Design, Ops, And Risk: The Real Math Of Executive Office Space

Empty floors do not fix themselves. We share how we turned lingering vacancy into high-demand executive offices by solving the unglamorous problems most landlords ignore: noise, airflow, access, signage, and Wi‑Fi. Along the way, we lay out a repeatable blueprint that attracts small teams and solo operators without sacrificing margins.

We start with the first conversion that surprised us: six leftover rooms leased in 30 days, then an expansion that forced us to conquer sound bleed in a 16-foot-high, glass-heavy space. After testing white noise and partial grids, the winning move was elegant and cheap—compact light-and-exhaust fans in every office, all controlled from an iPad. That one system improved comfort, reduced complaints, and avoided costly ductwork. From there, we built the operational stack: mobile fobs for access control, interior and exterior cameras, consistent signage with a low-cost lobby TV directory, and a digital receptionist that alerts tenants when guests arrive.

We talk strategy you can implement tomorrow. Two conference rooms beat one, with most meetings under four people and a larger, tech-forward room closing tours. Keep kitchens lean but make the coffee bar great. Standardize office furniture to protect brand and speed leasing. On pricing, we explain load factor math, why effective rates can beat market full service, and how to plan for turnover. We also draw a clear line on connectivity: get fiber, use one managed Wi‑Fi vendor who creates private networks per tenant, and route regulated users to dedicated service through that same provider.

Service suites can work, but they bring more calls, higher default risk, and heavier plumbing, so match building to use. Skip desk phones, consider a managed printer, and lease out the reception desk at a discount to a tenant who benefits from greeting visitors. The theme is simple: design for comfort, standardize operations, and let technology do the heavy lifting. Subscribe for more practical playbooks on building smarter and investing wiser, then share this episode with someone planning an office conversion. What’s the one upgrade you’d implement first?

Learn more about Blue Commercial Properties on our website.

Transcript

Welcome And Today’s Focus

Michael Carro 0:00

Welcome to Blue Dirt, the podcast that digs deep into the foundation of commercial real estate investing. Unlike most real estate shows that focus on deal making and market trends, Blue Dirt gets into the nuts and bolts of what truly builds long-term value, the building itself. We break down how to spot deferred maintenance before it costs you, why a solid preventative maintenance program is a game changer, and how triple net leases can maximize your investment returns. We'll also explore the importance of strong landlord-tenant relationships and how they drive stability and growth in your portfolio. Whether you're a seasoned investor or just getting started, Blue Dirt gives you the practical knowledge to make smarter, more profitable decisions in commercial real estate. It's time to get your hands dirty and build value from the ground up. Let's dig in. Welcome to Blue Dirt, where even idiots can make a killing in commercial real estate. I'm Michael Carroll with SVN Southland Commercial Real Estate. Join with And I'm Don Redhead with Blue Commercial Properties. And today we're going to talk about executive office space. Ever since the pandemic, uh there was an exodus from offices. And it's kind of like a halfback situation where a lot of offices or smaller uh companies that may only have one, two, three, or four employees, instead of renting a big office space, they're coming back saying, uh, we're going to take a la carte spaces. It's a great way to enter back into a market. It's a lower cost, uh typically lower risk, a lot more common area. Very different than co-working, where you have a lot of collaborative collaborative office space. We actually own and manage how many?

Don Redhead 1:48

Uh we currently manage five executive office buildings. One's kind of going away. Okay. And then we uh we actually have one that we're bidding on currently.

Michael Carro 1:59

Yep. So and I walked uh a property this morning with somebody who's buying an office building, they want to take half of it for themselves. And they were asking me about the other half for exit executive office space. Yeah. So um, so it's it's something that we do a lot of uh from a brokerage standpoint. Um, as a leasing agent, there's not a lot of money uh for the agent. But you if you find an agent that really can lean into it, because it's consistent money, it's just not a lot of money. So from a pure brokerage standpoint, uh that's something you got to overcome that challenge. Um we overcome it because we we do so many of them that you make up for it with volume. Okay. Um, but let's talk about how we take an existing property, make it executive office space, and maybe some of the benefits that we have seen uh as a landlord and ownership group. But then a lot of there's a lot of challenges that you also have from a management of that. So uh where would you like to start? Oof.

First Conversion: From Vacancy To Velocity

Don Redhead 3:04

Um probably the preparation of the space. What are you what are you actually setting it up for? How how should you design it? Uh, I mean, it is something that is is like you said, most of the time it's an individual. Um, the one I met with yesterday that is is gonna only be occupying two of 18 offices. I don't think he has any other real estate. Okay. So it's kind of he's getting to play both. He's already an entrepreneur, right? And now he's getting to to to dip his toes into the real estate side uh uh as well. The other part is when they actually, you know, uh commit to this, it is a little bit of upfront capital expense, right? Because you do need to have the space prepared really for everybody just to kind of move in immediately. Great.

