In this episode, Hal and Richard talk about the differences between licensing and subleasing. At 2:50, Jonathan Wasserstrum talks about his company SquareFoot, the changing digital landscape of commercial leasing and what he sees as the future for commercial real estate and brokers.

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 Hal Coopersmith: Welcome to Broker’s Angle. I’m Hal Coopersmith. In this episode we discuss some of the differences between subleasing and licensing and our 30 minute or less interview is with Jonathan Wasserstrum of SquareFoot who talks about the changing digital marketplace for leases and the value that a broker can add. 

Wasserstrum: A good broker does a lot more than provide access, right? A good broker actually is lubricant in the transaction, is a local market expert, is a trusted advisor that’s guiding somebody through this process. If a broker’s only value is to say, yeah, the third floor is available there, you should get a new broker.

 Hal Coopersmith: But first Broker’s Angle is sponsored by the law firm of Coopersmith & Coopersmith, a boutique real estate law firm practicing in commercial and residential real estate for over 87 years. This of course is attorney advertising, so we’re obligated to say prior results do not guarantee a similar outcome. 

Richard Coopersmith: Hal, glad to see you’ve joined the trade. 

Hal Coopersmith: Richard. I always know that you feel that way. So in this episode we speak to Jonathan Wasserstrum and Jonathan talks a lot about subleasing and licensing. So I figured it would be good idea to talk about the difference between a sublease and a license, but before we even get there, the most important person in this conversation is of course the landlord.

 Richard Coopersmith: That’s right, Hal. In any lease, where you talk about subleasing or licensing, you need to have that right under the lease and if there’s any possibility of subleasing or licensing in the future, the costs associated with that should be taken into account in the lease. 

Hal Coopersmith:   Now talking about the difference between a sublease and a license itself, these two are often confused, including by attorneys and courts, but they have very different meanings. 

Richard Coopersmith: The definition of a lease is a grant of exclusive possession of a specific space for a defined period of time. And the same is true of a sublease. 

Hal Coopersmith:  And for a license some of the key components are whether the license is terminable by the licensor, whether the use is exclusive, so like a food hall, it would not be an exclusive use and whether essential services are provided. So it’s important for all parties in the lease from the landlord, tenant, brokers and attorneys to all be on the same page for expectations for a license versus a sublease from the outset. And with that, let’s go to the interview with Jonathan Wasserstrum. How did you get into the brokerage business? 

Wasserstrum: I lost a bet. 

Hal Coopersmith: You lost a bet. 

Wasserstrum: So I guess I’ve been in commercial real estate for a little more than a dozen years now. Started on the finance side doing capital markets work at JLL and moved to New York for business school. And shortly after that start, I got a call from a friend of mine who was looking for space for his last company. And he went online and try and do that, thought he could find space online. You can’t. So my phone rings, Jonathan, and how the hell do I do this? And after a couple of those conversations I saw there’s a bunch of pain points that businesses growing businesses have finding transacting and occupying real estate. So we set out to fix all those with SquareFoot. And as part of that, I had to learn how to be a leasing broker. 

Hal Coopersmith:        So you identified the problem, you talked about how you started your company, but what attracted you initially to commercial real estate? 

Wasserstrum: That’s a good question. So, you know, after college I did economic consulting for a couple of year,s planned, always to go back to business school. A couple of years were up, wasn’t ready to go back to school yet. And I’d always been interested in real estate, commercial real estate. I went to college in Atlanta and had a job offer to do commercial real estate, but it was in Atlanta. I loved Atlanta, but I didn’t feel like staying there after school. So wound up moving to D.C. So I kind of have always been interested in real estate, but my first job wasn’t in real estate. And then when it came time to get my second job, that’s when I got into it. But the things that drew me to it is it really brings together, kind of a bunch of different disciplines all together at once. Right. So you get to be outside a lot, which is nice. You actually get to see the asset, unlike all my buddies who do investment banking and just like build a model and then buy yourself some like foreign asset, not necessarily abroad but foreign, like you’re not touching and feeling it. There’s like enough math to keep it interesting, enough legal stuff to keep it interesting enough, especially when you think about a development bunch of like policy work that gets looped all into it. So yeah, all those reasons. 

