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Report on Business Ivanhoé Cambridge looking to cash in on growth of co-working business with new business model

Ivanhoé Cambridge, the real estate arm of the Caisse de dépôt et placement du Québec, is looking for a new way to cash in on the growth of the co-working business.

Ivanhoé, which manages $60-billion in real estate assets around the world, already leases space to high-profile co-working firm WeWork Companies Inc. and other office-sharing firms such as Breather, Spaces and Convene.

But the company is now considering a further push into that business under a different model. Instead of leasing its space to co-working companies, and allowing those firms to sublease it at a premium, Ivanhoe would hire a company to operate the spaces and share in the rental revenue.

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“Where I see the opportunity, quite frankly, is more on the hybrid model where you would partner with somebody and do a revenue share arrangement,” said Jonathan Pearce, Ivanhoé’s executive vice-president of office in North America.

WeWork and other co-working firms sign long-term leases with their landlords. As part of the lease terms, WeWork sometimes get landlords to pay more than $100 a square foot to renovate the space to their specifications, landlords have said.

The co-working company then gives their customers access to a sleek, renovated office, perks such as free coffee and the ability to rent the space for any length of time. In return for that flexibility, WeWork and other similar companies charge their tenants high rent.

It is a business model that has taken off in recent years as the North American economy has returned to stronger growth and as tech startups have grown and need more office space. A report in The Wall Street Journal last week said that privately held WeWork doubled its revenue last year, and the company is also said to be raising further capital for expansion.

“I think some landlords are saying, ‘I would like to share in the upside,’” Mr. Pearce said. “Co-working companies are seeing some push-back from landlords, who are saying, ’You are renting space from me for $30 a foot and you are charging it out at the equivalent of $100 a foot.’”

As office-sharing expands globally, the revenue-sharing idea is one of the options for property owners such as Ivanhoé.

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Swiss-based IWG has 3,300 locations in more than 1,000 towns and cities. WeWork has 381 locations in 69 cities.

In Canada, there are at least eight co-working companies, including Workhaus, IQ and Workplace One.

Ivanhoé’s co-working portfolio is growing. It leases to WeWork in Montreal, as well as other office-sharing firms in New York, Chicago, Boston, Denver, Seattle and Los Angeles.

Ivanhoé’s parent, the Caisse, recently made an equity investment in Montreal-based co-working company Breather.

The office market is changing so quickly that Ivanhoé thinks at some point about one-third of its office space could be flexible, short-term and co-working leases.

But as with many other landlords, Ivanhoé is concerned about how WeWork and others will perform when the economy slows.

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Most of these co-working companies were established after the Great Recession and have only experienced a strengthening economy and growing demand for office space.

The revenue-sharing idea could help mitigate some of the risk. Instead of a lease between Ivanhoé and a company such as WeWork, the contract could be an operating agreement where “you bring in somebody to operate the space,” Mr. Pearce said.

Then if it does not work out, the landlord would have the option to terminate the co-working operator. Ivanhoé does not currently have such an arrangement.

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