Michael Carro 3:48

So you're it's it's already then let's let's start off with how we backed into uh uh we were one of the early pioneers adopters of executive office state in our area, but it was really more out of necessity and and and desperation and not so much demand. There was two. So um so we purchased a building in in in downtown area um that had it was vacant, it had 10,000 square feet on the first floor, and um and so we marketed it 3,000, 4,000, 5,000, 6,000, you know, all the way up to 10,000 square feet. I was willing to break up this building any way that I needed to just to get some tenants going. And fortunately, we found a a quick tenant for about 7,000 square feet. It started off less, but then they grew into even more space. Yeah, but then there was this extra space that was left over, good space. Um, it happened to have about six offices on one side, but when we put the wall down, it was extra space on one side, and then there were six fixed offices down the one side. That side also had a kitchen. And we we navigated through the space where we had common area restrooms. Okay. And so we put it on the market to lease out the whole space.

Don Redhead 5:15

And it still flowed very well. Oh, it's surprising, you know, the even the open area that we're saying that's a little bit offside, uh, whatever you would say, unbalanced, it still was fine for what you we see in a lot of places.

Michael Carro 5:28

Especially, yeah, you could put in cubicles there, you could put in uh reception, uh not reception assistant desks.

Don Redhead 5:34

And like you said, it had its own break room, the restrooms were very natural fit, right? The hallway was already there. Because it used to be a bank, how it was designed actually worked very well.

Michael Carro 5:45

And it didn't have a front door. So one of the first things Don had to do was take it had a pretty large six-foot window. Yeah, it was a pretty large glass, so uh probably a six-foot uh glass uh system. Almost, yeah, took at least six to eight. Yes, took that out and put in a door. So now we had a front door and put it on the market for 3,000 square feet. And um, I mean it sat. It sat for I don't know, eight, ten months.

Don Redhead 6:12

And this is on you know, Al Fox, our main street. It's it's north of the the central business corridor, but still really in the heart of it. Right.

Michael Carro 6:21

And so so I was like, you know, screw it. I I'm just gonna lease out one office at a time. And uh because I just want to generate some revenue. Um, we had we were this particular acquisition included three buildings and a parking lot. So we took off a a big chunk of space that all was virtually vacant. And so our goal was uh well, one of the buildings was used as a warehouse, so very low rent and and just temporary space. So, anyways, to my surprise, within 30 days, I leased out all six offices uh to individuals, and I was like, Well, hold on a second. This this kind of worked out, and so Donnie went to work and built another uh seven spaces on that side. What three?

Don Redhead 7:20

Then two more and then two more.

Michael Carro 7:23

Uh whatever that number is. So he built them out and uh and they leased out as well. And lo and behold, we're like, hey, we're onto something. Yeah, that's usually how things happen with us is you know, we get desperate, we make a move, and then find out there's a market for it and got lucky. So so then the next building, uh, we had uh that that other building that was being used as a warehouse. We went in there with the specific design of creating a retail space and this executive office space where we were gonna move our company into it. And so we built, we designed it to have, I think, 28 offices. These were a little bit different because this had super high ceilings, and this is where Don, we we went through probably two years of of kept trial and error because why don't we talk about that? Because it was a unique situation. But you know, if you were gonna duct, put HVAC into each office, it would be so expensive. And so let's talk about the noise and the and the uh uh airflow in this building.

Don Redhead 8:36

And to emphasize what you you had just said, uh almost everything we're gonna talk about is is we had to learn so hard. Like it's like during the meeting yesterday. I had uh explaining it to that guy. As we went through all the different solutions, this one is is even more unique uh to go back to the airflow. But it was we just had to learn the hard way, the hard way, the hard way on so many different elements.

Sound And Airflow Lessons The Hard Way

Michael Carro 9:03

On my dime, though. And my frustration. Yeah, his frustration, my nickel. But you know, the thing is that's what that's what it takes. I mean, but guess what? We're able to share these expensive solutions with other clients who who no longer have to spend that kind of money. So, and we don't mind sharing everything because we want everybody to be successful.

Don Redhead 9:24

Yeah, and that's how that that meeting was even yesterday was listen, this is what you need to do, whether you hire us or hire someone else, or do it yourself. This is what it needs to be successful. Do not try, and they kept, you know, well, what if we did this? I go, just do it this way. In six months, a year when it's actually working and successful, come back and make those adjustments that you're that you would like to make. But just do it this way from the beginning, and you're gonna say if you have a lot of hard um heartache. Uh, so with this one, when we were originally building out the offices, the gentleman who is selling us the furniture systems, because they're really glass offices, and that's how they sell them as furniture systems. It had a what we were sold as a soundproof ceiling or sound dampening ceiling that really wasn't but we never saw a photo. It's coming, it's coming, it's coming, it's coming. And then at the very end, everything was done, and he was like, Okay, I'm gonna start building these. And he tried to build them really fast. And we walked in and we're like, that's not what was being described, that won't work.