Hal Coopersmith:        And then how long were you at JLL for? 

Wasserstrum: A little more than three years. 

Hal Coopersmith:        And what did you learn at JLL? 

Wasserstrum: What it’s like to operate at the absolute worst time in the market cycle. I started there mid part of 2007. I was leaving my consultant job, gave my two weeks and it was kind of understood or expected, you know, you’re there for a couple of years and move on. And my boss at the time says, oh, that’s great. You know, what are you going to do? And I told them commercial real estate, and he kinda like picked up the Wall Street Journal on his desk and he said, have you looked at the paper recently? And so I had looked at the paper recently, but I guess I didn’t realize just how low it would be. Right. And this was the time when the proverbial stuff was on the way to the fan and actually hadn’t hit the fan yet. So they’re still hiring obviously. But they stopped hiring pretty shortly after I started. So it was a fascinating time to be in commercial real estate in general and also starting, especially on the back of what was the two or three years leading up to 2007, 2008, which were like the gogo times when you’re selling an asset, people are saying, how high do I have to jump? And I’m gonna jump and I’m gonna pay. You went from this kind of time of buoyancy to kind of, you couldn’t do a deal. So I got to learn and see how people act in those markets, which I hopefully don’t have to witness again anytime soon but surely will sometime in my career. So that was super valuable. And also JLL is a great company to work for. They do a lot of things, they do a lot of things very well. Again, this is my first job in real estate, so I got to see, I had a great boss at the time who kind of let me spread my wings and kind of spend a couple of days with the leasing guys, a couple of days with the project development people, a couple of days with whomever else I got to see, touch and feel a whole bunch of different service lines, which was great.

 Hal Coopersmith: And then you identified this hole in the market, this problem. How were you able to see that? 

Wasserstrum: Yeah, so that was like when I was in school, right. So I got the call from my friend, he said, hey, I just want to try and find space online and I couldn’t. And that was kind of the oh shit moment, which was like, well, why can you find an apartment online? Why can you book hotel online? But why can’t you find the space online? 

Hal Coopersmith:        What’s the process of putting a space online? 

Wasserstrum: So we work directly with forward thinking landlords who recognize the fact that there’s tens of thousands of people who are starting their search online, tens of thousands of people who are doing some portion of their search online, even if they’re already working with an exclusive broker. So you get a bunch of data that way. We have brokers out in the market every day who are doing their day job, which is looking for space for clients, touring spaces, submitting paper and all that good stuff. And part of that, there are active market participants. So brokers are calling them, landlords are calling them saying, hey, we have this available. We get a ton of data through that as well. 

Hal Coopersmith:        So what reservations would a landlord have about putting their space online? Why wouldn’t they want to do that 

Wasserstrum: If they don’t like leasing space, they shouldn’t put it online. 

Hal Coopersmith:        But wouldn’t every landlord want to lease their space? 

Wasserstrum: One would think so. 

Hal Coopersmith:        Okay. And so what resistance are you getting? 

Wasserstrum: Two things, which is one, it’s not really resistance, but it’s a lack of belief that, and I hate the word disruption, but we’ll use it for a second, that their industry can get disrupted, right? So everybody believes, Oh, the guy down the street, his industry is screwed. Like the internet is going to completely redo transportation, right? Nobody hails a cab anymore. Everybody pulls up an Uber. But you talk to a real estate guy and he says, oh, look, whenever anybody needs real estate, they just call me or they call a broker. Like everybody knows that’s how it’s done. Whenever you needed to get from here to Midtown 10 years ago, you would just go outside and hail a cab. Everybody knows that’s how it’s done. So everybody in every other facet of life has already adopted and adapted to change. Except when you talk about the thing that they’ve hung their entire hat on for their entire career, they say no, no, no, no, no. Like, I’m completely indispensable. So I think there’s some of that cognitive dissonance that happens and that’s really the main thing. I think there’s questions like how do you actually do it and how do we make sure it stays updated and all that stuff. How do you deal with clients? So like there’s kind of in the weeds questions, but at a 30,000 foot view, everybody should say yes. 

