Economics of the Atlanta Tech Village

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?

Update: see the additional ideas on the economics of the Atlanta Tech Village.

8 thoughts on “Economics of the Atlanta Tech Village

  1. Interesting article, David. It’s nice to see all the transparency and it’s obvious you’ve done your research. Some thoughts off the top of my head on ways to potentially drive additional revenue. Someone mentioned on twitter about putting billboards on top of the building – that’s a good idea and could generate a good bit of money given it’s prime location. A similar idea would be leasing space for cell and other antennas. The building isn’t very tall, but it might still be viable. Also, I’m not sure if there is any plans for event/meeting space but if so, you could charge ATV members and 3rd parties to use it.

    Hope that helps,
    Jason

  2. Hi David, to build on Jason’s point – are events included in the membership fees you have discussed or could that be a separate revenue stream on those (both for hosting and attending?) There are so many places now that host tech events (co-working, ATDC, etc.) that I’m not sure how big of an opportunity this is.

  3. My first question would be what is the zoning? What are the limits to what you can do there? What are the limitations to your personal vision? I can see reaching out to some of the young successful startups already in full swing to relocate and anchor the space, both as mentors and stabilizers (Mail Chimp, Scoutmob, Huge City, etc…) I can also see creating an incubator structure similar to Y Combinator where you have cycles of entrepreneurs creating a consistent consumer and investment flow. Ideally, it’s a blend between the investment-driven Founder’s Den and the 5M space, both in San Francisco. The 5M space includes the SF HUB, Intersection for the Arts, and Tech Shop. (On that note, we have a new Tech Shop comparable project coming to ATL this year currently looking for space, which is why I asked about zoning, and The HUB Atlanta has lost their charter, so that’s an international presence you could bring to the space.) And there’s the high end, short-term hospitality market to consider. Again, zoning is an issue, but if you can, having a few executive suites with accommodations could make ATV the go-to place for quick, executive business meetings in Atlanta. Even if you can’t have the overnight, I’ve rented luxury suites for one day meetings for 10K. And then there’s the startup conference market, and so many other opportunities. It will be about marketing and creating the right culture. I also think that you’ll need an amazing assistant / hostess with the mostess who understands this vision and knows how to facilitate it. =) email me. phabmissk@gmail.com

  4. I’m in commercial Real Estate at Cresa. Everyone in our office is talking about this (we are actually across the street) We are excited to see how it turns out! It’s clear your return expectations and plans for the building make a lot sense. The biggest cost for most building owners is “re-tenanting” every 5 years. ie – future Tenant Improvement dollars along with downtime from space turnover w/ tenants moving out. The model to have “flexible” work environments should mitigate a lot of this risk provided you can keep it mostly full based upon your membership structure. How long do you think it will take to get to 400 members? Best of luck and rest assured we will send any early stagers your way! Cheers!

    Bo

  5. We’re excited about this, thanks David. Two questions:
    1. What will be the criteria for deciding whether it is the “best” tech/startup facility?
    2. How much would it add to build an elevated pedestrian bridge from Chipotle to the 3rd or 4th floor? ;-)

    • Collaborative workspaces are social enterprise by allowing people to think for themselves, work for themselves, and provides a framework and accessibility to develop ideas. They lower the barrier to entry to entrepreneurial engagement and cross pollinate ideas working more efficiently than silos of “garage workspaces.” It is because of advancements in ideology from a business perspective that allows a shift and therefore redistribution of wealth which is arguably the greatest social change possible. David thanks for the work, its too often taken for granted. Most people with accomplishments like your recent exit would be enjoying their new island.

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