under accomplishments and awards, I believe is probably the first order of business. Second, will be certain to tell my wife, so yes, I’ll certainly do both.
Scott: You have a wonderful wife who I get to work with sometimes. I’m sure she’ll be thrilled.
David: Watch it, watch it.
Scott: When the Kruze newsletter comes out, she’s gonna be like “Oh, my god, my husband’s famous.” Wait, so you’ve been here before, but you have a really interesting career trajectory, where you joined T3 very early on and now built a huge west coast presence. Talk about T3, where you guys were when you joined. We met for coffee and that’s what precipitated this podcast, ‘cause you have all this cool stuff going on. Maybe talk about all the cool stuff.
David: Definitely. Again, thanks again for having me. Obviously, we’re a huge fan of what you and [Vanessa] have built here, and it’s been infinitely valuable to my wife and her company, as well as to a whole host of our clients, and a number of companies out there that are trying to navigate this world in very difficult ways. Trying to grow their business, focus on people and their product, and you guys have provided a pretty amazing solution. So, thank you for having me.
Scott: My pleasure.
David: [crosstalk] . As I think about our business, it’s a pretty simple world that we operate in.
Scott: Thank you.
David: The ethos and the reason that T3 exists is fundamentally for the people that are building these innovative-based companies. And, our fundamental belief is that pulling the right team together, creating the right environment, enables them to live and propagate the culture that founders and/or business leaders want to see put into motion. Which ultimately leads to a process developing a product that solves problems for end users, both in the enterprise and consumer stages, is where we wanna play. And that’s where we wanna be active and solving hard thrashy problems and coming up with creative solutions to fast track these companies to success.
Scott: You guys are an expert in a very unique component of a startup’s lifecycle. You guys know real estate better than anyone, just in the same way you know accounting and taxes. And so you can be incredibly valuable to these companies because they have instant access to an expert. It’s really cool.
David: That’s right, and we believe that that space helps you retain your best people that you found your company with. It helps you develop an environment that attracts the next subset of experts and practitioners that are gonna push you to those and through those next milestones. And, it can be the most physical manifestation of your brand and your culture. People walk in, whether they’re investors or future new hires or customers, and they can experience what it would be like to be active in your ecosystem in some way, shape or form, in a way that really has a very strong cerebral effect on that human. There’s a very core basic human element to what we’re doing. You can look and touch and feel real estate in a way that so many things that we have to deal with on a commercial basis you can’t. We love that element of it. There’s certainly an art to it, relative to the magic of the founder and that being lived through in the brand and that’s different for every company. But there’s absolute like science element and there’s a lot of quantitative data points we can point to and look at that like companies have applied in either successful or unsuccessful ways, that we all should learn from.
Scott: Yeah, and you guys are doing it in, maybe like an old school industry. What I really like about you guys if you take all this data and the analysis you do and, you know the industry has maybe a normal real estate relationship [inaudible] but you also layer on a bunch of value-added services, which I think makes so much sense.
David: I appreciate that, and that’s the intent. The hope was when the founder started this company in 2001, was to go out and change the way that real estate has traditionally been delivered to founders and leaders of the most innovative and progressive companies on the planet. That was no easy task, but I do believe that there’s an element of doing it better. There’s this element of getting rid of the status quo and changing the stodgy, traditional closed room, smoke-filled room type of real estate dealings that we’ve seen glamorized and featured in Hollywood and others. And really making it much more exposed, transparent. Expose the data and the opportunities that each of these companies should have access to, and enable them to make their own decisions and empower them to have the information to make the best decisions for their companies at each point and time in the lifecycle.
Scott: You told us on the first one, but this is the quick version of you joining the firm. Didn’t you join at a terrible recession?
David: Yes.
Scott: Do the quick … It’s just good. It also just shows you no matter how tough things are, you can make it work.
David: I think that’s right. I came up here this morning after spending time with my daughter’s kindergarten class, and the principal of her kindergarten school was focusing on the eight or nine key components from the educational perspective they’re trying to push in the public schools today in California. And I loved how the top thing on that list right now is a bullet point, is this idea of grit and perseverance and getting back up.
Scott: That’s awesome.
David: I think there’s this element of 21st-century skill sets that go so much further beyond the traditional reading, writing, STEM skills. All these elemental things that we’re testing for through all the standardized testing and traditional programs have been designed for, but it often doesn’t get to that, which is again … I joined T3 coming off a very un-illustrious and un-celebratory NFL career.
