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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
September 2006

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Real estate guide: Space talk


Space talk

Office moves work better with staff buy-in, adviser input

by Andrew Tellijohn   MACKENZIE MARKETING bills itself as a hungry agency using brains, willpower and bottom-up branding to create “really good” communications for its clients. Company officials believe such work involves collaboration among employees.

But in the office's “hobbit trails,” as staffers called them, and cordoned-off dead space, its headquarters in Plymouth did not provide such an atmosphere. A recently completed redesign there is one example of ways that small-business owners can make better use of their office space.

Realizing the stigma often held against marketing companies not located downtown, founder Andrew Mackenzie explored moving to a new location. But many employees appreciate the company’s existing headquarters, which overlooks a wildlife area in a building with plenty of parking and less rush-hour traffic.

“There were attractive markets,” Mackenzie says. “Downtown is hip and cool. It’s tough to make Plymouth hip, but it is convenient. Parking is easy. Being downtown was not as conducive to our family life as many of our employees would like.”

So he set out to find a way to make his existing space more palatable. He received an allowance from building ownership and dug into his own pockets as well. The result was a whole new atmosphere, complete with plywood, industrial felt, and plenty of open space for impromptu conferences and brainstorming sessions.

The redesign stripped all the doors off individual offices and converted them into walls for new conference rooms. Perimeter offices remain, but the middle of the room was turned into a bar-like atmosphere complete with high stools, countertops and other communication-building tools such as white boards, sliding doors, televisions monitoring the day’s news and large tables.

“Suddenly it was the hip, cool place to be,” Mackenzie says, adding that as part of the deal, he re-upped his lease for three more years.

First, ask questions
Mackenzie sought a lot of help in creating the new headquarters office. He conducted anonymous surveys of employees to see what ideas they had. While not always completely on board with their answers, he incorporated many of them into the final project.

“You push and you probe and you get back responses,” he says. “I think you should never ask any questions if you aren’t willing to act upon the answers.”

He also enlisted 20 Below Studio, a Minneapolis design firm, to help perform an on-budget renovation that signified “a thawing of relations between the suits and the creatives, between accounting and production,” according to a statement the company released at the time.

Heather Rose-Dunning, a principal with 20 Below, says Mackenzie went about building a happy workplace the right way, by starting with employee feedback.

“Having buy-in at all levels is important, and when employees feel as though they were a part of the process, it is much more meaningful to them when the project is complete,” she says.

While input is important, Rose-Dunning adds that having a single decision maker also is vital in maintaining a vision. Mackenzie straddled the line between getting staff buy-in and working with 20 Below well.

“He and his leadership team put personal preference aside,” she says. “For instance, one of the big moves we made was to eliminate office doors and reuse those doors in smart ways. This wasn’t something the staff was crazy about, but it addressed a lot of small problems in a big way by breaking down communication barriers and freeing up an otherwise underutilized construction material.”

Officials from Minneapolis-based Architectural Alliance, which is active in corporate projects, say companies are doing a better job of incorporating employee thoughts and needs into their office design. Incorporating sustainable products and building in access to daylight can be a retention tool and a source of pride among employees.

“It’s very much catching on,” says Sharry Cooper, principal. “We’re seeing many more of our clients embracing those ideas.”

Architectural Alliance will often start a relationship with new clients by bringing a coalition of executives and employees on tours of completed projects.

“There’s nothing better than the visual,” she says. “You really get a feel for what kind of workplaces we are talking about by seeing them. It’s interesting. You really do get an immediate reaction from the new client.”

Carey Brendalen, another principal at Architectural Alliance, says providing employees with a fun culture and amenities are one way organizations can differentiate from competition. Employers should consider that and other objectives they hope to achieve in a renovation. If achieving them is not possible, often “it propels you to consider another option.”

Involve advisers
While staying put might at times be the easier choice, sometimes it isn’t possible. Ward Eames, founder and president of The National Theatre For Children Inc., left an office in downtown Minneapolis Warehouse District five years ago after being informed that staying meant a dramatic rent increase.

The for-profit theater company looked for a place to buy but ran out of time and leased a building in Dinkytown for five years.

Two years ago, Eames and a team of advisers again began looking for a place to buy. He and his wife just purchased a building that will be used for office space and rehearsals in south Minneapolis. The couple will lease the space to the theater company. They moved in July.

“It doesn’t change my ongoing operations,” Eames says of the new building. “The big picture is that I have space and particularly land that allows me to expand should I wish to do that.”

The team Eames involved in the purchase included a real estate agent, a financial adviser and a personal accountant, all of whom he has standing relationships with. He’s been planning for years to buy a building for his company as soon as the family had bought a summer house.

