Read Time: 15 Minutes
Welcome to Episode 26 of Students vs. Startups. This week, moderator John Gilroy talks with the founder of SwingSpace, Richard McBride. With over 35 years of experience in commercial real estate, Richard McBride has developed his own company, McBride Real Estate Services, and has co-founded SwingSpace. Listen below to learn more about SwingSpace and the "transition" space that is offered to organizations when undergoing growth or downsizing.
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John Gilroy: Welcome to Students vs. Startups showdown on the Potomac. My name is John Gilroy. I'll be your moderator today. If you've listened to this podcast before, you know we're approaching podcast number 26. Round of applause, 26, let's hear it! Yeah. Yeah. Well you know what's going on here. We appropriated a room inside the beltway in Washington, DC at Eastern Foundry, and we took over a conference room. On one side of the table, we have some students. On the other side of the table, we have a startup. We have a little 26-minute conversation and everyone walks out of here, has a beer, is friendly, and just learn a little bit about starting up with different types of companies.
Let me begin by introducing the students. We have three students today. Two are wannnabe graduates, one is an actual graduate of the Master of Professional Studies degree in Technology Management from the School of Continuing Studies at Georgetown University, Mr. Michael Abel, how are you?
Mike Abel: Good to see you John. Thank you. I am Mike Abel. I'm a 2012 Technology Management graduate, currently working as a service delivery program manager for ActioNet.
John Gilroy: Interesting, interesting. And our second student, and he hasn't achieved the heights, Michael Abel's heights, he's a mere wannabe graduate. Peter Pilawa. Please, your background.
Peter Pilawa: Hey John, yeah, I still haven't climbed the mountain that Michael has already achieved. My name is Peter Pilawa. I work in the automotive industry for Audi of America. I work in strategy and I'm glad to be here and hopefully soon to be a graduate of Georgetown.
John Gilroy: Well, good, good. And our second wannabe is Arthur Deegan. Arthur, a little bit about your background please.
Arthur Deegan: Yeah, so I work at Georgetown University Law Center in the library, a lot of books. I'm just trying to finish this degree as quickly as possible and move on to bigger, better things.
John Gilroy: Yeah, he's a really good student and I think he's learned a whole lot. I think of all the students I've had in the classroom last semester, I think Art's grown probably the most because I forced him to grow. He hasn't had a choice.
Arthur Deegan: No option.
John Gilroy: We throw him in deep end and say, "Get with it, big boy." And he survives, so it's pretty good. On this side of the table, we have a startup. And we have a Mr. Richard McBride, and the name of his startup is called SwingSpace. A little bit about your background please.
Richard McBride: A native Washingtonian, born at Georgetown Hospital, went to Georgetown as an undergraduate.
John Gilroy: Oh, that's a good sign.
Richard McBride: Still live in DC and I've been in commercial real estate for the past 35 years. I launched my own company, McBride Real Estate Services about 15 years ago, and a couple of years ago, launched our platform we're talking about today, SwingSpace.
John Gilroy: Well you know Michael here has three children. Maybe he thinks about different types of swings than what you're talking about so, what type of swings are you talking about here, SwingSpace?
Richard McBride: Well SwingSpace is a term of art in real estate for a temporary space that an organization would transition to and from as they are growing or shrinking or performing some work. So we've adapted that as a way to be able to use real estate, and translate it into, real estate being used in a flexible way.
John Gilroy: Michael, what this is called is an online office leasing exchange. Do you have a question for us?
Mike Abel: So does that mean this is a pre-made, ready-to-go office that I can move into tomorrow or what type of leases, and how long are you looking to have your clients utilize the space?
Richard McBride: You know, as an economics graduate, I'm always looking for greater efficiency in a market, and
"real estate is woefully archaic in the way it operates."- Richard McBride, CEO & Co-Founder of SwingSpace
There's a veil over the information for tenants. It's a very slow and arduous process to transact, and so what I don't want to do is dictate the market. What I want to do is remove the vale, create as much perfect information as possible, and reduce as much friction in the transaction as possible so that the market can set itself. That being said, we are an exchange that is a platform for people to find space and transact easily. The minimum unit that we use on our platform is a desk for a month, but there are spaces that are larger, that cannot be a single desk, and also are longer-term than a month.
John Gilroy: You know Peter, I've read that in his world, commercial real estate, the lease is like a hundred pages. That's sound incredible, doesn't it?
Peter Pilawa: Yah, it's absolutely incredible. Efficiencies, economics, sounds good. I agree. Question for you. You sound a little bit like you're the Airbnb for commercial real estate. I know it was going to come, so is it a fair description or what am I missing?
Richard McBride: You are quick on the uptake. I can see why you are a star Hoya student. This is exactly what we are doing. We endeavor to become the Airbnb for office leasing. Of course, putting an office transaction together is a lot more complex than renting out your apartment or bedroom for a weekend. You have more parties, a lot more paperwork, and being able to untie that Gordian Knot is the challenge for us.
