A long time ago, I asked Joey Kline if he’d have coffee with me and provide feedback on a new approach I was promoting. I wanted his opinions on a strategic tool that I thought was perfect for expanding client solutions in commercial real estate by leveraging an on-demand furniture subscription – what is now CORT Furniture-as-a-Service™ (FaaS).
Listening to me, it was obvious Joey saw potential. Over the years, his perspective has been invaluable to me. He’s a visionary, an entrepreneur, and a successful senior tenant representative at JLL in Atlanta, GA.
With so much change occurring within the commercial real estate industry and the workplace, his perspective on why he’s still passionate about the industry, the state of subleasing in the U.S., and trends within the ever-evolving workplace.
MELANIE JONES: It’s been a rocky ride in commercial real estate. For you, being a leader for JLL in Atlanta, how have you remained passionate about the industry?
JOEY KLINE: It’s been a weird couple of years, right? I’m still passionate about my role in commercial real estate because I like what I do. I’ve also been doing this long enough to be insulated from the shock someone may experience in their first year or two. True, I’m an eternal optimist, but I still see opportunity.
The market may not be in the same place it was two or three years ago, so I’ve shifted part of my business and now look at sectors and asset types that are more active. I feel pretty good about the diversification of where my clients come from.
In general, I refuse to believe there’s no longer opportunity in this business. I am still determining how and when it will all shake out, but commercial real estate brokers have had hard times in the past. It probably seemed like it would last forever, but eventually, it came back around. I’m certainly not going to let this disruption stop me from doing the thing I decided I would do forever, so to speak.
MELANIE JONES: During challenging times, it is essential for people and businesses to find the support and guidance they need. How do you believe tenant representatives can do this for clients?
JOEY KLINE: We simply help people find space for their business. Some tenant reps have specialties meaning they may only represent tenants or only represent landlords, or perhaps they help people with a particular asset class. As tenant representatives, we bridge the gap between the property and those looking to occupy the property.
Typically, our job breaks down to 50% business development, hunting for new business and relationships, and 50% execution of that business. Creating proposals, finding space, helping people make financial decisions, and guiding them through the process.
MELANIE JONES: There is a tremendous amount of vacant sublease space on the market. Phoenix, for example, has 434% more sublease space than before COVID. Atlanta has almost 7 million square feet.
What’s your perspective on the sublease situation, and do you find it alarming?
JOEY KLINE: To be honest, it is a bit alarming. No two ways around it. It’s helpful to look at all sides of the situation, though. The Atlanta office market, in total, is about 150 million square feet. So, we’re talking about 5% or so of that. That’s not terrible. Yes, probably the highest it’s ever been. Granted, our office market is larger at this point, but still, seven million square feet, that’s a lot!
Is it a good or bad thing? I don’t know. It depends on who you’re asking. If you’re a tenant, it has created a very tenant-friendly lease negotiating market.
Suddenly we see subleases that are 20% to 25% below market. Landlords compete with sub-landlords in many cases. Properties are competing against properties. Obviously, this is a hard time for many landlords for various reasons.
The change in commercial real estate and the workplace has transformed what was a very landlord-favorable market into a very tenant-favorable market.
MELANIE JONES: How do you see all the sublease space being consumed?
JOEY KLINE: One perspective. Let’s say a company has yet to successfully sublease space. They will say, “we’re sort of back to “normal” now, so we will just stay in this space.” Or they’ll say, “we just don’t need this much space, so we’re getting out of it.”
At a certain point, the amount of sublease space decreases. It may reduce because tenants remain in their space or renew it directly, and it comes off the sublease market. Or it decreases because space is being vacated and becomes a vacancy on the direct market, not the sublease market.
MELANIE JONES: Interesting! Several years ago, you and I collaborated to support one of your clients who had a vacant full-floor sublease with 24 months remaining on the lease. You went to your client and presented the idea of creating a contemporary plug & play environment to accelerate interest and charge a higher square footage rate. We made it, and it worked perfectly to quickly get a tenant in that space. Now, more than ever, there’s a growing interest in on-demand furniture models like CORT Furniture-as-a-Service. The type that supports leasing activity. What are your thoughts on this?
JOEY KLINE: One of the reasons we work with CORT with sublease space is to create furnished space that is very flexible. If a sublease space isn’t furnished, why even market it? The other thing is that many tenants want to avoid investing capital and prefer to delay decisions, and FaaS allows them to do that. And frankly, some smaller companies want to avoid owning furniture altogether. So, it’s a perfect recommendation to share with them.
MELANIE JONES: Do you support tenants entering Space-as-a-Service environments like WeWork, Industrious, or Convene?
JOEY KLINE: Flexible office providers are doing deals, but most tenants can do it themselves. Some companies pay broker fees for this, and I have certainly helped clients in the past, but it is usually a bridge to something else.