After 27 years in business, Eames says it made sense to buy because the company had the cash it needs to operate day-to-day and had other resources tied up in investments that were just as well used on the building.

“Do you have that cash and is that cash OK to be tied up in a real estate, or is it cash you need to run your business?” Eames says. “If you need it, tying it up in real estate is probably not a good idea.”

When Eames found his new building, he contacted Joel Jackson, a vice president with Bremer Bank, with whom he has a long-term relationship. Jackson got Eames financing from the U.S. Small Business Administration through the St. Paul/Metro East Development Corp. (SPEDCO), a New Brighton-based nonprofit that promotes growth and development of small businesses.

SBA 504 loans through SPEDCO are generally second mortgages ranging from about 10 years in length for equipment to 20 years for real estate, says Andy Clausen, senior loan officer for the organization. While it only assists organizations in buying, SPEDCO will occasionally tell small-business owners it might be in their best interest to lease, “potentially if it’s a start up business and a repayment source isn’t that verifiable or easily defined,” Clausen says.

Ownership also isn’t a good idea for companies that would otherwise be plowing the capital back into growing the business, he adds. “That’s a major factor.”

On the other hand, businesses that want to diversify holdings and build equity, and that know their needs are stable might consider purchasing an asset.

“I might as well pay rent to myself so I can have something in 20 years that I can sell,” Clausen says.

Investment grade
Some local business owners expressed their desire to own rather than lease for investment reasons. The opportunity to buy a building on East Hennepin Avenue in Minneapolis was part of what drove Nina Wong to open East River Market.

Wong, who had worked in her family’s restaurant, Rainbow Chinese Cafe on Eat Street, since she was 14 years old, had always wanted to start her own business. In 2003, she was helping a friend buy some flowers when she saw a rundown building in the southeast corner of the Como neighborhood up for sale.

“I’ve been eyeing up the real estate market for a long time,” she says, adding that in her late 20s, she realized she couldn't rely on the family business forever: “I need to venture out on my own.”

Wong had some background in real estate and when she called up the seller’s agent, she thought the price was fair. She received financing from Franklin Bank in Minneapolis to purchase the site, and later was also able to acquire the parking lot across the street.

While the building needed some work and the parking lot is not yet paved, she opened her business in March 2005 and has slowly been building sales through donating her work for charitable events and word-of-mouth advertising.

One thing Wong insists, however, is that the East River Market never would have come to pass through a lease deal.

“It’s more security. You don’t get kicked out,” she says. “Anytime you own something, it is always increasing and you have more control. … I would never put in all this work had I not owned the building.”

It’s not unusual for clients to focus on building ownership. At times, given the cost of retail and restaurant buildouts, it can make sense, says Steve Chirhart, a real estate broker who helped found Minneapolis-based TaTonka Real Estate Advisors.

That said, leases can be structured to provide significant protection against landlords, and ownership at times can be risky.

“If the restaurant fails, all of a sudden the real estate fails too because there is no longer a tenant in place,” he says.

One alternative that would provide diversification for a business owner intent on using real estate as an investment tool: leasing the space for a business while buying land or building elsewhere.

There are “a lot of good reasons to own,” he says, but be careful to evaluate the long-term picture.

“If they can’t purchase a piece of real estate and hold it for at least 10 years, it might make more sense to lease for flexibility reasons,” Chirhart says, adding that owners need to factor the cost of debt service, the opportunity cost of equity, operating expenses and the cost of leasing.

 “In a softer market, it can often be attractive to lease when you compare those. If your needs are super stable, many times owning will make sense.”

Similar factors come into play when considering a move versus a renovation. The cost of moving, printing new marketing materials, and other expenses might make a renovation palatable.

At the same time, “One of the challenges of staying in your existing space and remodeling is that it can be extremely disruptive,” he says.

[contact] Carey Brendalen, Architectural Alliance: 612.874.4128; cbrendalen@archalliance.com; www.archalliance.com. Steve Chirhart, TaTonka Real Estate Advisors: 612.466.7302; svc@tatonkare.comwww.tatonkare.com. Andy Clausen, SPEDCO: 651.631.4900; spedco@visi.com; www.spedco.com. Sharry Cooper, Architectural Alliance: 612.874.4114; scooper@archalliance.com; www.archalliance.com. Heather Rose-Dunning, 20 Below Studio: 612.378.2021; heather@20belowstudio.com; www.20belowstudio.com. Ward Eames, The National Theatre for Children: 612.341.0882; weames@nationaltheatre.com; www.nationaltheatre.com. Andrew Mackenzie, Mackenzie Marketing: 763.417.7300;  amackenzie@mackenziemarketing.com; www.mackenziemarketing.com. Nina Wong, East River Market: 612.676.1818