The Innovators: Industrious CEO Jamie Hodari

In this series, Bisnow highlights people and companies pushing the commercial real estate industry forward in myriad ways. Click here to read Q&As with all the innovators Bisnow has interviewed so far.

Anyone who thinks "slow and steady wins the race" is a dated pearl of wisdom should evaluate the state of coworking at the moment.

Millions of square feet around the country are being vacated as the sector's largest players either give back space, restructure through bankruptcy or go completely belly up. Then there's Industrious.

The Brooklyn-born coworking space grew slowly but surely in the shadow of WeWork. While major cities' office markets were flying high on 15-year, 100K-plus SF leases, Industrious was inking a handful of management deals for 20K to 50K SF, sharing risk and profits with landlords and hovering under the radar.

Today, the script has flipped. The hares in the market ran out of gas when the coronavirus pandemic hit, but the Industrious tortoise is gobbling up market share and market confidence; CBRE just invested $200M for a 35% stake and merged its own flexible office offering with Industrious.

It has multicity deals with landlords like EQ Office and Hines and a portfolio nearing 3M SF across 103 locations after adding 1M SF in 2020 alone. CEO Jamie Hodari expects the company to grow even faster this year. 

Getting here hasn't been easy. When the pandemic hit, Industrious had to lay off staff like so many other businesses. But as summer came and the landscape became clearer, it started to hire people back and grow.

Now, Hodari, 39, finds himself helping set the course for the future of the American workplace, a few years after WeWork CEO Adam Neumann was in a similar position. But unlike Neumann, when Hodari thinks of a billion-dollar valuation, he looks at the downside.

"It’s a pretty stressful job running a company like this," Hodari told Bisnow in an interview last week. "Why in God’s name would you want to add the additional stress of being eaten alive by anxiety knowing that someone overpaid for your valuation?"

Hodari has shown the commercial real estate industry the way to grow a coworking business slowly but surely, and for that, the former reporter, lawyer and hedge fund analyst is a Bisnow Innovator. 

This interview has been edited and condensed for clarity.

Bisnow: This month marks one year of the pandemic really hitting home in the United States. Can you go back to those few days as you realized on that Monday, no one’s going to show up to any Industrious locations for the most part, and you had to make a decision about the future of your business?

Hodari: It’s an interesting business to be in in a moment like that. Like any CEO, you’re having to figure out how to do best by your employees and what your company protocols and plans should be and what the implications are for your business and everything like that. And also, you’re an expert workplace provider that 25,000 companies are looking to for guidance on what they should be doing. Under normal times, that’s an honor and a privilege to be in that position, and in times like that, it’s probably extra terrifying, because it was a moment of so much flux, of so much uncertainty. I think we tried to be authentic about the fact that, just like everyone else in the country, we were putting one foot in front of the other and trying to understand what the right route was, and we didn’t have all the answers. 

It’s a complicated position to be in where you’re in one of the industries where the expectation is you do have some answers on what’s right, what’s wrong, etc. That was that first moment. Relative to other companies, I think we had to invest more, more quickly, more comprehensively behind coming to a point of view about what was safe, what wasn’t, what people should be doing.

We hired an epidemiologist from UC Berkeley as an adviser to help us navigate this. We ended up creating and running our industry’s, essentially, global council of all the large operators to put out a guide for what a safe workplace would look like and when it is or [is] not OK for people to be going to an office and in what context. 

I would say by late April we had our feet on the ground, we had a very clear point of view of what was safe and what wasn’t, and we wanted to try to be helpful to not just our own customers, but also to other companies in sharing that. But there was about a one-month period where it was like, holy shit, what does this all mean?

Bisnow: It’s interesting, because in hindsight, the model of management agreements where the risk is shared, it’s not on a month-to-month basis, your entire revenue model could be completely knocked out. Did that enter your mind in those initial moments, you know, thank God we don’t have all these leases?

Hodari: It’s so funny. You asked the question about those early days and what that first month felt like, and I gave you the best answer I could off the top of my head, and now that you point it out, it was 99% about safety and what the right sort of operational and human plan was. So, I don’t know, maybe that is reflective of maybe where most of the emotional and mental energy went in those early days. And also, you know, suffice to say, I’m running a business and have to also take those considerations into mind.

I think we were obviously in a less existentially threatened position than our competitors were because we do management agreements and not leases. Obviously, we couldn’t have predicted a pandemic, but the reason we did that — and we made major trade-offs over the years to do that — is because we knew, whether it’s this crisis or a recession or anything else, there were going to be moments of incredible turmoil, and we’ve always been true believers in a more sustainable, less, sort of, swingy, lower-risk, maybe lower-reward business model.

So in that moment, we had some very tough decisions to make, the worst by far was we had to do a round of layoffs, but I would say maybe not quite the same depths of, “Is this business going to be around in six months?” that might have characterized our sector more broadly.