John Gilroy: Arthur.
Arthur Deegan: So with this space that's going on, and the lease of minimum a desk, are there included amenities, network connection, water. What other services besides a desk are included, or is it all optional?
Richard McBride: Absolutely, it really varies on who's providing the space, so once again, we're a platform, like Airbnb, great analogy. Airbnb is the largest host of accommodations in the world, right. But they don't own any hotels. Uber is largest ground transport company in the world. They don't own any cars. So we don't own or operate any of the spaces that are on our platform. Those are being posted by other lessors or operators such as co-working companies like Eastern Foundry where we sit. Eastern Foundry is on the platform. WeWork, is on our platform. MakeOffices, another co-working group, is on our platform.
Another bucket of space on the platform is what we call phantom space.
"Phantom space is underutilized space by a company that is difficult to monetize otherwise."- Richard McBride, CEO & Co-Founder of SwingSpace
For instance, it's tough to take a couple of offices out of the suite that you lease and sublease it conventionally. But you can post it on SwingSpace and you can share that space by licensing it through our platform.
And then the other bucket of space would be spec office suites or small office spaces that landlords have. So they're all going to have different amenities. They're all going to have different features, but what SwingSpace does is allow tenants to compare all of these different options on a level playing field.
John Gilroy: Michael, you're going to ask the Jerry Maguire question here before I do. Show me the money.
Mike Abel: So how does this thing monetize itself? Are you profitable at this point and how competitive is it considering you don't own any of the properties and what makes you unique about your product, why people would choose you over some of your competitors?
Richard McBride: Well, great questions. The answer to the question is we're basically a brokerage model. It's important for me to design our platform to fit within the existing ecosystem of commercial real estate. So the beauty of SwingSpace is we're not adding any cost to the transaction. The fees that we are getting are already part of where the market is. What we're doing is reducing the friction to make the transaction easier so we're able to scale and do more small transactions. The second question is, "Are we profitable?" We're making money, but we're not making more than we're spending now, so the answer is no, today. I think that we're on the path to get there within the next 12 months, and that's the challenge, but the one thing that gives me a little solace, of having been a broker for a long time, and having built a tenant rep company that's done fairly well here in the DC area, I'm fairly confident that we can spool up our transactions to get to breakeven and beyond.
John Gilroy: So Richard, do you compete with Zillow and Redfin? Or different worlds completely?
Richard McBride: Totally different worlds. First off, Zillow and Redfin are really more directory services, and they are in a totally part of real estate. So we are in office space, commercial leasing. Zillow, Redfin, etc. are providing directory services for residential real estate and we are also providing a platform that lets you go through the search comparison, and transaction, and rent collection, in the process. So it makes it a one-stop shop for a lessor to post their space and allow us to take them through the whole process, and even collect the rent, once again.
John Gilroy: Seems like you might be competing with some real estates in town here. Peter, what do you think?
Peter Pilawa: So the question really that I have is if Zillow, Redfin are not your competitors or Airbnb, as a matter of fact, who is your competition that you keep an eye out?
Richard McBride: There are a few other platforms that are all circling around the space and we're approaching it from different angles. I'd say, probably the one that we look at the most is called LiquidSpace out of California. And they are much stronger out west, and have a bigger profile out west than they do on the east, although they are a national platform. There is a group called Kinglet out of Baltimore but I'm not really seeing them very much these days. I know they have a presence, but they haven't really had a high profile. They've gone to some other markets.
The biggest difference between SwingSpace and our competitors is, once again, our approach. Our approach has been working collaboratively within the industry, looking at extracting, really taking fees, that are already built into the process, whereas some of the competitors like LiquidSpace, their fees are substantially higher. They are approaching it ... I wouldn't say they are trying to exclude brokers, but it's not as broker-friendly and industry-friendly a platform. And more importantly, they also started from the daily and hourly rental space. So they've recently come into the part of the market that we are focused on, but they are traditionally known as a daily, hourly space platform.
John Gilroy: Arthur, I think of Airbnb. But you can use Airbnb in Paris. You can use Airbnb in Dubuque. And so it seems like this could be not just limited to the DC area, huh?
Arthur Deegan: Yah, so are you already expanding to outside this area or is this still your test ground?
Richard McBride: Well, we are operating under a two-pronged attack here. So Washington is where we have developed the fullest expression of SwingSpace with the three buckets of space that I mentioned: Spec office suites, phantom space, and co-working space. Outside of Washington, we're planting our flag all across the country and into Canada this year as well. And we're currently in five markets across the country: DC, Chicago, Boston, Atlanta and LA. We're about to open in San Francisco as soon as the refresh of the platform is completed next week, and then by the end of the year, we'll be in over a dozen markets across the US and Canada.