MELANIE JONES: How are negotiations between tenants and landlords changing?
JOEY KLINE: We are doing some creative structuring of deals. Let’s say a company is growing fast.
Typically, from a space perspective, the trajectory of such a company is in coworking, then they graduate to a 12 to 18 months sublease. And then, they grow into another space and take a two- or three-year term. They continue to grow at a nice clip and feel ready to invest in a five-to-seven-year term.
In the end, they are at 15,000 to 20,000 square feet, but they made a journey of picking up and moving every couple of years. It’s a real pain in so many ways.
I have supported clients and negotiated with landlords with a phased-in growth strategy. We sit down, look at the headcount and evaluate what will likely be in three to five years.
We calculate square footage, and then we work backward. Look at 5,000 square feet in the first year, 7,500 in the second year, and 12,000 in the third year as their end game.
We find the building they want to be in and reach out to the landlord with a plan. The plan states that the company doesn’t want to move four or five times but right now, they don’t need the whole space. We’re asking to build it out with the entire allowance upfront, and they will ramp up each year until they are utilizing and paying for the entire space.
The idea is to get the killer space they ultimately want, at a reasonable monthly amount, not pay for more than they need as they grow. It helps them stabilize and recruit talent.
MELANIE JONES: Think of the disruptions all those moves cause, the reduction in legal fees, costs of moves, and reconfigurations. It sounds like a win/win scenario in many cases!
I am a bit of an activist for the CORT Furniture-as-a-Service offering. One must be a bit bold to create change. You, too, are an activist for Atlanta in a lot of different ways.
JOEY KLINE: I am a cheerleader for Atlanta, no doubt about it. I am a cheerleader for cities in general. The commonality of what I do is I’m a lover of urban experience. There are so many cities across the country that have fun things to offer. Obviously, Atlanta is the city where I’ve made my home. I get involved where I can to make a difference. Positive developments in transit, for example.
MELANIE JONES: I love your TechTalk radio show. You have exciting conversations with technology and start-up companies. This makes sense considering one of your specialties is in supporting companies in these sectors. So, why did you start it, and what’s your favorite part about it?
JOEY KLINE: I launched it because I saw a hole in how information on exciting early-stage companies was distributed. As you mentioned, I do a decent bit of work with early-stage technology companies, which means I’m surrounded by fascinating, ambitious, intelligent people daily. While they might not be household names in the City of Atlanta or the State of Georgia, they are making an impact. I’m passionate about sharing the stories of companies doing exciting things, creating jobs, and solving problems.
MELANIE JONES: I think it represents the fact that you are an entrepreneur in your heart. That’s obvious to anyone that knows you. But also, Atlanta is such an ideal city for start-ups, technology, creativity, and quality of life. Kudos to you.
You told me once that you really enjoy helping clients find just the right suitable space and then witness how they begin to change the city in their own way.
JOEY KLINE: It’s very fun, at the end of the day, to know I’ve helped a company work through the puzzle. Tenant representatives are middlemen in one way but also so relevant in enabling a transaction. Whether it’s finding some fantastic old building or selecting a glitzy high-rise, figuring it out is the fun part.
Variables and economic elements must combine to make it a suitable space. We’re not the ones who will occupy the space. We are not the ones who are building these companies. The more we understand the people, the culture, the ambitions, and such, we can do a better job finding the perfect spot. The pleasure I get is in pulling it all together for my clients.
MELANIE JONES: How are you and your fellow real estate leaders staying current with the fluid, changing world situation encircling commercial real estate and the workplace?
JOEY KLINE: With all kinds of things, but mostly reading. It’s imperative, in my opinion, to be versed in more than just real estate. We should all be subscribing to real estate publications, whatever they may be, to keep up with what’s happening in our backyard, nationally and globally.
I don’t think you can be a good broker unless you are very well-informed on macroeconomic and business trends in the city and country. If for no other reason than simply to have an intelligent peer-to-peer conversation with C-level executives.
MELANIE JONES: Do you have any projections on return-to-work trends? Will we see Elon Musk’s demands to show up regularly or steer more like Airbnb and their approach to working from anywhere?
JOEY KLINE: Like with most things in life, it’s somewhere in between. We are seeing many large companies and leaders acknowledging that freedom and flexibility are important. However, there are solid reasons that we come together. Social enjoyment, the ease of collaboration, or maybe just the opportunity to get the creative juices flowing
Hybrid work will probably be the long-term standard, with many working two to four days per week in an office. Of course, that depends on the company and the roles of the individual.
MELANIE JONES: Thank you for your commitment to an industry and community we both love. I’ve found life is a journey chalked full of ups and downs, and having the right attitude and vision of where we are going makes all the difference.