Hal Coopersmith:        Well, I certainly want to get into the weeds a little bit, but I want to take your transportation analogy and say Uber exists and Lyft exists, but also yellow taxes are still there. And there’s a world where people are taking taxis and taking Uber’s. Is there a world in your mind where people are searching for space online and still using brokers? And if so, why would one person or a company use you versus a traditional broker? 

Wasserstrum: I mean, we employ brokers, so there’s kind of two or three pieces to what we do, which is the top level of SquareFoot.com, which is the listings platform. Everybody in the world should be using that, whether you’re working… 

Hal Coopersmith:        In the world? 

Wasserstrum: Well, when we get international, yes. In New York for sure, and in most major markets soon here in the U. S. So should be on SquareFoot.com seeing available inventory, getting a lay of the land. Some smaller percentage of those people should be working with us as their broker and then some smaller percentage should be in one of our flex products. We have a bunch of people who use the platform to look at inventory even if they’re already working with a broker. And we’re fine with that, right? If you think about Redfin or Zillow, I mean all of these analogs exist on the residential side already, right? Where Redfin is a good example, right? Which if you ask Redfin, and I believe it too, Redfin has a much better user experience than Zillow. So even if you’re working with a broker that isn’t a Redfin broker, you’ll still be doing your searches on Redfin because it’s much better. We are even one step, sorry, better than that because there aren’t other ways to even see inventory. Right. So I’m actually happy on some level and our landlord partners are happy on some level or on every level. Even if you have an exclusive with some other broker, but you’re on our site looking at inventory and by the way, we get a bunch of people who come to us who say, yeah, my broker is not showing me stuff. Can I work with you now? So yeah, we’re happy to work with you. And one of the things that for better or worse, you’re seeing fewer exclusives, at least then you are historically, they’re not going anywhere. We’re actually starting to ramp up our exclusive practice because we think there’s a value in making that ask. But as many clients refused to sign exclusives because there’s just not a lot of trust in the industry of the industry. I think especially in New York because the average tenant is used to a residential process where there probably shouldn’t be much trust and then they just assume that’s the same for commercial. Just, everybody always thinks they’re out, somebody’s out to get them, especially in New York. 

Hal Coopersmith:        It’s the New York mentality and in real estate. So how are you breaking that? 

Wasserstrum: Well, if you actually show everybody inventory, you’ve got nothing to hide. 

Hal Coopersmith:        And so what’s the business model for showing the inventory? How are you making money? I presume that there’s an investment obviously for getting the photos, details. 

Wasserstrum: So right now we don’t try to make money on having the inventory itself. For us having the inventory for us as a way for our landlord partners to be able to market their spaces that are happy. And it’s a way for us to kind of put up the fishing net and say, if you’re looking for space, come use us. So the platform itself, the listings portion, we don’t try and monetize as listings itself. We monetize it by doing transactions. Right. By working deals. 

Hal Coopersmith:        But you also said the words “for now”, are there plans in the future to maybe flip that switch if at all? 

Wasserstrum: It would be in the way that like Google monetizes, right? So Google shows you everything. And then if you’re trying to sell cups, you can pay to be the first cup result. So maybe that, but no time soon. 

Hal Coopersmith:        And you mentioned the pain points for companies. That’s how you started this, SquareFoot, what were those pain points for those companies? 

Wasserstrum: Look, the average company has no idea what’s on the market, has no idea how to go through a transaction. And what we’ve seen after 1200 plus transactions and probably 10 times as many not transactions, is that people also want flexibility. So we built out solutions for that too. 

Hal Coopersmith:        And when you say people don’t know what’s on the market, if I’m a broker, I have to say, but that’s my role. It’s to show a tenant what’s in the market. I just need to get that company, that client to talk to me about it. 

Wasserstrum: Yeah, but that’s a really shitty experience for the client, right? When you want to go from here to Chicago, you go to Kayak, you want to see everything yourself. You don’t want to call an agent and hope that he’s telling you everything. Maybe he doesn’t get as good of a fee from United as he does from Virgin, or you know, the stewardess looked at him wrong on the last whatever another airline is that he was on. So he’s not going to show it to you. That doesn’t mean that it’s not the right flight for you and your girlfriend to get to Chicago on. 