Michael Carro 10:31

So we just well, and to be specific, imagine putting up two by six joists over an open ceiling, you know, that are maybe 18 inches apart. Yeah. And like a pergola. Yeah, like a pergola. And uh, and we're looking at him saying, that's not gonna dampen the sound. I mean, it may dampen it, but it it's not gonna be enough to make it a quiet office. Yeah.

Don Redhead 10:56

So an executive quiet professional. So so the first iteration we we ended up doing was essentially we uh put ceiling grids in each of the offices because the ceilings in in this building are roughly 16 feet. Right. So they're really tall. It used to be a a theater, and the height of these is roughly probably nine foot. Right. So we added ceiling grids in all of them, added you know, ceiling tiles, which are are you know essentially a cardboard material, uh, as well as um translucent panels to help once again with the sound. And it still just it helped with the sound, I guess. Let me clarify.

Michael Carro 11:36

Well, and and by the way, when we put the grid in, it it it we didn't fill in all of the grids. We we we we would start it off with maybe half or third. Because then it would let air exchange. Because we needed the air to to exchange and let light through, right? And so, because we at this point we weren't thinking about adding light fixtures in each one, or no, they had a lamp or airflow, right? So, so we tried this out, it's still pretty loud.

Don Redhead 12:02

So then it came to hey, it needs to be quieter. So we've we added uh lens covers that fit inside of a ceiling. Well, hold on. We also added the Bose noise canceling, so there was this constant buzz. We had Bose in the office, they're just making white noise.

Michael Carro 12:18

So that's the the noise dampening systems that that you know, these Bose speakers, they're actually casting noise. Just to try to quiet down the other noise, right? Just to be louder than it's not really noise canceling, it's just noise on top of noise. So that's all we're just so you just had a you had a cat you had a headache. I mean, just it just this constant, just whatever it was.

Don Redhead 12:42

It was yeah, it was a buzz. Didn't it wasn't enjoyable? So kept getting complaints. So then we had to take the next step, which was to fill in the rest of the the void and add those lens covers, which allowed light through, but basically turned it into a hot box.

Michael Carro 12:56

Yeah.

Don Redhead 12:57

Um, so after dealing with that for a few months and actually, you know, experiencing it, dealing with it, we're like, okay, we have to come up with another solution. Because some of these people will go in this executive office and sit there for four hours, you know, making phone calls, you know, without opening the door.

Michael Carro 13:13

You open the door once, you get a lot of air exchange. Correct.

Don Redhead 13:16

Because they're not big, they're they're very small offices. These ones are we call these micro offices. Yeah. So I don't know where the idea originated, but essentially it was a few different ideas, and essentially we added um exhaust fans uh that you would see in a typical restroom, and we added one into each of the offices. But what we did was we added the smart switches uh or smart outlets to these to where we could control them from an iPad. So we put an iPad in a central location, added the exhaust fans throughout. That way it would it would pull the heat load out and then try to pull air in, you know, underneath the door or wherever it could actually get it in. And it was I don't even know how much cheaper than it would have been running duct. We're talking 10 cents on the dollar, five cents on the dollar, right? Relatively speaking. So, but I think the big part of it was to have the central iPad with the smartphone.

Michael Carro 14:16

Hold on, is that what you're saying we have now?

Don Redhead 14:17

Yeah.

Michael Carro 14:18

Okay. Well, let me add one thing to it because we had a couple of tests before we ended with the uh final product.

Don Redhead 14:25

Oh, yeah.

Michael Carro 14:25

But the final product is actually really cool. It actually has a light and a fan all combined, right? And so you go to the iPad for your office, you you you hit your office number, you can hit light, it'll turn the lights on, and you can hit the fan. So sometimes people don't want the fan, so you don't hit the fan. Um and uh and so it we finally landed on something that really works. And now it was, I don't know, did it take us two years to get this thing to work?

Don Redhead 14:54

It probably did because of you know, you you run a sample, they go, no, no one likes it. Okay, make a modification. All right, they like this, they don't like that. You do the next one, you buy a couple variations of fans. Um, they had some other ones that are essentially a rotating, you know, regular circular fan. Um it's kind of interesting.

Michael Carro 15:14

So, in the interest of time, let's kind of move this forward to financials.

