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Baltimore Sun

Start-up looks to solve start-ups' real estate problem

When real estate professionals Alex Kopicki and Jeff Jacobson started a development firm roughly three years ago, they figured they knew what they were doing, so they were surprised by one of their biggest problems out of the gate.

"We actually had a great deal of trouble identifying and locating our first office space," Kopicki said. "It was a real head-scratcher."

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And thus a new business was born.

As the real estate firm, Solstice Partners, took off, the pair started noodling with plans for a website that would make it easier for a small business like theirs to find a place to rent.

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Their first site, retrievRE, displayed available office space on a map. Launched last year. It collected about 2,300 listings in just a few months, but the business model didn't convince investors.

"We were providing a better shopping experience, but we weren't providing a better transactional experience," said Kopicki, 34, a graduate of St. Paul's School and the University of Pennsylvania, who worked for the commercial real estate firm Manekin for eight years before striking out on his own. "We said, 'It's easy to marry the two. … Why don't we provide a great shopping and transactional experience?' "

So they created Kinglet, conceived of as an "Airbnb for office space," a site where "hosts" can list available desks and "guests" can apply to license them on a month-to-month basis, receiving a reply in 48 hours or less. The platform, which also collects and distributes the rent, goes live for the first time Tuesday.

Kopicki said they expect to have about 1,000 desks listed on the kinglet.biz site within 60 days. The company, named for a tiny, adaptable warbler with an orange crown on its head, makes its money by charging the occupying business a 10 percent fee for the service.

"We're not doing anything really trailblazing," Kopicki said, "but it's important to understand that there's a huge void in commercial real estate and we see it as a really huge opportunity to meet the needs of small businesses."

Maryland had about 93,760 firms in 2011, of which more than 48,000 — just over half — employed four or fewer people according to U.S. Census data.

Such small firms enter and exit the market in the greatest numbers, generating demand for a service like Kinglet, Kopicki said. A licensing arrangement — instead of a sublease — creates a simple, easily reproduced relationship that allows someone to share use of a space, often without introducing issues such as insurance.

On the supply side are landlords with hard-to-lease small spaces or established businesses with desks to spare. The platform also may appeal to businesses that work with contractors or partners, or who hope to benefit from the injection of a young start-up energy, Kopicki said.

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Baltimore City's central business district had 300,000 square feet of available space to sublet at the end of August — about 16 percent of the total 1.8 million square feet of inventory, according to Colliers International in Baltimore.

"The problem that they're solving is actually a really ubiquitous problem," said Chris Brandenburg, a Millennial Media Inc. co-founder, who left the firm last year to become an early-stage investor and adviser and became involved with Kinglet earlier this year. "Every single company that I've worked for has sublet space from somebody else, but there's no efficient marketplace to do that."

Technology has been slow to enter the world of commercial real estate, but there are signs that is changing. There were 50 real estate tech startup deals worth a total of $365.9 million recorded in the first two quarters of 2014, up from 33 deals worth $57.9 million during the same period in 2013, according to a report by RE:Tech, a New York-based real estate tech and advisory firm that tracks such funding.

Pivotdesk, a Boulder-based company with a mission similar to Kinglet's and listings in 29 cities, attracted $6.6 million in funding in the second quarter of 2014, according to RE:Tech. It also is working on a product tailored to brokers, who might refer a small business to the platform at the beginning but reconnect with them as a client if the firm grows, said RE:Tech founder Ashkán Zandieh.

Zandieh said Pivotdesk and similar firms have been successful, but no one firm has emerged as a dominant national player. In an industry where local knowledge remains important, he said there remains room for new companies.

But Kinglet could face opposition from within the industry, particularly brokers who rely on representing tenants, said Matthew Myers, a Baltimore-based research analyst for real estate services firm Cassidy Turley, which is tracking about 500,000 square feet of sublet space in the Baltimore metro area.

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It is not common for office leases to allow tenants to license space, as opposed to subletting or assigning space, said Robert Manekin, managing director of Colliers International in Baltimore. While demand for sublets increases when vacancy rates are high, the relatively small size of the city's market also may prove a challenge, he said.

"I think there will be a demand for this type of thing in the future," he said. "However, understanding that many leases do not currently permit tenants to license space, as opposed to sublet or assign space, I would be concerned about having the requisite volume to create a viable business model."

Kopicki said the demands of Kinglet's target customers are too small to present competition to brokers, who would rather focus their energy on bigger deals, with larger commissions. When he first looked for space for Solstice Partners, he was hoping for about 500 square feet, he said.

Kinglet now owns its Federal Hill offices — it plans to list some of the space on its own site — and has four employees, including Jacobsen and Kopicki.

So far, the venture has been funded using money from Solstice's real estate deals, which include the redevelopment of Annapolis's Eastport Plaza into apartments and shopping, the construction of a medical office building on Frederick Road in Catonsville, and an $80 million apartment project in Locust Point, which counts the Bozzutto Group and former Under Armour executive Scott Plank's War Horse LLC as partners.

The firm expects to raise $500,000 in seed capital in the form of a promissory note, closing in October. The hope is to add three or four more people and expand into Washington and Philadelphia over the next year, Kopicki said.

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"It's a market and an industry that's pretty ripe for disruption," he said. "I don't see the 9th as a deadline. … It's not the finish line, it's the start line."

nsherman@baltsun.com


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