Scott: That’s right, I forgot, yeah, you were playing for Philadelphia?
David: Yeah, I was drafted to the Philadelphia Eagles in the seventh round. I was almost Mr. Irrelevant, which is the last pick of the draft, so I would have loved to get that title because you also get a free car with that position. I missed that, unfortunately, by three or four picks. The Eagles were dumb enough to pick me up at the end of the draft. I spent a couple of years bouncing around with the Carolina Panthers and the Tennessee Titans. One of the great experiences that came from that was I was able to go overseas and live in Cologne, Germany, playing for the NFL Europe League for the Cologne Centurions and made some fantastic friends. It was effectively my semester abroad, if you will, which I couldn’t do when I was at Stanford because we were playing. I loved that whole experience, met some amazing people. The cool thing about the NFL is you get instantly embedded in its communities in ways that people that have been there for 50 years could never do. The access and the influence and the ability to be involved in charities and supporting community efforts and be hopefully a brand that people and kids can aspire to be like and act that way, in a local city, is awesome. Loved all that. Wish that translated more to the football field but, neither here nor there.
Scott: You were working with what you could work with.
David: That’s right, that’s right.
Scott: You made it farther than me.
David: That’s true, I did, I did. I then met Roy Hirshland, who, though actually my wife’s hands, [Will York], who obviously was a colleague of yours for a long time. She introduced me to Roy as an opportunity to go network with someone who had built an incredible business or was building an incredible business. And, was wildly well connected to both the tech ecosystem, as well as the venture capital community, that was an intersection that I was very interested in. I had no idea how or if I could add any value to that overall ecosystem, but was certainly intrigued and wanted to find a way to kick my way in.
Scott: You gotta find your first job and establish yourself.
David: Absolutely. That’s right.
Scott: It’s almost like no job at that point is a bad job. You just need to get in somewhere.
David: That’s right. Prove you’re not just a dumb weekend football player. Go do something.
Scott: By the way, it’s not just you. I was the same way coming out of college. I didn’t play football, but you just need to prove that you can show up to work every day and do something.
David: Someone’s gotta give you a shot, and that’s what that was. Roy, we sat down in what I thought was going to be a networking coffee meeting, and I budgeted 45 minutes for this meeting, thinking I wanted to be respectful of the CEO’s time. And fast forward, it was two hours later, I’m begging this guy to let me come work for him. I was just so compelled and inspired by, again, this connection and intersection of working with these tech companies and these founders at some of their most vulnerable stages, understanding and bringing down to scale some of the learnings they’d have working with some of the largest tech names in the business. And being that catalyst of information and best practices to focus on what we all believe and what Bill Campbell taught us early on when we met with him and worked with him a bunch was, people are what matter most, and getting great people to believe, follow, and trust is actually harder than it sounds. So much of that can be confirmed and reiterated through real estate, and the decisions you’re making to invest in your people, through the lens of real estate, can be wildly powerful. I just loved the thought of that, and the physical nature of space and be able to tangibly look at it and admire the beauty of it and identify the efficiencies as well as this whole subcultural hard-to-measure-but-everyone-knows-it’s-there influence what happens when you try and grow a team.
Scott: There was a really good discussion there. The thing I love what you’re talking about, helping people at their most vulnerable or when they really need to make a decision, that’s what I actually love. We were just talking about this before we turned the mics on, when you walked in I was talking to a founder about whether they have an acquisition offer and they are raising money, and which one do they do? That acquisition offer’s gonna make this guy … Like, put him on easy street, at least. Or, do you go for the billion-dollar business? Those are real fundamental people decisions and they really look to you. The same thing with what you do. I’m sure you have these crazy conversations with people where they’re trying to make a core decision around real estate and they really need you. And that’s what resonates with me the most, is the most important part about my job.
David: Yeah. We have a team of experts and people that have very, very deep domain expertise around a lot of these hard questions that founders will ask. My job, and our job, and T3’s job is to continue to accrue this, what I like to call, avengers of real estate approach to solving these very specific problems for that founder. And that founder can be running a 30,000-person company or a three-person company. The decision is just as big at that moment. Our job is to make sure we’re fully educated and aware and can provide just context, and supporting anecdotes on either side to say “Listen, if you’re gonna make this decision, these are the variables and factors that you and your management team and your investors should be aware of as they pertain to how this decision impacts you going forward.” And that’s our job, is to educate folks.