Bisnow: You mentioned the conservative mindset, the building sustainably, but for years, WeWork’s growth was really captivating the attention of the real estate market. In many ways, they inflated the price of not just coworking spaces, but all of office real estate for a couple of years because of how aggressive they were in really going after any available space. Do you think you would have grown faster if that kind of inflation wasn’t happening and landlords weren’t able to just take the easy money?

Hodari: It’s hard for me to piece through the counterfactual. It makes perfect sense, but our strategy kind of begins and ends, if you had to really distill it down, with having the highest customer satisfaction in the industry. We have a lot of complicated strategic flow charts and things like that, but it’s always at the top of the flow chart, and you don’t get to think about anything else — you haven’t earned the right to worry about margins or growth rate or anything else — unless you’re able to show that your region, your whatever has the highest NPS score in the industry. And I think because of that we’ve always tried to grow at roughly 100% a year or less, and have not tried to push beyond that, because I think you would have started to see a diminution in product quality or pressure to add new business lines or new geographies too quickly. 

So, could we have grown quicker? I don’t think we would have. I think if we did this all over again, I feel really, actually, among the strategic decisions the company made, picking that high-growth, but not hyper-growth rate has paid dividends in a lot of ways and I would probably do that exact thing again.

Bisnow: Have you had those moments with landlords that you might have been negotiating over space and they decided to go with a direct lease with a competitor?

Hodari: Absolutely, absolutely. I think one thing that has made our sales approach effective with landlords is we try very hard to be humble and try very hard to respect the fact that they are absolute experts in what they do, and we’re not there to tell them that this is how buildings are going to be valued in the future or this is how you need to be thinking about property management and you’ve got it all wrong. Because I don’t think that they have it all wrong. 

The best we can do is say, “This is what we do. We are really good at it. And this is the pro forma for how this would perform economically. Here’s what garbage performance would look like, here’s what amazing performance would look like, and you have a decision to make whether that appeals to you, whether the integration of the building appeals to you, and that is worth the fact that you’d be getting variable income instead of fixed income, with all of the implications that come with that.”

We’ve done more than 100 management contracts. Almost every landlord partner we’ve ever had, once they’ve done one with us, they do more. It’s certainly been successful, but lots of times landlords say, “I love it, it makes perfect sense, and if I can go get an arm’s length lease at $60 per SF and check back in 10 years later and I don’t have to worry about is it up, is it down, what were the operating expenses this month?” That is such a reasonable position to take, I would never second-guess a landlord going that route.

Bisnow: Have you had moments where that conversation has happened, and then two years later, or like now, you’re having conversations about taking over the space?

Hodari: Yes, that’s a really good question. Everything I just said is true, and also:

A) We had 50 legacy lease units because we had to have an operating track record before we could successfully substantiate the case we were making for why a management model would be better for landlords, and the majority of those legacy leased units have now been converted to management contracts. There were a lot of landlords where there was one decision early on, and now that has changed course. 

B) We are taking over a reasonable number of our competitors’ former spaces, and all of those are under management contracts. So almost by definition, what that means is they signed a lease with a competitor, and they are now moving that to being a management contract with us, either under duress or because they decided that deep down, they now think this is the better structure moving forward.

Bisnow: You talked about those painful decisions, that moment where you had to lay off part of your workforce. But when it was more about keeping people safe, how do we make our workplaces ready and flexible for the moment? Can you describe some of those decisions where you’re saying, ‘We’re not so sure about our revenue, but we have to make this decision just to make sure that at the end of this, we still have our customers, we still have our reputation. At the same time, this is a big risk, this is a lot of money we’re spending without any guarantee we’re going to see a return on this’?

Hodari: Yeah. By far the financially most complicated decision was putting in place a set of safety protocols that both involved moderately costly capital expenditures upfront and meant that there were going to be customers, particularly in conservative states where the political climate was kind of trending anti-mask, where we were going to have to lose customers over it.

I think a lot of landlords got pitched a lot of stuff that in hindsight turned out to be not particularly meaningful technology. Infrared tunnels that people walk through in order to kill the virus. One thing I’m kind of proud of is, from pretty early on, it became clear that it’s airborne, and the most important thing is the HVAC filtration. The problem with that is it’s totally invisible to customers, so it is much more effective to spend a lot of time and energy on medical-grade cleanings and weird UV technologies and things because the customer can see that, and I think we just said, “It’s really expensive and it’s a pain in the ass, but we’re going to put all of our chips into maxing out HVAC filtration.” In hindsight, I think that did turn out to be the right call. We have essentially no cases that we know of across the entire country of someone getting Covid in an Industrious, and in part it’s thanks to that. 