Don Redhead 15:17

Oh, we don't want to talk about this the entire time.

Michael Carro 15:20

No, I don't want to.

Don Redhead 15:21

This genius idea with iPads and smart switches.

Michael Carro 15:23

It is a great idea. Just uh email Don and he'll give you all the information because it's pretty cool.

Smart Fans, iPads, And Final Fix

Don Redhead 15:28

Yeah, just call me and we'll talk about it for hours. Um you want to move right to the financials or more of what you need operationally operationally uh to manage this facility. Uh it comes down to really a few different things, and and each one is is critically important in its own right. Um, access control is probably one of the biggest. Um, people really do like and enjoy the FOB type systems. Right. Um, you can use your phone now. There's there's an expense associated with it. Um, so that's one that you seriously want to consider. Uh common area cameras, just when access control.

Michael Carro 16:05

So, what that is is the ability to enter the facility without keys. Okay. So keys into the outer doors, which usually has a mag lock type situation where it's magnetically locked. Um, you can set those on a timer, open it, uh, unlock at eight, uh, lock at five. Um, we have our rear door, which is always locked, and our front door, which uh is unlocked during business hours. So that's when he says access control, that's what he's referring to. And then each door has specific access control. You can use the same key fob to unlock your office door, and those are all programmable so one person can't get in anybody else's office. And while a janitor might have full access to every uh fob on the property. So just want to clarify what access control system is.

Don Redhead 16:50

Yeah, good point. Uh, and and part of the reason why it is important is you are going to get the phone calls that someone literally just locked their keys in their office. If you can control it from your phone, you can unlock, or at least if they have keypad numbers uh in the suite. The gentleman we met with yesterday, he had already had key pads on all the doors. We just recommend it next year access. That way you can also track who's coming. Um, typically the clientele is already a little bit more elevated because they're they're typically entrepreneurs. Um so, but knowing the fact of that, you know, Michael checked in and came into the office at noon on a Saturday, and there's an issue after that, it it does, you know, it's it's helpful. Um, and you can unlock it remotely. We told him take all the keys, just give out codes. You don't want to be uh having to deal with that. Uh signage is also very important. You want to have good signage, signage that's also easily updatable. Uh digital signage works really well for that. Uh there are some some cheaper applications for it. You also want to be a TV that's specific for uh signage, but not and what I mean by that is one that stays on for an extended period of time. Some of these will automatically shut off. And if you can avoid a sign specific TV, um, those get very costly. Uh the mail is always a huge management element to it.

Access Control And Security Basics

Michael Carro 18:14

Um and a lot of times because your tenants will put they might operate five different businesses out of it, so you're getting mail and you have no idea where it goes. And so some of sometimes it's random like that.

Don Redhead 18:28

So that's that part always poses a little bit of a challenge. In some of our offices, we actually lease out the reception desk. The receptionist uh takes care of it. We I'll talk about that as a different strategy here in a second. Um, they'll manage it. Uh, there's other ones where we physically have to stop by and manage it. That's the least desirable uh because you have to get there timely. Mail is important. Uh, one solution we've had a very long time. Used to be property manager, she owns a cleaning business now. She works as part of it. She actually goes through the mail and manages it. Uh, whatever solution, it's just you have to find something that works, but it's it's be mindful of of finding that that real solution. Um cleanliness, commonary cleaning. Uh, we don't offer the offices to be cleaned. It's not, you know, most people actually don't want it, surprisingly. But you do need to get a a common area cleaning done and share the schedule. Uh, a lot of people will put their trash outside the door on those certain days.

Michael Carro 19:29

Uh, and by the way, uh we have it done twice a week. Um, some buildings, you know, may want it more, uh, maybe want it less. Um, but you know, uh, we also in in this case, we occupy the one that we're in. You know, it's I think 28 suites um with two common area conference rooms, which we have a system where you uh everybody has the ability to log on and and see the conference room schedule. You can uh block your time using that system.

Don Redhead 20:02

Um we have you can also book other ones because like you're you're saying we have multiple locations. You can actually book one of the other offices downtown if you need a bigger conference room. Right. If you want this one, this one's booked, you can't.