Scott: Talk about your process, ‘cause you do have access to a ton of data and you guys use that heavily in your process. Maybe walk me through how you do that with a founder. How do you distill it down? How do you make sure they get the key message? And do you use anecdotes? Often, that’s what I do. I say, “Hey, here’s a time in my career where this is similar to you.” You have the combo of both, you have a ton of experience and a ton of data. How do you get that work?
David: That’s 17 years in the making, and that’s part of what we’ve synthesized down to our T3 method. It’s a very collaborative design-oriented, inspired by IDO spinoff type of idea, which is, there are a bunch of interesting variables out there. There’s a lot of anecdotal and observational experiences we needed to go through with you. We need to understand what the ultimate end goal is, whether it’s the end goal in the next six months or the end goal in the next six years. What are we ultimately trying to back into? And then us to overlay the realities of the market, the realities of your current situation, the realities of how you’re perceived from a financial perspective in the eyes of that landlord. [crosstalk] -
Scott: That’s interesting, I hadn’t thought of that, yeah, yeah.
David: Yeah. You can imagine, there are different profiles for different ownership groups. You and I buy a building, and we don’t have any money, and we don’t have any cash, so “Yeah, you wanna move in, great. I can’t give you any money for tenant approval now ‘cause I don’t have any money.”
Scott: And you wanna get them in as soon as possible.
David: That’s right, so there’s that landlord. There’s the private equity firm who goes out and they raise funds seven and they’ve raised a billion dollars and they’re trying to deploy it into strategic assets they can invest in from a CapEx perspective, improve, lease-up, and then flip seven years later. Understand that profile where they can give and take. And then there’s the long hold roots, the guys who were publicly traded. They’ve been around for 50 years, they’ll probably be around for another 50. They have a very different limited partner/owner that is looking for a certain type of return and a certain type of security, out of that kind of asset. You got to play the player, not the game. [crosstalk] -
Scott: That’s really interesting. I wouldn’t have even started with … I didn’t really think about that, the owner of the building that the startup is trying to lease. That’s a really good way of looking at it.
David: Very different. And you’re even seeing it in the size of deals that are being done. If you look back to the last couple of quarters of data, in San Francisco specifically, we’re seeing deals that are 10,000 square feet or in that 10 to 50,000-square foot range, none of your mega deals. Average lease right now sorts of in the $70 range, on an industrial gross basis. If you look at deals over 50,000 square feet, those … There’s almost like, I think, a 27% premium for the large deals.
Scott: Really?
David: Which doesn’t make sense from economies of scale perspective, like hey-
Scott: It should be the opposite, and I would think whoever’s leasing that is such a better credit …
David: Facebook, if you’re gonna lease all of Park Tower or 750,000 square feet, you’re paying one of the highest rates in the market, which is great credit. You’re taking my whole building. I can turn around and sell this thing and make a jillion dollars on it, and you’re gonna pay, let’s say, a top market number for that. Obviously, it’s a great product, [crosstalk] -
Scott: I can’t believe that. That’s how it works?
David: Again, it’s how it’s working right now. It doesn’t always work that way, but it is interesting that the smaller deals are being nickeled and dimed out more so to the startup community. Because there’s now so much demand internationally, frankly, both with homegrown technology companies from the Silicon Valley and San Francisco, as well as all the international players now wanting to be here, that everyone is trying to fend off the little guys and wait for the next Facebook to come along and take my entire building and make my career. There’s a lot of people trying to play that sort of shell game, which is fascinating to watch.
Scott: That’s amazing. Wow, that really shocks me because the amount of work it takes to lease up to an entire building with a lot of little guys like us is just monumental.
David: Totally.
Scott: But I guess, is it the premium that a Facebook or Amazon gets, having everyone in the same building and that’s what they’re paying for? Or the ease of use for them?
David: That’s right, and the reality of product with PropM still on the books for the last 30 plus years, you can only develop … San Francisco will only allow plus or minus 900,000 square feet of new commercial development to come online each year.
Scott: Oh, I didn’t know that jeez.
David: That’s, that’s …
Scott: That’s nothing.