Second, people had to wear masks in any common areas, full stop. When they were in their own private office, they could do as they pleased. On the HVAC thing, it was expensive, but I’m glad we did it. On the rather strict behavior policies, it sucked. We ended up in the news in Pittsburgh because someone felt we were infringing on her constitutional rights. We had to kick out customers at a moment where every dollar counted. But I think it was the right decision. I can’t actually in hindsight imagine what another version of that decision would have even looked like. But man, it sucked being a company at the crosshairs of something that was mostly public health and medical and somehow transformed into a giant political argument we stepped in the middle of unwittingly.

Bisnow: I want to read you a quote from Bob Sulentic on CBRE’s earnings call last week about Industrious: 'They are very, very riveted on client service. We were super proud of Hana’s client service and they beat us. They topped us. They were the one-off operator in the marketplace that had better client service.' What does it mean to hear that from the CEO of the biggest real estate company in the world?

Hodari: I mean, that was very kind of him, he is a gentleman’s gentleman. I’m biased, but I don’t think he was being phony, and I say that because over the course of the negotiations around this deal, their motivations became pretty clear, and it was clear that that exact thing, that best-in-the-industry customer satisfaction, was a core animating factor in their decision to make a major investment in Industrious, merge Hana into Industrious, etc. 

What I will say on this theme of trade-offs, is there have been real trade-offs for that. The most notable for me is, when you’re a growing company, you have to focus. We have first and foremost always focused on for the person who walks into work every day, for the salesperson, for the engineer, for the marketing associate whose employer tells them, “Hey, instead of doing this ourselves, we’re now going to buy our workplace from Industrious.” Our focus first, second and third has been, are they going to love it? Are they going to have a better, more productive, more engaging day at work, because we’re on the hook for it. And that took every ounce of our energy.

So I’m proud of it, I think it paid off, and also, I think it’s worth acknowledging that it means we weren’t able to say: What does the CFO of Bank of America want? What’s going to make them happy? What kind of global, multimarket occupier solutions can we put in place that are going to scratch his itch? And that’s part of why the CBRE deal is exciting for us, because now we get the benefit of having spent eight years doing nothing other than focusing on the individual who walks into work every day, and we get CBRE’s help in beefing up the broader network-level product development.

Bisnow: If my math is correct, CBRE is a 35% investor at $200M, which would put Industrious somewhere below $600M. Knotel was once valued at $1B, now bankrupt. WeWork was once valued at $47B, they’re down to less than $3B. In the valuation talk, what drives those conversations, why is Industrious at a lower number than your competitors with different business models?

Hodari: Because they’re integrating Hana into Industrious and we gave them a basket of Industrious shares in exchange for the Hana transaction, it means the back-of-the-envelope math isn’t perfect, the valuation is a bit higher than what the back-of-the-envelope math would suggest. 

But roughly speaking, as a CEO, I have always had extraordinarily strong convictions about business strategy, meaning: What do we owe our customers? How do we run this business? What is the right strategy in the market that’s going to over time yield outsize operating and financial results? I’m not one of these wizards when it comes to corporate strategy, where you’re running the business in service of a share price or unicorn status at the expense of the underlying things. 

There is no doubt it’s a valuable business. There is no doubt that workplace-as-a-service is 1.5% of commercial real estate right now, and even the skeptics agree it will be 20%-30% or more. When outsourcing businesses can produce a better-than-if-you-did-it-yourself outcome, the world is their oyster, usually. So that’s what we are playing for, that’s what we have always tried to deliver on. And we’re not a technology company. And I would be mortified if we jammed up some sky-high valuation and then had to come back hat-in-hand to our investors in a down round. 

So we have over the years tried to go to the market with what we thought were reasonable, defensible valuations and multiples that were roughly in line with the big hotel management publicly traded companies or big asset-light business services companies. And I think that’s really worked for us. It means that, in the middle of a pandemic, we did a financing round that was the highest valuation we’ve ever had. I think we will probably stick to that strategy over time.

It’s a pretty stressful job running a company like this, why in God’s name would you want to add the additional stress of being eaten alive by anxiety knowing that someone overpaid for your valuation?

Bisnow: Any final thoughts you’d like to share on the future of the workplace, considering how much is still unknown about where we’re heading? 

Hodari: To go back to the very beginning of this interview, having to have a point of view about what safety at the office looked like in short order, and thousands and thousands of companies looking to us as an expert in that and as sort of a spirit guide to that very challenging question, that was a scary moment. And now, you have thousands of companies saying, “What comes next? What do my employees want from me, and how do I be a good employer to them and give them what they want and need, while still maintaining our culture, while still maintaining the bonds between employees?” I feel the same pressure to get that right. That is an equally complicated question. 

I think we are in a good position to be a good partner to companies in navigating that. But it’s a toughie. It’s a really complicated question. The answers are not clear, and in the spirit of this interview, it is going to look the way a lot of innovation looks: You need to put things out into the world, and you need to try them, and you need to see how they work out in reality, and then refine and refine and refine as you collect that data.