Arthur Deegan: I can't speak much for the other market areas, but I know in DC, the vacant rate for commercial properties is really high. Is this competing against your other profession of commercial real estate?
Richard McBride: Not really, that's a great question, and here's why SwingSpace fits so well into the ecosystem, is because we are addressing an acute pain point within our industry, and the pain point is the small transaction. For a broker like myself to represent somebody that just needs a few desks or a couple of offices, I lose money, literally through opportunity cost. And not just through opportunity cost. I can't make a living doing those types of transactions. So you don't find brokers paying attention to smaller organizations that need just a little bit of space.
And there's a veil over the information. I pay a lot of money to have access to a directory of space that's available and being marketed in general to the rest of the brokerage community at large. Tenants that are looking for a couple of offices aren't going to pay to have access to that database. So tenants can't find that even if they want to, and they do want to. Because over 70% of all tenants start their search for new offices online.
And lastly, landlords have a hard time leasing out those little chunks of space, because it's expensive, and like John said, it's a hundred-plus page lease. It's a real burden to go through the leasing process for these little chunks of space, and really lastly, large tenants. Large tenants that have a lot of space that want to be able to use their space more flexibly, and squeeze down on their costs, do not have a good way to monetize their underutilized space, the space that we would call phantom space. And if you have a tenant that's a client and you're a broker, like myself, that wants to sublease a little bit of space, you want SwingSpace. You want SwingSpace to help you out because if you are unsuccessful in subleasing out a little bit of space, you could lose your client. The next thing you know, another broker is in there providing subleasing services for you and you don't get the big deal that comes down the road.
John Gilroy: Now Michael, I do my homework as well, and I went to Twitter and typed in SwingSpace and that's how I learned about the wide range of services that you offer. Would that be a good place to advertise? I don't know, what do you think?
Mike Abel: So I'm a guy who might be interested in some space, actually getting some. I would definitely go to the Internet first. I guess I'm curious what your whole marketing plan is? How do you reach out to people who not only have space, but people who are looking for it? Is it all strictly through the web or are there other avenues that you find very effective?
Richard McBride: We are casting our net in every area. We are certainly using SEO and SCM and digital ads. I believe that when we get to a tipping point, we will see a lot of momentum that will keep coming to us organically through Google searches, etc. But we're not relying just on that because I think a lot of success in digital advertising requires an assist. Someone described it to me as a hockey assist. If you hear about something, or if someone else refers a company to you, and then you see it online, or a Facebook ad or something like that, then it's easier to make that connection. If you just are bombarded with a digital ad, you may not have that personal connection. And real estate, at the end of the day, is usually about some kind of personal relationship.
And so we do events. We are doing a number of programs. One program, in fact, for your listeners that are into startups, we are doing a program called Local Legends, where we are asking local startups, in all the markets that we're in, to nominate themselves to be profiled with a video that we produce, and we'll post the video and they'll have use of the video themselves, but we'll post the video on our site. They can have their friends vote on it, and the startup with the most votes at the end of the year in each market will get a pass courtesy of SwingSpace to South by Southwest next year.
John Gilroy: Wow, Richard, I was at a company about a half a mile from here on Wilson Boulevard, and they just signed a lease for 17 years. Michael's kids would be in college.
Mike Abel: Maybe out of college in 17 years.
John Gilroy: Is that the kind of leases people sign these days?
Richard McBride: Some do. Seventeen is a long-term for this market. We're seeing 11 or 12 as kind of the upper end. Typically, in the DC market, but in New York, 15, 20 years is the norm for much larger spaces.
John Gilroy: Now Arthur, if you're going to start a company, Arthur's consulting. Would you avail yourself of his service. What are you weary of?
Arthur Deegan: Well, I want to know, why would a very small company that could easily work out of home decide to sign on with you? Is there a certain threshold of employees when it makes sense?
Richard McBride: We look at our target demographics in a couple of groups. In politics, you have soccer moms, and NASCAR dads. In SwingSpace, we've got coffee shop gorillas, and co-working kings. So the coffee shop gorillas are the guys like yourself that can be working out of the house or working out of a coffee shop sucking down free WiFi, until they get to the point where they realize they can't take a meeting there that's professional, and they need to find a space to work at. So most likely, they will transition into some co-working space.
"Co-working is awesome. It provides a lot of synergy. It's a wonderful dynamic for many organizations."- Richard McBride, CEO & Co-Founder of SwingSpace
But it doesn't always scale really well. So when you get over usually 15 to 20 people, then you realize that it's time to get your own space. And then those are who we call the co-working kings. So they usually want to make a transition from co-working or some shared space into their next space. No one's going to force you to lease through SwingSpace but you can always look without any obligation.