David: A little over one Facebook deal a year, and so you imagine, you think about all of the big name companies now publicly traded trying to kick, scream and fight for the same talent and they have all have headcount trajections that have them doubling headcount in San Francisco. Are you really gonna hire 3,000 people in San Francisco next year? Good luck. But there’s also a bunch of other companies that have a lot of money, have a great product, have a great story, and are trying to grow in the same city, and it’s still seven by seven miles.
Scott: I know.
David: And we can still only build a million square feet of commercial space a year. We got 82 million square feet of proper commercial space, and [crosstalk] -
Scott: And next year it’s only gonna be 82.9?
David: That’s right. It’s like [crosstalk] -
Scott: That’s insane. By the way, as someone who’s trying to buy a home right now, I’m struggling with the same exact thing on the home buying front. It’s like, there’s no supply, it’s crazy.
David: No different. Which is why you’re seeing so many companies, I think intelligently, and we’re helping a ton of folks with this right now, it’s how do we develop our H2Q strategy similar to what Amazon’s done?
Scott: Ah, yeah. [crosstalk] .
David: And it’s been fascinating to work with dozens of companies looking at, we’re 1,000 people in San Francisco. We want to be 3,000 people in the next three years. We understand that that’s likely not gonna happen when we’re competing with the fangs of the world here locally. We need to now go to a new market and find a wealth of talent, a cost of living that’s a third of here, a direct flight within 90 minutes from SFO or Oakland, and potentially even a boat of incentives that we can come and receive for creating jobs in the [crosstalk] markets.
Scott: What markets are you seeing? On the small scale, we’re doing a lot more remote hiring, and it’s actually been working fabulously well because we’re just getting more talented, or more experienced people. Really, not talented, just more experienced, and for a lower price point. It really works for us. It’s a little harder for me in that we’re tilting the business that way, but I completely understand why these companies are doing that, the bigger ones. Where are you seeing it? Is it like Boise and Portland and Utah?
David: Yeah. It’s, again, it’s all the usual suspects that you can think of. We’ve hired a whole team of folks now that are doing just this. I mean, it’s an important enough issue and the numbers are meaningful enough to a bunch of our growing clients that we’ve taken this very seriously as, in some ways, almost the future when it comes to really intelligent real estate strategy around hiring and scaling a tech company. And you can be based here, and your core innovation team be here in the flow of all the things that have made this community an ecosystem so powerful from a progressive perspective of starting the next great idea. But the reality is, it’s just, to your point, the cost of living’s gotten insane, the traffic has gotten insane. The inability to actually develop fast enough is becoming stifling to the growth of these companies. They’re gonna have to iterate or die sooner rather than later when it comes to this problem. Basically, we’ve built an entire process and scorecarding system where we say “Let us sit down and really understand the 20 most variables that will impact the success or failures of this business going forward and look out five years.”
Scott: Very smart on the scorecard. I love scorecards.
David: Yes, love scorecards. Then basically overlay that with a bunch of proprietary information and systems we’ve developed and algorithms that come up with a methodology for … Of the categories that we are evaluating, you go down each of the 20 and you will start to narrow the funnel with every successive category to say “All right, we’re gonna start looking at 5,000 cities, and we’ll quickly get to six that actually satisfy 85% of your criteria.” And then, within that-
Scott: That’s cool, so you have a scouting report on each city?
David: Absolutely. It’s economically based, it’s talent based. We have the ability now to identify developers that can write in a certain code language and understand their poach-ability to leave to go work for a new company within the next six months at an 80% accuracy rate.
Scott: Wow.
David: This has gone from being, like taking census data that was done nine years ago to actually real-time intelligence around, not just the macro community you’re gonna enter in, but literally who are the humans we’re going to [crosstalk]?
Scott: That’s really cool.
David: This is changing-
Scott: Ultimately, that’s what it’s all … People are doing it to find talented people.
David: Absolutely, absolutely.
Scott: That’s really smart, wow.
David: And so, if we can do it in a way that you find the talent, which is the whole reason you’re doing it, at a lower cost basis and even gets money on top of that from the local municipalities or the state or the feds for going and creating these jobs, this a win every way you look at it.
Scott: Wow. Also, the other thing that I was pointing out to founders ‘cause sometimes founders, they want us to be in San Francisco, New York, or Santa Monica. We are, but I always point out to them gently that, tech founders specifically, are the best at adopting other technology for their business. Like Slack, Zoom, all these things that make working remotely but being very tight together work so well now, and everyone’s doing it. It’s really just a lot of preconceptions, is really what’s blocking more remote hiring.