Hal Coopersmith:        But I’m just going to play devil’s advocate. People say, that’s my job, I mean, I have to be aligned with the tenant. 

Wasserstrum: Look, I love brokers. We employ a bunch of brokers. We will continue to employ a bunch of brokers forever. The goal of commercial real estate is not to appease the broker. The goal of commercial real estate is helping tenants find a home. And a broker is necessary but not sufficient. I think if I’m using the right phrase to get that done, a good broker does a lot more than provide access, right? A good broker actually is lubricant to the transaction, is a local market expert, is a trusted advisor that’s guiding somebody through this process. If a broker’s only value is to say, yeah, the third floor is available there, you should get a new broker period full stop. Which is by the way, why a lot of travel agents don’t exist anymore because before Kayak and all these other aggregators, the agent just said, yeah, these five flights are available. But you didn’t need advice on which of those flights to take because you’re making either a price decision or a time decision or you have a loyalty to one airline over the other. By the way, you’re never negotiating. The price is $340 from here to Chicago. You don’t like calling me like, we’ll see if we can offer $320 and see if they take it. That conversation never happens. The other thing that also never happens is trying to negotiate the terms and conditions on that plane ticket. None of those things are true for commercial real estate. So I think a broker adds a ton of value for each one of those steps. None of those is actually what the availabilities are. 

Hal Coopersmith:        That’s fair. So you mentioned you employ brokers. What do you look for in a broker? What makes a good broker in your mind? 

Wasserstrum: I think a bunch of things. So a kind of empathy, right? Because look, we do a lot of what some other people would call small transactions. 

Hal Coopersmith:        Your sweet spot is what? 

Wasserstrum: Kind of 2 to 20,000 square feet. For the CEO of the 2000 square foot company for the CEO of the 20,000 square foot company. Guess what transaction is not a small transaction. That transaction is the single most important transaction to them. 

Hal Coopersmith:        It’s like that on the legal front too. 

Wasserstrum: So I think empathy is important, right? Because for the person that is going through this process, this is the most important decision they’re making as a company. So empathy is important too, kind of proactivity is very important, right? Listening, really important, right? Clients’ needs change throughout the process and kind of being able to go with the ebbs and flows of that. I think resiliency is important. All real estate transactions are dead until they close, right? Instead of the other way around. And if you go in thinking that like, oh, you’re just going to, this gets back to again, the value of a broker, right? Every plane ticket is not booked until or is dead. Whatever the right kind of mixed metaphor there is, there’s a whole bunch of pitfalls that happen in literally every single transaction. And recognizing that that is a status quo, not exception is extremely important because otherwise you’re not going to have a very good Monday, Tuesday, Wednesday, next week cause something bad is going to happen on a bunch of your deals. 

Hal Coopersmith:    So how are you getting your tenants as clients? 

Wasserstrum: When you Google Chelsea office space, you’re going to be on our platform. 

Hal Coopersmith:  That’s because of Google ad words or organic? 

Wasserstrum: All the above and we’ve built a really good product. 

Hal Coopersmith:  Even before you built a product, you started off, how were you able to get those first clients? 

Wasserstrum: We start with the product and once you had the listings, then you start getting some demand, mostly organic. And then we supplement that with paid. It’s not just getting the people to the site. If your site’s no good, if the product’s no good, then they balance and then Google doesn’t like you either. So not for nothing. The product’s great. 

Hal Coopersmith:  And why did you start the coworking piece? 

Wasserstrum: We launched or we bought Pivot Desk earlier this year and launched, Flex by SquareFoot, neither of which are explicitly coworking, but both provide flexible solutions to our clients. Right? So kind of after 1200 transactions and a whole bunch more that came through the platform, we have a ton of quantitative and qualitative data about who’s looking for what, where, what they want, how much they want to pay for it, and all sorts of other stuff. And one of these trends that has kept picking up pace the last few years is I want flexibility in my lease terms. That’s either amount of space, which is where Pivot Desk comes into play. Or the term of my lease, which is where Flex comes into play. 

