CONFESSIONAL: How Covid Hit Coworking in a Middle Market
The close of 2020 didn’t feel like the calendar had advanced a year. Not only had we lost all momentum and the opportunity to make another leap, but we had basically also been pushed back two years.
January 2020 was a peak month for Aurelius Coworks. Our two coworking communities in New York’s Capital Region — Troy Innovation Garage, opened in 2017, and Bull Moose Club, opened in 2019 — had posted their best numbers to date. We started the new year ready to do even better after the winter holiday season and predicted full maturity for both spaces by Q2. We had also committed to our first out-of-state development, in downtown Providence, RI, all part of strategy to prove our concept to attract new projects, partners, and possibly investment.
The development of Troy Innovation Garage, and by extension Bull Moose Club, was about way more than real estate for us. For more than 10 years we invested time and energy in downtown Troy, NY, and the region’s economy. And we knew firsthand the lack of flexible office space in Upstate New York has been a real hindrance to the growth of startups and the broader creative economy. Commercial real estate in downtowns in Upstate New York is a mostly blue-blooded industry and dominated for decades in places like Albany by long term state office relationships. My own challenges starting and growing my first company, Gramercy Communications, included an outsized effort in finding and building office spaces to accommodate the firm. While I learned a lot, which helped me in my latest endeavors, I was always frustrated at the energies (and capital) I expended in this area of the company.
After touring 100 coworking locations around the U.S. in 2016, we developed a model that mixed private offices with desks in open spaces. The high demand for small offices with month-to-month terms constituted a solid foundation for the price model, supplemented by revenues from dedicated desks, coworking memberships, day use, meeting room use, and events. This calculation was successful, and as the market was, and still remains, way underserviced. the demand often outpaced our inventory and we had waiting lists for offices 15+ deep at all times. And in January 2020 we were generating upwards of $70 per square foot per month in our coworking locations in markets with average office rents of $12-$16 in the buildings we locate. We were outpacing the initial business goals by double, with all efforts on fine tuning our communities, proving our concept and expanding.
Most importantly, we attracted an incredible membership, full of talented and creative, and interesting people. The energy and vibe we developed was way better than I had ever imagined.
We started to track the spread of Covid in late January and February. It was water cooler banter. As global health organizations and the CDC started to talk openly about a possible pandemic, one of our members who has connections with leaders with global reach started to tell us that it was going to get bad, and things would shut down. It was hard to fathom. About the time New York State declared a PAUSE, we started to hear from people we knew who had tested positive, and cases of community spread had started to be reported around town. We had basically closed the doors a week prior to the official word from New York State.
My initial thoughts were like many small business owners: This would pass quickly, and we would have to weather a few rough months. My friends in business were split, some staying positive and trying to maintain normalcy, and others who advised me to hunker down and preserve cash for a long haul. We went “virtual,” and did a few events and regularly shared health, disaster and small business info to our memberships. We stayed in touch with members who went into lock down mode at their homes. We made efforts to preserve a sense of community that had thrived on in-person interaction.
We also pretty quickly lost nearly all coworking memberships, as well as obviously 100% of meetings and events. Our office members mostly stayed initially, with some demanding credits or reimbursements. But rather than ignoring the winds of change, we stayed open, and we adjusted.
We reconfigured our staffing model in the communities and started to build out part-time jobs to cover shifts and prepare for potential Covid-related absences. We laid off one full-time employee who was a new hire with a development and expansion focus. Our two full-time community managers left over the months, one to stay home with her family and another to pursue new career opportunities. We stayed with the part-time model and added staffing. In the summer we brought onto the team one of my former senior staff from the communications business to help me streamline business operations and tackle a myriad of new challenges.
Because the contracts were signed and committed for our new location, construction had just started in the space when Covid hit in March 2020. We had spent over a year developing the project and remained fully committed to see it through. But we had to reconfigure our plans and stretch things out for a long while. The keys to that new location, named Westwey Club, were given to us in October 2020.
In the spring and summer, we managed to qualify for a federal PPP loan through our bank and an EIDL loan directly through SBA. We cancelled all non-essential spending and tightly managed cash. We also developed and implemented highly regulated health and safety policies, including daily wellness checks, de-densifying open spaces, social distancing, and masking. We hired a new cleaning contractor and contracted with a supplier for PPE, and hospital grade cleaning supplies and sanitization stations.
As Covid wore on through 2020, we experienced our natural attrition of office members in Troy and Albany. We never had a mass exodus from our offices, and many original members stayed and slowly came back to work as the situation improved and they felt comfortable. A new challenge for us was that the waiting lists had disappeared, and getting new prospects identified and in was very difficult. And we had no chance at spikes in monthly revenue for coworking days or events. On top of this, we had to carry costs of a new space that was mostly unoccupied.
The close of 2020 didn’t feel like the calendar had advanced a year. Not only had we lost all momentum and the opportunity to make another leap, but we had basically also been pushed back two years.
Still, thanks in no small part to the changes that we implemented over the past year, there are positive indicators. Q1 of 2021 has been a slow grind, but we have been able to gain back office members and fill the offices in Albany and Troy. The new part-time, hospitality-focused staffing model for our communities is an innovation I would have never figured out without this challenge.
We have also diversified our corporate business model and took on consulting work for companies and organizations trying to figure out a hybrid remote workplace, downsizing their offices, or developing their own coworking space. People are starting to re-emerge from their homes, and we see a steady uptick in visitorship to our locations. It is still well below the Fall 2019 peak, but the energy is starting to return as people get vaccinated and numbers remain lower. We are hopeful that after this summer we will see more of our coworkers, and by 2022, restart our events.
In many ways, the remainder of 2021 will be an even greater challenge as various small business lifelines are exhausted. We are focused on retaining stability in the next six months while managing existing resources and bringing these communities back. In this way, I believe our journey is not hugely different from other businesses that have been hard hit by the pandemic, but survived.
Personally, I fall into the category of having many positive personal things that come from this past year too — namely, the extra time with my young kids and not losing any family or close friends to this virus. And the time I spent volunteering to help seniors in need by delivering meals, groceries and lining up vaccines, is work I feel really good about.
Having been in business during 2008, and in the workforce in 2001, this pandemic has dealt blows like we have never seen in this generation. All we can do right now is stay safe, put our best work efforts into recovery, and thoughtfully continue to support each other.
#dwyck
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About Aurelius Coworks: Aurelius Coworks is a socially responsible company that develops, owns, and operates coworking communities and startup ecosystems in middle markets and downtowns undergoing revitalization. Aurelius Coworks connects its members to the surrounding ecosystem and contributes to the regional economy where its properties are located. The company’s spaces are meticulously built, the communities carefully cultivated, and a focus is placed on infusing the right mix of business and social programming in each community. Current properties include Troy Innovation Garage in Troy, NY, Bull Moose Club in Albany, NY. and Westwey Club in Providence, RI.