David: That’s right. We build our offices and we build a lot of our corporate structures based on the way it was done before.
Scott: Yeah, exactly.
David: And by the way that dates back to the way the Catholic Church was structured and the way that governments were created. It’s actually fascinating to go back in time and say “Why do we have these here … Why is the Army structured that way?” It’s great to think about that. It extrapolates where we are today, what our version of hierarchy looks like and why. You’re absolutely right, all that’s being blown up overnight with, again, the advent of Slack and the ability to have a Zoom call. And the ability to tether to my phone in the middle of a desert, effectively, and have my MacBook Pro be humming full speed. This was not a thing even [crosstalk].
Scott: Even this podcast, I told you, you can just record from the peninsula if you want, remotely. No one’s gonna know. We will stare at each other on Zoom and it’s the exact same thing. Yeah, it’s everything.
David: But what that has enabled is, again, this whole change in how do we think about the workplace. And what is the value of physically being together actually, answering it in terms of enabling communication and collaboration? Are we actually working better together when we’re together? What are these tools allowing us to do in terms of diversification of geography but still be wildly productive towards those end goals around creating a great product or a great customer experience? The top’s been blown off of this, and you’re having kind of rewrite history around what does it mean to grow in scale. There are fantastic companies, Automattic and GitHub and others, who are proving you can do this at scale in a wildly efficient manner, and still, maintain an incredibly tight community and culture. I think, if you don’t have an answer for this stuff, you are gonna lose the best talent going forward, period. And not that everyone’s answer needs to be the same, but you need to be able to offer this to the next great new hire, because of everyone else or the other competitors that have job openings will, and you’re gonna lose.
Scott: Yeah, that’s amazing, I love it. That’s good. I love what you said the T3 method, too. That’s all this data analysis you’re talking about. Maybe just walk me through, I sign up with you, I’m a pre IPO company … What’s your target market? Is it pre IPO?
David: Our whole idea and concept are to be innovation-based companies that are trying to set out to change the world. Regardless of size, we want to be helping. That can be like I said, the three-person startup that just got their seed funding, but we believe has the right investor set, has the right founding team, is in the right market, and poised to experience that hyper growth and can really benefit from our knowledge base.
Scott: We do the same thing, yeah.
David: We wanna be there at day one. I don’t care how small the deal is, what the fees are. That’s the last thing we’re thinking about, all the way up to Fortune 50 companies that are trying to solve some really complex and specific problems …
Scott: That’s amazing.
David: … Around where to be and why, and how do we think about a lot of this center of excellence? How do we portray the right brand to all of our Fortune 500 customers in a way that does show that we’re not stodgy and stuck in the past? But we’re progressive and innovative and can think like that 25 entrepreneurs who are setting out to change the world, even though if we’re a 100-year-old company. And so, we have those guys coming to us all the time, asking for “Help us think about reinventing what we’re doing to stay relevant,” and there’s a reason that a lot of these old companies are still around. Like, there’s some that are still living.
Scott: That’s a great point.
David: And I talked the other day and [Diane Green] talked about this, she’s like “These guys have not died because they are willing to do this.” And historically we’ve assumed that they’re not or they’re gonna be the last to adopt, and if you really start to pull back the covers, you identify that some of these guys have been around for 100 or 150 years, have had to do this 20 times. They’re as good at this as anyone.
Scott: Even Amazon and Google have different business units that have nothing to do with their core businesses.
David: Totally.
Scott: That’s exactly how it works.
David: And Bezos talks about that all the time. He’s one of the best in history to ever step back and truly ask himself and answer the question “What business am I in?” And not be hardheaded around “I’m selling books, that’s all I’m gonna to do ‘til the end of time,” but really recognizing, “Am I in the logistics business? Am in the platform business? Am I in the data center business?” And these are all extrapolations of like, I will never, ever understand but you can now reflect on and witness that this guy was seeing around corners that no one else could see around.
Scott: As we record, the building across the street from us is the giant Twitch building. Who would have thought 20 years ago Amazon would own the biggest YouTube gaming, a streaming company? It’s crazy.
David: Right. They are, they are, equal parts impressive and terrifying.
Scott: Yeah.
David: In terms of their reach and … Every once in a while I’ll be sitting there and eating my breakfast on a Sunday morning, I look over at the Amazon Echo and I’m like “What the hell are you listening to [crosstalk] ?”
Scott: Totally listening to me.