Hal Coopersmith:  And what are those two products? For people who don’t know? 

Wasserstrum: Yeah, sorry. They should just be household names by now and I shouldn’t have to. So Pivot Desk, you can think of like Airbnb for office space. So you move into 5,000 square feet tomorrow because you’re going to be 40 people in 18 months, but today you’re 20. So what do you do with those extra 20 desks? Pivot Desk enables you to lease those out, license those out, which helps kind of rightsize your real estate costs in the going out months. It makes it a whole hell of a lot more palatable to sign, that longer term lease that you need to sign and then Flex by SquareFoot solves and you’re the one who’s licensing it out on behalf of the tenant. So Pivot Desk is pure platform. So you as a tenant with extra space puts it on the platform and the guy down the block who needs that extra space goes online, books it and done. So we’re very hands off there and we’re not taking any principle risk. We’re not taking really any risk, just the marketplace. With Flex by SquareFoot where we solve lease term issues, right? You come to me tomorrow and say, look, I want 10,000 square feet around the corner from here but I only want to sign up for two years and this big mean landlord wants me to sign for five years. I was like, great, hell no problem. We’ll assign the longer term lease, we’ll license it back to you for the shorter duration. And that’s where Flex comes into play. 

Hal Coopersmith:  And you’re injecting liquidity on the flex? So you sign the lease and then sublease it out to the tenant, you license it out to the tenant and then what decides why you would lease a space to that particular tenant? 

Wasserstrum: So this gets back to all the data that we have, right? So we know who’s looking for what, where. We know which spaces, which buildings, which sub-markets are in high demand and where we have a high degree of confidence in the demand profile. That gives us a lot of confidence to sign a longer term lease and license it back to one of our clients. 

Hal Coopersmith:  And I have to imagine that for a shorter term than what the landlord is asking for, that you would charge a premium.? 

Wasserstrum: Yes. 

Hal Coopersmith:  How do you determine that? 

Wasserstrum: A variety of factors, including kind of what the demand profile looks like. How long or short our agreement is with the tenant. If that tenant also wants other goods and services, furniture, telecom, janitorial. Yeah. Stuff like that. 

Hal Coopersmith:  And do you have a percentage in mind? 

Wasserstrum: It ranges. Okay. 

Hal Coopersmith:  The minimum is? The lowest you’ve ever done.

 Wasserstrum: Market clearing. Because these wind up being decently bespoke. So we don’t like saying, okay, it’s X percent. It winds up being more expensive than a direct lease would be and less expensive than what a comparable, flexible option would be. 

Hal Coopersmith:  And so you’ve talked a lot about how you have data in terms of what tenants want. What are you seeing in terms of the data? How’s that playing out for you? 

Wasserstrum: New York’s an easy market, right? 

Hal Coopersmith:  It’s an easy market? 

Wasserstrum: Yeah. 

Hal Coopersmith:  You may be the first person that said that. 

Wasserstrum: Well it’s not easy to do stuff here. You know, it’s what you read about in the paper. We just know about it six months in advance, which is now, I mean now this all sounds really cliche cause everybody’s been writing about it for a few years, but we had all the data kind of in advance of that, which said kind of all these clients want to be between 14th and what it used to be 23rd, Houston and 23rd and then that got to be too full. When we first started this seven years ago, I couldn’t pay clients to go above 23rd there’s no longer that kind of line in the sand. Now people reluctantly go to the thirties right? But they’re gonna start and we’re already seeing this. I have to go further afield now because there’s just no vacancy there. Especially as you start thinking about larger blocks of space. So that kind of stuff. And we, you know, have a bunch of data and we’ve seen a whole bunch of data points about like layouts, like how many conference rooms per person, what should soft scene look like, prices they’re willing to pay. Really kind of any data point about a space we have now. 

Hal Coopersmith:  And you mentioned that you employ brokers. What is the broker’s role for you in the transaction? I understand that they’re not getting commissions when they’re working for you. 

