Co-working firm Grind pays below-market rents in Midtown South, gives landlord cut of profits

Co-working startup Grind is building on the growth of the shared workspace sector’s presence in the New York City office market by opening its fourth Manhattan location at 1216 Broadway in NoMad.

The company is taking 18,000 square feet on the second and third floors of the four-story property, with the new space – which will also feature an outdoor terrace – representing Grind’s largest office to date and its first venture into the popular Midtown South market.

While Grind is among a growing number of shared office providers in the city – with the largest, WeWork, recently being valued at $16 billion – the rapid rise of the co-working industry, driven by demand from startups and small businesses, has prompted concerns that an economic downturn could burst what some see as a bubble.

But the company structured its lease at 1216 Broadway to protect itself from such a downtown, Grind CEO David Beale told Crain’s. In exchange for paying below-market rents, Grind will grant the property’s landlord, Raizada Shubindu Vaid, a cut of its profits at 1216 Broadway.

Calling the arrangement “a collaboration between us and the asset owner,” Beale told Crain’s that the landlord “ends up with a premium to what the space would generate from a conventional market rate lease.” Beale declined to disclose what Grind is paying for the space, however.

The co-working company has a similar arrangement at 140 West Street in Financial District, where it leases space from Verizon at below-market rents and splits profits with the space’s owner.

That saves Grind from being locked into any costly space commitments should the city’s real estate market falter, in which case the price of the short-term leases it has with its co-working members would likely slip rapidly.

WeWork recently also made its first foray into Midtown South, taking 60,000 square feet at Charles S. Cohen’s 135 East 57th Street. [Crain’s] – Rey Mashayekhi