David: What do you don’t know about me …
Scott: Totally listening to me.
David: … That you shouldn’t know?
Scott: Totally listening. [inaudible] . I love what you guys are doing. That’s a really good synopsis. A couple of things we also wanna talk about, real estate tech, which I find fascinating. We were joking before we turned on the mics, ‘cause there’s so much money going into some of these real estate tech plays. And some of them make complete sense to me, some feel like we’re again, joking a little [snidedly] that they feel that the kind of late-stage plays that aren’t gonna be able … They’ll get stuck at a late stage and not be able to IPO. ‘Cause the multiples, or they won’t have enough momentum. What are you seeing out there? Where’s [crosstalk]?
David: We joke that, oh, the idea of having people hang in our office and charging them and do a little coworking space, that could be great business of 20 years ago. And of course, we weren’t smart enough or bullish enough to actually do it.
Scott: We didn’t do it, yeah.
David: I and everyone else has had an idea. They’re like “I knew this way back when. If I had a little more gusto, I would have done this.” There are things like that, that are fun to tongue in cheek about and think about what we were thinking about five, 10, 15, 20 years ago as it relates to this stuff. But I will say, from my perspective, as a proponent and advocate of all things real estate and the ability for it to empower people to produce a better product, I think it’s an awesome time right now to be in the prop tech world. As you think about everything from the energy efficiency and the building sustainability considerations from a censoring and technology perspective and now before we know it, we’re gonna have a sensor in everything. All these chairs, this desk, that computer, that piece of art, will all have the ability to adapt and change the environment to you and I sitting in here and making this optimized for our experience. That stuff, I think, is amazing. I think there are elements of what we’re seeing from a platform perspective in terms of proliferation of information. It’s what Zillow and Redfin and all these other guys are doing from, how do we funnel better, higher quality actionable information direct to the consumer. These are all things that are wildly successful and we’re seeing across Fintech and all these other platforms.
Scott: I love Opendoor because it feels like they’re taking another step, which is acting on the information on their own behalf. My friend’s General Counsel so I’m totally in former podcast guest [Bill Stephens].
David: Yes.
Scott: But they’re taking that information and then buying stuff with it. Zillow and Redfin feel like version 1.0 and then Opendoor is like version 2. … It feels like that opportunity is around everywhere.
David: Oh, yeah.
Scott: In real estate, especially.
David: Oh, I think that’s right. And Keith and Eric and that whole founding team at Opendoor have done a fantastic job of building a monster of a business that, from every measure, will be wildly successful. Given what they’re doing, and I think given how disciplined they’ve been around being, again, quaint and data focused around the decisions. Real estate traditionally, both in the residential and commercial side, has been wildly emotional. It’s like there’s no-
Scott: That’s why there are such big swings.
David: Yeah, there’s no rhyme or reason to it, and someone gets really excited about a new submarket in the city and all of a sudden it blows up for no reason. I think there are elements of supply and demand that are plain, that are as fundamental as they can be when it comes to something as basic as real estate. But I also think there’s other things here where, on the service side, with the advent of WeWork, the 800-pound gorilla in the space, I think what they’ve done, in my opinion, which I am wildly appreciative of them for, are they finally stepped up and said all right, the relationship between traditional landlords and the private equity firm profile of holding long-term leases, trying to lock people up with great credit for a seven-plus year term, is complete bullshit for most companies. And we need to change what that landlord and tenant relationship looks like in a way that actually works for the companies that are being built today. And they have done that. They have said “Listen, we will trick it out. We will get your wiring all set up. You’ll have furniture, and if you wanna stay for six months, great. 12 months, great. You want to stay for three years? We can adjust and adapt to you and what your needs are as a company. And if things go south, we also have a plan B for that, as well.” They are finally the ones to get it and recognize the needs of growing a real business from the seat of a founder.
Scott: We’re huge fans. We used to have a San Jose WeWork office. Vanessa and I were just in Austin 10 days ago for the whole week working on a WeWork where our Austin team works out of. San Francisco, we’re gonna go back to WeWork eventually. You touched on it, actually marrying the services with the just building, I know I was one of these people, I didn’t realize how much work it was to manage an office and all the service providers that do … Like our Comcast bill was crazy, and our janitorial bill was crazy. The bathroom broke last week, and me and [Tatiana] spent three hours on … All this stuff happened. At WeWork you don’t have to do that. It’s actually cheaper, it’s crazy. It just makes so much sense. Those guys really nailed it.