Michael Carro 20:13

And in our world, it's all included. So we're we're not we're not a la carteing stuff like that. You know, there might be ways to generate more revenue, but we are very a la carte. Uh uh, I'm sorry, we're not a la carte on all of these fees. If you lease from us, you get access to all of these spaces. Um, one of our uh places has a a podcast room on the north side of town. Uh it's it's been fantastic. Um so, you know, we're leaning into technology. In fact, Don is about to install next week into our space. Uh, we had an employee that left. And so um what we're thinking about replacing that person, but in in in addition, we're supplementing it with an iPad at the front desk that has all of the suites with the people's names or company names, could be with their photo. And so when you when a when a client or a customer comes to the front desk, it'll say, Who do you want to see? And you you press a button, I want to see Don Redhead, and you press his name, it automatically texts him and emails him that you're there. And so, so we're also leaning into some technology. Because listen, even when you have somebody at the front desk, they're gonna go to lunch, they're gonna go to the restroom, they're gonna be they're gonna go called sick, they're gonna go to a meeting, something's gonna happen. Yeah. And so, you know, even if they're only gone for three minutes, if that customer comes in during that three minute period of time and they're not greeted with somebody at the front desk, this helps to mitigate that. And uh we actually learned this system from one of our other customers.

Don Redhead 21:46

Yes. Yeah, they had, and we're excited to implement it based on their recommendation. They've been using it for two or three years now. It's it's it's a software called Receptionist.

Michael Carro 21:55

Okay.

Don Redhead 21:56

Um, and and part of that strategy is A lot of our other offices have the reception desk. And what we'll actually do is lease that out at a discounted rate, uh, because they're still getting the value if they decide to to put a person there. But there's also another value that it's it's really shared for the entire office building, the community there, because that person is a gatekeeper. They are they're the face. Uh, even if they don't work for you, a lot of times they are so let's pause on that.

Signage, Mail, And Reception Strategy

Michael Carro 22:26

So financially, what what's the difference? Well, if you're a property owner and you hire somebody for the front desk, you're spending a lot of money for that. But if you rent the desk at a greatly reduced rate, you get your cake and eat it too. Your profitability goes up so significantly. And by the way, um, not every receptionist works out in that situation, even though we talk to them in advance and say, hey, just so you know, if you take this, kind of here's what's gonna happen. And and we have seen some that have great personalities and they thrive. We've got this one lady in one of our buildings. She is amazing. I mean, the whole place, it's her place. I mean, she really rocks it. Well, sometimes we'll get somebody that goes in, they're like, ah, this is not working for me. There's just too many people that want to say hello and stop in. And so it's not for everybody, but financially, we do not offer uh paid landlord employees that work at the front desk. We would, it would be such a huge loss for us. Instead, we rent the desk out at a greatly reduced rate, maybe two or three hundred dollars a month. It's another seat for somebody, but instead of them paying five, six, seven, eight hundred dollars a month for a private office, they get this, they get an employee out there for a reduced rate. And a lot of the a lot of these people who accept this position, it's because they have a high velocity of clients coming into the office and they want them greeted with their person. Yeah.

Don Redhead 23:57

And so the type of business that they're operating really lends itself to having that person there. They're trying to control the customer experience literally since they come through the door. You know, there's just those types of businesses out there. And it also gives another uh element to almost like, hey, this is their building. So there is some small tenants that that like it, it it makes them seem even bigger than they are. Uh, and then there's some like you're you know, that just we we really need to control the interaction, right? Um, so yeah, we've been very fortunate. So there is some real benefit to specific tenants doing it. The other ones get to enjoy uh that as well. And then now we're layering in additional um this receptionist app. And what we've had to do in the meantime with other ones or other buildings that are are you know missing the receptionist part, the physical person, you just have to have really good signage. That is that's you know, outdoor signage, directional signage to get there, signage as soon as you get into the lobby, saying where everyone's at, signage on the spaces. We have signage individual placards on each glass office and by the way.

Michael Carro 25:10

And just so you know, we buy the stuff that you can simply uh type on a computer, print it on your printer, cut it out, and put it in and it looks really professional because you know, use their logos. We have consistent uh signage throughout every every sign is the same. The layout within the sign is the same, but we can customize an overlay with their logo, their suite number, the person working there. It really looks great, it's consistent, but again, operationally, our goal is to make it as affordable as possible. So let's talk about, let's recap the signage. Get the signage on the door, which we print off of the computer, costs nothing but a few minutes of time. Cost um, I'm sorry, the signage on the directional. As people walk in, we have a TV. Don said if you get this the sign computer, it's just stupid expensive. Just get a regular TV, you can buy them for practically nothing. You just have to have them programmed. And then outside, we actually have a physical sign where they're metal plates that that is gonna cost a little bit extra for the signed company to come out and just change that. What I say more expensive, it's probably gonna be$20 to$50. So it's not expensive. And the tenant pays for that, it's their sign.

Don Redhead 26:26

Um but identify the sign company you want to use, a good local one that's you know, probably did that sign itself, um, and and connect them with it. You want to be able to step out of that as fast as you can. Have them.

Michael Carro 26:40

And the reason why he knows that is because we didn't step it out of it for a long time, and it really is a time suck. And so, hey, that's a call that I'm not taking.