John Gilroy: Peter, you work for a fairly large organization. From a large organization perspective, would they be attracted to this, or maybe set up a temporary office or a satellite office?
Peter Pilawa: Yah, I think it would be very interesting because let's say you have a group that needs to be having more of a creative space. So you don't necessarily want to lease an entire building for that, but let's say you have 15, 20 people and you want to find a space that's appropriate, makes total sense to me, even though it's temporary, like for a year.
Richard McBride: Absolutely. Peter, you are hitting the nail on the head. This is the next wave of what we're seeing in collaborative space. So we have now, for example, WeWork is managing on behalf of IBM, a 70,000 square foot space in New York near Greenwich Village. And the reason is, they want to have that more creative, collaborative atmosphere so they're setting it up like they're in a WeWork but it's an IBM space. And then the other thing that having SwingSpace for larger corporate tenants is that it gives them the opportunity to have a more flexible solution as well as a creative environment.
John Gilroy: Last time I had lunch with a person from IBM, she said IBM stands for "I'm By Myself." So maybe this is an attempt to reduce some of that.
Richard McBride: Absolutely. WeWork is making a big push to provide collaborative space for larger and enterprise solutions. The other thing we're seeing is that as, once again, these tenants' organizations outgrow co-working space, they're sometimes landing in more enterprise-type space. For example, MRP Realty, who's a large investor here in the Washington area, has developed what they call Town Hall, or Town Halls, in various projects that they've got around town. And these are landing spots for folks that have outgrown co-working to still have a stand-alone suite, but that connects to shared amenities and some other collaborative environment. So they have their own suite but, there may be five suites for 20 to 50 people individually, and then they all share pantry and amenities in the building.
John Gilroy: Michael, you've seen some organizations over the years that have some challenges with scaling. What do you think about this? Do you think that this is scalable? What kind of problems do you foresee in this scaling?
Mike Abel: Well you mentioned that you got as small as one desk for a month, and you can go significantly larger than that. I think it makes a lot of sense. If you can develop a standardized contract platform vehicle that's got everything from soup to nuts for a small, all the way to some of these more larger ones, that's great. What are the challenges though with dealing with players of different size let's say.
Richard McBride: The biggest challenge really isn't the technology. It's the personal dynamic ... the human condition. How about that. When you're a small organization, you haven't transacted real estate very much, and so it's the smaller transactions tend to be more difficult than, a lot of times, very large transactions. That's really what we're trying to get after with SwingSpace, trying to make it easy to transact on the small scale so that when somebody is ready to pull the trigger, it's not hard to do. But the challenge for us is, typically a lot of false starts.
Mike Abel: So what does your interface actually look like for someone who's looking for real estate? Are you developing mobile apps or is this a website online? What am I actually going to be looking at to determine the perfect space for me that you have available?
Richard McBride: It's a mobile-friendly online platform built on Ruby on Rails. We don't have an app now. We probably will at some point down the road, really not so much for the tenant search, because the mobile-friendly way this is set up really takes away the need for the app. I think the app is going to be to make it easier for new lessors to post their offerings, to be able to have instructions, to be able to use the camera on their phone, and scaling up with supply is another part of our objective, our strategy to win the space. Because by having all three buckets and having the most postings, in all three buckets, we want to become the defacto standard, so when anyone is looking for space, it's not just they can go to one platform and here's a handful of co-working spaces, another platform, here's a little bit of sublease space. You go to SwingSpace and it's all there.
John Gilroy: Arthur, final question.
Arthur Deegan: So you're catering a lot to very small companies but most small companies don't want to stay small, they want to grow. They probably have the hopes of one day no longer having to use this app but actually create their own lease. It's almost like you're setting them up to leave you, which is fine, but how do you plan on keeping new business coming in?
Richard McBride: I think that's going to be in SwingSpace, the sequel, when I release that secret. No seriously, our plan is to make the process as enjoyable as possible. Really where we're going in real estate is
"creating technology that transforms real estate from a fixed asset to a flexible one"- Richard McBride, CEO & Co-Founder of SwingSpace
SwingSpace is one of the ways that this is happening. So if we're able to make it so that companies can use office space in a much more flexible way, and they have a good experience doing so, then we hope to keep them as clients.
John Gilroy: Richard, I'm going to allow you to cast a net right here. So what website should listeners go to get more information?
Richard McBride: For more information, check us out at www.swingspace.com.
John Gilroy: Thank you very much. We're running out of time here. I'd like to thank our sponsor, The Radiant Group. If you are interested in getting involved in geospatial projects, contact The Radiant Group. We are hosted by Eastern Foundry, a community of government contractors who are bringing innovative solutions to the government marketplace. For more information, go to eastern-foundry.com. If you would like to participate as a student or a startup, contact me, John Gilroy at theoakmontgroupllc.com. Thanks for listening to Students vs. Startups showdown Potomac.