David: There are some other great companies in the space. For every Uber, you’ll have a Lyft, so I think there will be a second act and others that will rise up in this. It’s not a winner take all type of market, I don’t believe. Notel is doing a fantastic job right now. You’re seeing Industrious do this.
Scott: Yeah. We have a client, Recharge, that’s some doing some really cool stuff, yeah.
David: Yeah, Recharge is doing this. I’ve even been impressed. I was in Nashville recently and checked out, Regus has relaunched and rebranded under a parent company entity. Still has the traditional Regus product for lawyers and some traditional service folks that want a private office and don’t really want kegs on tap, and whatever, all the other-
Scott: I think WeWork will be less [fratty] though, even in a year or two.
David: I think it will, too, I think it will, too. But again, so Regus has spun off a new version called Spaces, that is doing, I think, a really great job of addressing this millennial type of employee experience in a way that’s gonna work. My only point is, I actually don’t care who wins. I just believe that the industry is winning as a whole as it relates to finally doing it right. And I think fundamentally that’s not gonna go away. People are concerned about, if there’s a big downturn, what does ultimately happen to some of these companies? They’ll be a washout, like when there’s a downturn there’s a washout in every industry.
Scott: I remember the sublease rates in 2008, ‘cause I [inaudible] at Whitehouse doing a lot of deals and people were paying nothing for their office space ‘cause there was the lowest marginal cost.
David: Totally.
Scott: The same thing will happen again. I actually think WeWork will do fine because a lot of people will leave their big office and go into a WeWork. [crosstalk] .
David: That’s right. There sort of does mean a flight to quality and a flight to efficiency and simplicity and flexibility. And they actually have done both. They’re in great buildings, they have a great product. They’re in CBDs. That urbanization trend we’ve been seeing the last 15 years will continue to benefit them. In addition to you can sign a three-month deal if you may or may not make payroll in six months, you can make that all work. I think that will all continue to happen. I don’t think we’ve seen the counterpunch from the incumbent, by the way.
Scott: Oh, interesting.
David: I think that there’s a lot of very, very smart people that understand exactly what’s happening, if you are a big [inaudible], or if you’re one of these private [crosstalk].
Scott: That’s really interesting.
David: Don’t pretend they’re not gonna have a second act here that will provide. And again, these guys own the real estate. They don’t lease the real estate. You talk about pulling the bottom out in terms of a cost structure. When things get competitive, there could be a race to the bottom a little bit in terms of land grab or …
Scott: That’s really fascinating. Theoretically, the incumbents who own the property can price lower than … ‘Cause they’re not layering on the service level.
David: Some of these folks have no debt on these buildings, so yeah, they can literally give it away or lose money on it, just to win market share. And they have all those people as tenants in their buildings and then when the market comes roaring back make that [crosstalk].
Scott: That’s right.
David: It’ll be, like I said, what I care about is the end user, the tenants, our clients. They’re gonna be the ultimate winners in that. I think this is like I said, a trend that’s got a lot of positive impacts for building companies here in the Bay Area and beyond.
Scott: Yeah, awesome. We are approaching the end of our time. Thank you so much. First of all, this was an awesome podcast. You should do lots of podcasts, you’re really good at this stuff. That was like 35 minutes that just flew by. Maybe tell everyone where they can find you, where they can find T3, and find your sweet spot.
David: Yeah. My name is David, the president of T3 Advisors. You can find our website is just t3advisors.com, which we just relaunched a couple of months ago, so we’re pretty excited about the rebrand and the relaunch of that. I think that, the way to think about T3 is, think about an outsourced real estate department. Some of the hardest, most complex problems that companies are facing often are tied to people and space and growth. Traditionally, there hasn’t been a lot of transparency or good data about they’re available to these end users. It’s all been structured and designed to benefit the owners, the landlords, the traditional large clients with all the money. Our mission is to change that equation, and put the power back in the hand of those end users, enabling those management teams and their investors to make really data-rich, sound, fully educated decisions about how to best grow their businesses.
Scott: Yeah. I love this outsource real estate department. That is beautiful. That makes so much sense. David, thank you so much for coming by. We’ll do number three next year.
David: Can’t wait.
Scott: Number three podcast, awesome.
David: Always a pleasure.
Scott: [inaudible] .
David: Thanks, Scott

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