Booking Systems And Tech Amenities

Don Redhead 26:49

Um, so uh another one that is is uh usually a lot of source of debate, mostly because of the money um up front, but is is pre-laying out all the offices with furniture. Uh, it's it we believe it's it's money well spent. It gives a continuity um of the space. Uh you get stand-up desks in there, and extra uh extra desk.

Michael Carro 27:16

Let's go back a step. How did we get there? Well, our first office space. I I said, I'm not in the furniture business. I don't want to put furniture in all these offices. Why would I spend all this money? Well, you have people with garage sale taste bringing in crap that really makes the whole office look bad. And so it's for that reason that I'm also damaging stuff.

Don Redhead 27:41

The the frequency of moving in furniture, moving out, it it's it's hard to do, but in all honesty, if you reach out to one of the good local, you know, here we have MacAlleers, they do a great job. Um, the furniture actually really isn't that expensive, relatively speaking, and it's going to pay dividends in the long run.

Michael Carro 28:02

And by the way, let's say you build something that has 10 10 units, well, go out and spend money on four of them, lease those four up, and then go buy some more furniture, lease those up, go out and buy four. You know, you don't have to. I mean, if you're on a limited budget, you know, you're not going to lease up all 10 in one day. So, you know, just plan for it like that if you want to pay for it out of cash flow. So there's more than one way to do this, but just we did it without the furniture, and that was the result. It looked horrific.

Don Redhead 28:33

And a lot of times they'll abandon it. So now you're paying or having to remove it yourself.

Michael Carro 28:38

Right.

Don Redhead 28:38

And it's not light stuff.

Michael Carro 28:40

For whatever reason, oh, the really inexpensive, the really expensive stuff is the it was built a long time ago and built to last. And it comes in there and it weighs thousands of pounds.

Don Redhead 28:51

So um also, you know, spending a little bit of extra on the common area. Um uh don't over-engineer the kitchen, don't make a big kitchen, don't spend a bunch of money with creating tables and stuff like that. A simple bar, take up as little space as possible. No one ever uses it.

Michael Carro 29:12

Well, but let me tell you, uh, what where we did invest some money is in what we call a coffee bar. Um, you know, we got a nice espresso machine, we've got a Keurig machine, and we have a um a regular pot coffee, and and then uh we have the kettle for hot, hot water. Yeah, for coffee. We got in this in this case, we got the SMEG brand S M-E-G. So, you know, meant to be a little higher quality stuff, but it has a nice look to it. And we, you know, we made it, we tried making it a more coffee station area. And and listen, in an office environment, people really like that. We pay for the coffee beans, uh, we pay for um, but we don't buy the Keurig. If somebody wants the Keurig, they're welcome to use it, but they they bring their own pods. If somebody has their own specialty scenario, but but we do supply the beans for uh for the uh espresso machine.

Don Redhead 30:08

One day I'll figure out how to use them. Yeah.

Michael Carro 30:12

So I use it every day.

Don Redhead 30:13

It looks great. I use it every day. It's fantastic. Yeah, maybe you can show me.

Michael Carro 30:17

I can.

Don Redhead 30:17

I can.

Michael Carro 30:18

In fact, I'll I'll be your your personal barista after after this afternoon espresso.

Don Redhead 30:23

Yeah.

Michael Carro 30:24

Um, you know what? I want one right now. Yeah, that does sound good. Because I'm dragging.

Don Redhead 30:31

Doesn't seem like it. Yeah. Um, we talked about what signage, receptionist, security, access control.

Furniture Standards And Common Areas

Michael Carro 30:39

Let's let's go back to common areas. Um, so it's important to have uh a minimum of one, but if you can get two conference rooms, now the second conference room could be really small. What we have found is probably 80%, 90% of the meetings are four people or less. So it could be a small four-person conference room. Um, but if you can get one that's a little bit larger, you know, six, eight, 10 person, we actually built a new 14-person conference room um for our sales meetings, and it gets used a lot. People really like it. Uh, we outfit it with um what's that TV called that you you touch screen? It says it's smart TV. Smart TV. Um, you know, you can go up there, it has the special writing utensils. You obviously cast on it. We it has the uh camera in it that um that when you're doing a uh a Google Meets um type meeting, uh, it casts the meeting room, and then whoever's speaking, the the camera kind of focuses in on that person. So what do we spend on that TV, Don? Two or three thousand?

Don Redhead 31:42

Yeah, it was probably three to four.

Michael Carro 31:44

Three to four thousand.

Don Redhead 31:45

But it's it's Mac Daddy. I mean, it was it was nice, but our our space was so limited. Um, yeah, in the other conference room, we have a TV and a and a glass whiteboard. Right. You know, so that that's nice. The glass whiteboards are also nice, they they last a lot longer.

