September 30, 2019
Cove, a DC-based coworking startup, is taking a different approach from WeWork as it seeks to expand without over-leveraging on expensive long-term leases.
Co-founder and CEO Adam Segal told Cheddar in an interview Monday that WeWork's founding thesis ー to "make it a lot easier [for businesses] to get started tomorrow" ー is still a sound business model, even if the company may have fumbled its expansion and IPO. Aside from being far smaller, Cove operates a slightly different strategy by not signing long-term leases. Segal spoke just before WeWork pulled its S-1, officially putting its embattled IPO on ice indefinitely.
"We don't have any long-term liabilities," Segal said. Instead, Cove works with real estate owners to help them transform their spaces into tech-friendly co-working spaces, and then shares in the upside. Whereas WeWork is essentially high-volume rent arbitrage, Cove is a "service and technology solution" that owners lay on top of their real estate holdings, according to Segal.
Cove operates 15 spaces in the DC area, another in Boston, and more on the way for the Maryland suburbs. Among its clients: Booz Allen Hamilton, the massive consulting firm headquartered in Virginia. Cove worked with Booz Allen to create a custom space and app for its employees, and Segal says that kind of bespoke offering is the future of coworking ー both for firms who need flexible spaces for their employees and landlords who want to transform their assets into modern workplaces without the hassle of long-term lease negotiations.
As more employers seek ways to give their staff flexible working arrangements, Segal said the coworking trend is likely to become one of the main ways in which people work in the near future. "That's going to have a serious impact on commercial real estate," he said, as landlords holding expensive office space are going to want new ways to lease it. In fact, while the collapse of the WeWork IPO has given investors pause, Segal said he's "never seen this much demand on the ownership side," from real estate owners that see a company like Cove as the de facto face of the building.
"This is about making real estate far more friendly from a consumer approach."