Own It: XSpace Founder Hopes To Make Commercial Condos Real Estate's Next Buzzword

Byron Smith was sitting at a Tex-Mex restaurant in Houston when it struck him. Looking out of the window, he could see a church, a school and a strip club: This city doesn’t have zoning laws.

That’s why, after previously deeming his vision for a chain of what he calls "commercial condos" an unviable concept in Los Angeles or New York City, he decided to launch his second XSpace development in the city. After opening the first XSpace in Austin last year, its second location, at 7022 Old Katy Road inside the 610 loop in northwest Houston, is slated to open in Q1 2024.

“I said, ‘Does anyone care that there’s a school right there?’ And they’re like, ‘Ah, no. No zoning,’” Smith said. “I was like OK, fair enough. That gave me the idea [that] I think we should be in Texas.”

XSpace is a place for “anyone who’s cool, interesting, successful,” to buy a space to use as an office, a garage, a man cave or whatever they want, save for a home, he said.

It's also a relatively rare asset class at the intersection of storage and coworking — so rare that Smith was at a loss for what to call it. Commercial condo might not fully cover it, he said, describing it as similar to coworking space, but with drive-up access to all units and a 4K SF community lounge, almost like a “quasi town center."

“It’s a commercial building, and we put a condominium regime over it, which is basically just a legal thing,” Smith said. “It’s commercial, but it’s a condo, so you can do everything but sleep in it, basically.”

The concept isn’t totally novel. What's known as “strata storage” is popular in Australia, where Smith is from. Strata is a model of property ownership that allows individuals to own certain parts of a property or parcels of land, like condominiums in the U.S., only for commercial use.

Units can be used for office space, showrooms, storage for high-end cars or studio space for podcasting or artists. Major League Baseball All-Star pitcher Roger Clemens is one early adopter, buying two units at XSpace Austin to store baseball memorabilia and as office space for his nonprofit, the Roger Clemens Foundation. Former NFL offensive guard Kasey Studdard has also bought an Austin unit for his barbecue restaurant, Whitfield’s.

The use of condos is commonplace for residential and garage units, but is not usually a word associated with property zoned for commercial use. But rental rate growth has piqued interest in new solutions for entrepreneurs and others who prefer to own rather than rent an asset.

XSpace's concept is not entirely new to the U.S. There are car storage sites for sale in Texas, like Garages of America, for example.

Those “very high-end personal garages” and other forms of commercial condos have proliferated in Ohio as well, said Ted Smith, partner at Vorys law firm in Columbus.

Ohio is one state that has seen the commercial condo asset class boom over the past 20 to 25 years, Ted Smith said. 

“I’ve been doing condo law since the early 2000s, and I know there are practitioners out there whose practice is still focused primarily on residential condominiums," he said. "But I would say 90% of new condominium work that I do is all commercial-oriented."

In Ohio, the range runs from mixed-use condos with a few floors of retail, office and residences above it to “purely office condos,” Ted Smith said. 

For tax reasons, among others, many users would prefer to own rather than lease their office space, he said.

“Because of their needs and their desired location, they’re not going to go out and buy an existing office building, or even go out and build their own office building,” Ted Smith said. “They find that it’s easier to just have a portion of an office building. So you can either create a commercial condo from the get-go, or you can subject property to the condominium form of ownership at a later date.” 

Ranie Vanarsdall wanted to own her office space at XSpace in Austin because she hoped to invest in a space and have the freedom of ownership, she said. 

Vanarsdall used to run her certified vinyl vehicle wrap shop, Virtue Wraps, out of a leased space. When her senior dog was recovering from surgery and needed to come to work with her, her landlord was not happy.

That's when she put a payment down on XSpace and paid for her unit in full by the time construction was completed last year. Now she and many others in the building bring their dogs daily, Vanarsdall said.

“I don’t even have any overhead other than the HOA monthly, which is a really low price,” she said.

The HOA fee averages about $150 a month, Byron Smith said. It pays for cleaning, maintenance and security, he said, which is something important to Vanarsdall.

“[XSpace’s garages] have codes and community hallways. As a single female, that’s a really big relief,” she said. “I don’t have to go on-site to strangers' garages anymore … I’m fully secure and fully safe. It’s a nice feeling.”

If she decides to sell her business one day, Vanarsdall said she’d keep her XSpace unit and use it as a weight room. 

The Austin XSpace has sold all of its units, though some are in the process of switching hands, Byron Smith said. Some owners bought them with the intent of leasing them out, he said.

Austin units, which range in size from 300 SF to about 3K SF, have sold for between $100K and $300K, though some have sold for as much as $1.3M, per CoStar.

The Houston location, which will have 86 units, is already 20% sold, Byron Smith said. 

Terry Dařílek — an entrepreneur and co-owner of a senior home healthcare business and Austin-based car detailing business Authentic Details — has bought four units on the first floor. 

Dařílek hasn’t decided what he’ll use the units for, though he’s leaning toward storing his cars. He has two with “one on the way," and is also interested in turning part of his space into a man cave. He will probably add a mezzanine as well, he said.

His units will have garage doors on either side and the drive-up access is flat, he said, adding the set-up is great for cars that sit low like Lamborghinis and Ferraris.

“They do not go outside, they’re called garage queens, if you will,” Dařílek said.

Commercial condos can satisfy many needs, Ted Smith said: “As people look to redevelop urban areas and satisfy space needs, they’re going to find that commercial condominiums allow them to provide purchasers with buying opportunities that don’t exist outside of the condominium arena."

XSpace plans to open its next locations in Dallas and East Austin as well as in The Woodlands. It also hopes to expand this year to Las Vegas, Chicago and Miami and find sites in Atlanta, Denver and Salt Lake City by mid-next year, CoStar reported.