Michael Carro 32:00

Yeah, and they look good. They look really, yeah, really sharp. So uh so you know it's so the common areas is what's gonna sell your space because that's where clients are gonna meet, uh that's where the tenants are gonna meet their clients. And so you really want uh you want them to feel good. And then if you have a nice, if you have a good address, good location, if you're looking to build something or, you know, um, so we had one on the north side of town. I did not know how it was gonna do. Uh I I I sold the building to uh to a client. It had a lot of rooms, they needed their space. I explained to them what we did downtown. They love the idea. And, you know, listen, I was honest with them. I said, I've never done something up here with executive office. I have no idea how it's gonna work. You know, it may fall flat on its face. They made it MAC daddy. And I'll be darned if we didn't get that whole thing leased up, and it's been leased up for now, it has, let's say, 25 offices. There's always gonna be three to five offices vacant. Okay. But the difference is financially, um, well, first of all, I in some respects it's lower risk because you have a lot more tenants in place, right? A lot of tenants only take one office, two offices. You know, uh Don has, I think, five offices. We have maybe five offices, six. So you have a lot of different tenants in in tow. The price per square foot is it sounds high because you you're not including the common area. So if you include the common area, I mean, your office might only be 100 square feet and you're charging, you know,$70 a square foot, but the market's only$30. Well, it's really not$70 a square foot. You're really when you start adding all the common area and what they actually have access to, that load factor is gonna drop that price probably from$70 to let's say$45. Still higher than the market price of$30, okay? But these are also full service rates. Full service meaning it includes property tax, insurance, maintenance, janitorial, and utilities, okay, in our case. So, but if a market is$30 a full service and you're getting$45, that's great. Just know though, the reason why you need to get that extra money is the turnover is greater. So you're never going to be 100% full all the time. And the other thing is, is the management is a lot more intensive. And then Don, you can talk about that, the number of calls and the number of challenges that you have, maybe over a regular office building.

Conference Rooms That Actually Sell Space

Don Redhead 34:34

Yeah, it and it really comes from they've actually gone down substantially. Um, if you do all the things I just said. So if you don't do those, if you try to ignore the mail, if you do not put up good signage, if you do not use access control, if you do not have cameras in the kind, if you don't do all these extra things, you're gonna get a lot of phone calls. We actually now uh get so so many less calls. Um, it it's actually quite impressive. Um, getting it up and running always poses a little bit of a challenge. Um, but it using all the tactics I've I talked about, it's actually makes it that much simpler uh on you.

Michael Carro 35:16

So and he mentioned something that we had not talked about camera systems. We do have camera systems. We believe in a lot of security, a lot of cameras in the common areas. Um, so hallways, uh entrances, outside parking lots, out in front, uh, certainly not in the offices, not in any of the private areas like restrooms or anything like that, but certainly the common areas. Why knock on wood? We've never had an issue of theft or anything like that in any of our properties. Partially, I would well, I think I don't really know why. I think you're business people, business people are not they don't care what's in your office. You know what I mean? They just they care about coming to work, getting their work done, uh, you know, trying to make a living. And so most people are honest, we've we've just been very fortunate. Yeah, but in the event we had an issue, we've got cameras everywhere and we're gonna catch you. So that's number one. Number two and goes with access control, right?

Don Redhead 36:14

You use your fob, even if you put on a mask and you and you scan the fob, we know who it was. Um, it's like, okay. And we have it on the cameras in the the parking lot.

Michael Carro 36:24

So yeah, there's there's so if you're if you're gonna steal, use somebody else's car. Uh beat up your neighbor, take their fob. Beat up your neighbor, take yeah, a lot of a lot of ideas if you want to steal. Yeah. Um where where we do have an issue though is we also created a uh a service suite where people who are in in different service industries, whether it's a a stylist, a nail salon, a tattoo artist, massage therapy. Those there's a demand for it, but that that psychology seems to be a lot more challenging, a lot more uh what would you say? You certainly get a heck of a lot more calls. And by the way, our our uh default rate is significantly higher with our service providers than our office tenants.

Don Redhead 37:16

Yeah, I think they're you can get most of the people in the service suites are gonna have a customer-facing business with them coming into the space. They are not in there in their professional kind of environment, you know, making phone calls, doing business in that that sense. Not to say these other executive offices don't have a customer-facing side, it's just significantly less. And I I don't know, maybe the site, like you said, psychology.