Wasserstrum: So they’re base bonus. So they ultimately are tied to production. They do not generate their own business by and large. We have a couple of guys who do now, we’re starting to experiment with that it’s working out really well so far. We’ll probably start doing more of that. Same job of any broker, which is those things that we were talking about earlier, which is to kind of make sure a transaction closes. Not because, I mean it’s good that their incentives are aligned to closing a transaction, but when somebody engages a broker because they’re looking to do a real estate transaction. So that’s ultimately what their job is. 

Hal Coopersmith:  And how has the base bonus model worked for you? You mentioned that you’re adding more of the performance based model but how is that model working for you? 

Wasserstrum: Well, adding the brokers under a different model, is not an indictment of the current model. It actually just expands the type of broker that we can hire. So we can now bring on kind of mid and senior level people who don’t necessarily want base bonus because they walk in the door with a big book of business. So it just enables, us to start attracting a whole different type of talent as well. 

Hal Coopersmith:  And now that you’re doing the flexible office space piece, do you see that being a solution that tenants want as opposed to coworking where tenants either have that space, either through you or able to license the space out on your marketplace until they fill the need or will coworking kind of play out? Will that overtake? 

Wasserstrum: Look both. We don’t view them mutually exclusive right. When you come to our job, right. Getting back to a broker’s job, come to me tomorrow with a real estate problem. It’s my job to have that solution for you. So sometimes that solution is going to be a 10 year deal with SL Green. Sometimes it’s going to be a six month deal with your buddies over at Primary for four desks. Sometimes it’s going to be sign a five year lease yourself, but licensing out a handful of desks on Pivot Desk. Sometimes it’s going to be going to one of those traditional landlords only signing a two year deal through Flex. And it’s our job to be able to provide all of those solutions. 

Hal Coopersmith:  And that is a wonderful note to end things on. But I want to ask this of every person who’s on here, one piece of advice you would give to other brokers and I feel like you would have insight as to what the future holds. 

Wasserstrum: Oh, those are two different questions. So the biggest piece of advice I give to everybody including and probably, in particular brokers is work hard and play nice. Right? I don’t think there’s enough of the second in our industry, especially as we started recruiting a lot, right? It’s very clear which brokers in the market have good reputations and bad reputations. And I think as Abraham Lincoln said something like, it takes a lifetime to build a reputation and like 30 seconds to destroy it. And I think far too many people look at far too many things as single time transactions and very, very few things actually go so far. Say nothing in life is a onetime transaction and you’re going to see that person again and you do not want to have done bad by that person. So that, and tech’s clearly going to change the way everything works. 

Hal Coopersmith:  So as to the second part of the question, what do you think the future holds for brokers? 

Wasserstrum: Yeah, look so brokers aren’t going anywhere. The need for competent, trusted advisors going through a transaction process guiding their client from start to finish will be a need forever. What will change is somewhat how the brokers find their business. What will change is what the client to broker experience looks like. What will change is what the client experience looks like. What will change is what the broker experience looks like. You know, flexible space is here to stay. It’s now like 2 or 3% of the market. Even in a quote advanced market like New York look, JLL says it’s going to be a third of the market. So brokers have to be ready to adopt and adapt to that. which by the way changes commission structures completely because now instead of a 10 year deal, you’re signing a one year deal. And what are the implications of that from your personal P and L , which is ultimately what a broker thinks about at least as often, if not more often than what does the client actually need. So there’s a whole bunch of these different things that are changing and the pace of change is only picking up, right? So the amount of change, like we’ve been doing this for, I don’t know, eight or nine years now the pace of change is picking up steam, right? So that snowball or the riding wave, whatever you want to pick your surf or ski analogy. But change is here and coming and will only be going faster. 

Hal Coopersmith:  Jonathan Wasserstrum, thank you for coming on the Broker’s Angle. 

Wasserstrum: Thanks for having me, Hal. 

Hal Coopersmith:  And that wraps up our interview with Jonathan Wasserstrum. For more visit brokersangle.com or follow us on social media @brokersangle and please feel free to contact us at angle@brokersangle.com.