The Atlanta Tech Village is a social enterprise designed to enhance the Atlanta technology and startup community while also generating a return on investment. Being a double bottom line business, which is a first for me, generates many interesting questions, especially around how much do we subsidize tenants, or certain tenants (like startups), vs focusing on a target percent investment return (e.g. 7%).
One idea is to be more open and transparent about our costs and revenue, the economics of the business, so that everyone can better understand how it runs as well contribute ideas to make it more successful.
Here are the economics of the 100,000 square foot building, 90,000 square foot parking deck, and 1.42 acres of land (the land comes into play as part of property taxes) on an annual basis:
- Property taxes: $260,000
- Utilities: $200,000
- Janitorial: $50,000
- Security: $40,000
- Miscellaneous contracts (landscaping, elevators, etc): $50,000
- General repairs: $50,000
- Property management: $100,000
- Total: $750,000
So, $750,000 per year to break even as a generic office building.
If it is a generic office building, purchased for $12.5MM, and annual expenses of $750,000, to make a 7% per year return on investment, it would need to have rental income of $1,625,000, resulting in a profit of $875,000.
Now, add in the extra annual costs to run it as a tech hub, event facility, coworking space, etc:
- Staff: $200,000
- Gigabit fiber internet: $100,000
- Consumables (food, supplies, etc): $50,000
- Total: $350,000
The grand total is $1,100,000 in expenses per year to break even.
Now, with a $4,500,000 renovation (interior, exterior, lobbies, bathrooms, furniture, audio/visual, etc), for a total investment of $17MM, and annual operating costs of $1,100,000, to generate a 5% per year return on investment instead of 7%, it would need rental income and membership fees of $1,950,000, resulting in a profit of $850,000.
If the building was purely Atlanta Tech Village memberships, and had a maximum capacity of 400 members based on the size of the parking deck, fire code, etc., memberships would need to have a blended average fee of $4,875/member/year or approximately $400/member/month. Due to the volatile nature of technology companies and startups, churn is going to be a challenge, resulting in the need for a solid waiting list such that when members leave, new members are ready to take their spot.
Membership costs would vary from $250/member/month to $600/member/month depending on the type of membership resulting in a blended rate of $400/member/month. Is $400 per month per person viable? Yes, flex office space is significantly cheaper than traditional office space and the value of the ATV community will make being in the building significantly more valuable. Comparable space for a 1-30 person company in Buckhead rented with a long lease term, furnished, and outfitted with fiber internet would run $600 – $800/employee/month (one of the reasons it is much higher is that there aren’t the same economies of scale with a receptionist/office manager, fiber internet, leasing space vs owning the building, etc. for a smaller company).
So, in the end, I’m confident that the Atlanta Tech Village will be a successful social enterprise that becomes the number one tech/startup facility in the southeast within five years while also providing a modest return on investment.
Note: this analysis leaves out the benefit of depreciation expense which is off-set by reduced income during the renovation and ramp-up period.
What else? What are your thoughts on the economics of the Atlanta Tech Village?