Pricing, Load Factor, And Turnover Math

Michael Carro 37:45

Um well, either way, you know, and and and and we're really talking percentages, right? Because if only one out of 10 was bad, that's that's one more than our office person. You know what I mean? So it's not like 10 out of 10 are our are a problem, but we're just talking about how how many how much more frequent calls and challenges are in that part of our business compared to the traditional office setting. So just just something to note, you know, and by the way, if you do those types of service suites, uh, those are much more uh plumbing intensive. A lot more hand sinks, a lot more uh hair traps, hair traps, um just a much more so a lot of spaces don't lend themselves well to service suites. Um, so but just know that there is that they can be good too financially, but uh they do come with their own challenges uh management-wise.

Don Redhead 38:42

Yeah, the last thing we didn't touch on was internet. Um, yeah, obviously it's gonna be a a landlord expense shared throughout all of the tenants in the space. I recommend just go ahead and get the fiber. It's a it's a nowadays it's really not any more expensive, and it's something that a lot of people uh you know like to hear. You have fiber. You are gonna have to find a a local uh tech support organization that you have to partner with. All of them we have have a managed Wi-Fi setup because what you are gonna have, unless you want to have data drops in each of the offices where people can hardwire into, most people don't want to do that in this type of environment. There's a place for that. Um coming in and just using the Wi-Fi is what most, most, almost all uh of our tenants do. And the managed Wi-Fi service will actually, as part of the service every month, they help new tenants get set up in their own private silo. So it's a secure setup for each of the the users, but it's it's it isn't a cost that you're gonna have to incur and it's something that you really have to do.

Michael Carro 39:49

Yeah. And let me let me uh lean into that a little bit as well. Number one, whoever you pick, because you're gonna have a data room. Only allow that one company into that data room. Each tenant you bring on, they're gonna know somebody who they want to use, and you have got to say no because what's gonna happen is their person's gonna come in, they're gonna mess around with the wiring, something's gonna happen somewhere else, and then you're gonna get this where everybody's blaming somebody else. No, my guy didn't do it. And so save yourself the heartache. You gotta use, you got to pick one company, and everybody has to use that same company. Number two, if you're getting uh financial, legal, or uh medical clients, they're gonna want a dedicated service. That's still no problem. Okay. They're gonna call your guy and they're gonna set up a dedicated uh uh secure service that still will be uh a supplemental, and then we have them pay directly for that extra extra service. Um, but again, only use one company, but just know when you're dealing with medical, financial, and legal, they're gonna have to get a dedicated service because of their of their licensing.

Reducing Calls With Better Operations

Don Redhead 41:04

Yeah. Yeah, that's been implemented now for so long I forgot about it. Yeah, you'll you'll save yourself so much time because all the tech people are all smarter than the other tech guy and they all point each other. They go, This guy did it all completely wrong, but I can read, I can fix it for you. And then the other guy comes in and they're all it's it's just save yourself. Yeah.

Michael Carro 41:25

Um yeah, I in fact, you know, I said that so eloquently, but he felt the need to just kind of restate it in a little bit because it was just extra jargon. But he's right, though.

Don Redhead 41:34

If I repeat what he says, it means it's important. Well, then you should be repeating everything. We don't have time for that. It's only if it's really, really important. Don't get the phones. Uh, people just use their cell phones. There's no reason uh to go through that upfront expense of buying phones. You can definitely save money there. Um printer service, you'd have to lease one that's better. They'll set it up to where they'll have to use a code and you can get an account reconciliation add a bill back if you feel like it. Um, I think that's about it.

Michael Carro 42:05

Yeah, I tell you, you know, we have um how many uh we we own what three? One, two, three, yeah. And then the service suites. So we had five, uh, but I had somebody come in and lease up the entire space in one of our buildings. So it went from an executive space to a single space.

Don Redhead 42:24

And um we have had six. We got three ourselves, three that we manage for others.

Michael Carro 42:31

One potentially we're about to take on, maybe two, and then well, either way, we have found them to be very successful. You just need to know these steps going in, and um, it'll help you come out successful on the other end, and it can be very, very profitable.

Don Redhead 42:46

But it's a good entry in commercial real estate, you know.

Michael Carro 42:50

It really is, and it helps to diversify your risk.

unknown 42:53

Yeah.

Service Suites: Demand And Drawbacks

Michael Carro 42:53

So, well, that wraps up another episode of the Blue Dirt podcast, where even idiots like Don and I can make a killing in commercial real estate. That's a wrap for this episode of Blue Dirt. We're here to help you build smarter, invest wiser, and create long-term value in commercial real estate. One solid foundation at a time. If you found today's insights useful, be sure to subscribe so you never miss an episode. And if you know somebody who could benefit from these discussions, share Blue Dirt with them. Got questions or topics you'd like us to cover? Reach out. We'd love to hear from you. Until next time, keep digging deep. Stay sharp, and remember real value is built from the ground up. See you on the next episode.