Startup Weekend Chicago: MBRE Entrepreneurship in Action

The MB Real Estate Corporate Services and Tenant Advisory group had the privilege of sponsoring the Chicago Startup Weekend this past weekend and participating as entrepreneurs.  The 54-hour event was held at TechNexus, a “clubhouse” for technology leaders and entrepreneurs.  With a focus on bringing people together with different skillsets- primarily software developers, graphics designers, and business people- the mission of the weekend was to develop a web or mobile application which can form the basis of a credible business. 

MBRE brokers Jay Beadle, Boris Yelyashov, David Burkards, Craig McCaw, and Christine Torres were enthusiastic about bringing their entrepreneurial and innovative real estate background to the start-up arena.  Resulting in a pipeline of innovative new potential ventures, each concept was judged according to business model, customer validation, and execution.  Boris Yelyashov (VP, Corporate Services) contributed to team ExerSocial (pictured above), which was awarded 2^nd Place for their idea.

By merging the expertise of entrepreneurs and real estate professionals, the MBRE Corporate Services group has developed a guide for real estate issues and solutions faced by start-ups:

1. LANDLORD MITIGATION OF RISK

ISSUE: Start-ups do not have the necessary two-year audited financials that are standard for determining security deposits and tenants want to avoid letters of credit and personal guarantees.

SOLUTION: Find spaces with useable existing conditions, spread out rent abatement, or partially self-fund a portion of tenant improvements.

2. GROWTH PROJECTION - PLANNING WELL IN ADVANCE

ISSUE: Start-ups have the potential to grow rapidly, thereby causing a need for more space. Lease contracts often tend to constrict flexibility in adjusting for growth.

SOLUTION: Beyond securing flexible options to expand, rights of first refusal on adjacent spaces, contraction options, sublease rights or termination options, measures can be taken throughout space planning to accommodate growth without forcing the company to make rushed decisions. For example, build in a brainstorming area that can later accommodate employee overflow while evaluating real estate alternatives.

3. LEASE PROVISIONS – LEASE INTERPRETATION

ISSUE: As part of the financial growth of a start-up, a tenant may be technically insolvent and trigger a default depending on how the lease is written.

SOLUTION: Be sure to hire a broker who is familiar with the lease provisions that can be roadblocks for start-ups. For example, your broker should negotiate no tie-in to credit ratings or minimum financial standard as it relates to default.

4. LOCATION

ISSUE: Most start-ups think they need to be in a loft building to have trendy space that will

attract top talent and create an environment where people love coming to work.

SOLUTION: There are many space options that will create a favorable and unique environment in the heart of downtown. We have found inexpensive mezzanine space along the river and rental bargains in high-rise buildings adjacent to Millennium Park that offer sun-filled space with high ceilings, plenty of power to run computers and servers, and 24-hour cooling capacity to support robust data centers.

5. SPACE RE-USE

ISSUE: Not all creative / collaborative environments work for everyone and a number of start-ups design space without considering future needs and future use of the space including the infrastructure of the building.

SOLUTION: More consideration should be given to space design (furniture systems versus drywall) and the building’s ability to augment cooling, power and connectivity. If a building’s transformers are maxed out and power cannot be added at reasonable pricing for additional cooling, growth and or adaptive re-use of the space will be severely constrained.