On the 10th floor of a glass skyscraper in Midtown Manhattan, Jamie Hodari strolled the empty hallways and took stock of the latest addition to his firm’s flex office portfolio, the former WeWork headquarters at Tower 49.
Industrious had just announced a 10-year deal with landlord Kato International to develop and operate 240,000 square feet of space across 16 floors at 12 East 49th Street. It is the biggest and perhaps most ambitious project so far for Industrious, the flex office company Hodari, 42, co-founded with his childhood friend Justin Stewart.
In addition to the usual offices and conference rooms, some of the space will be used for product development and testing designs and concepts, such as new furniture types, subscription models, different dining options and events.
With the WeWork bankruptcy resolved and its founder Adam Neumann firmly out of the picture, Industrious is experimenting more and trying to push the envelope on what people are looking for in a workplace, Hodari said, slightly out of breath from pedaling a Citi Bike across town.
“In the Adam Neumann era, we felt like we had to be more adult than we even were, specifically because we were trying to combat a certain reputation in the industry,” Hodari said. “Now that hopefully that reputation is going away, maybe we have more license to be a little quirkier.”
It’s somewhat of a departure for Industrious, a firm that has prided itself on its risk aversion since opening its first flex office space just over a decade ago in Chicago. Hodari and Stewart filled that location through advertisements on Craigslist while running the business as a side hustle. The company has since grown to more than 160 locations across a little more than 5 million square feet in 65 cities around the world.
As the flex office industry rightsizes itself in the wake of the pandemic and the WeWork bankruptcy, the question is whether it can make the jump from a tiny segment of the market — flex office space accounted for only 1.7 percent of total U.S. office inventory in 2023, according to a CBRE report — to a major player.
Some real estate experts are skeptical.
“I am bullish on flexible work space as an outgrowth of hybrid and remote work practices,” Stijn Van Nieuwerburgh, a real estate professor at Columbia, said in an email. “I do think there is a lot of vacant space from the WeWork bankruptcy and little that stops traditional landlords from entering and scaling up in this line of business. In the absence of a ‘moat’ it will be hard to make outsized returns.”
Salad days
Hodari, a Michigan native with degrees from Columbia, Harvard and Yale, was running a college scholarship program in Africa for orphans of the Rwandan genocide. But in 2011, a meeting in New York with Ikea, its largest funder, became a turning point in his career.
“We were in a shared workspace, and I went to prepare for the meeting and the conference room table was sticky, there were people pacing the hallways on really loud phone calls, there were a bunch of lightbulbs out, a buzzing noise, so I was really embarrassed,” Hodari recalled. “At the last minute, I moved the meeting to a Le Pain Quotidien, and I was so upset that night.”
Stewart, who was running the U.S. arm of a Chinese real estate company at the time, had a similar experience at a coworking space. They both liked the sharing economy dynamics of a flex office space and thought that tenants would be willing to pay more for space they felt proud of and wanted to go to, Hodari said.
They wrote up a business plan and opened the Chicago location as a test run in 2013. About six months later, they left their jobs to run Industrious full-time, Hodari as CEO and Stewart as president, running the firm’s real estate and construction arm.
“In the Adam Neumann era, we felt like we had to be more adult than we even were, specifically because we were trying to combat a certain reputation in the industry.”
Industrious opened about 25 locations under traditional lease structures, then inked its first management contract with Blackstone. In 2016, the investment firm put out an RFP for companies to manage the coworking space at its Playa District office campus in Los Angeles and wanted to structure it as a partnership where the landlord and flex provider design the space together, agree on a split of the revenue and run it jointly, similar to hotels.
Hodari was familiar with the management contract business model from his brother, a professor of hotel management, and his father, a gynecologist who saved up to open a hotel in his native Buenos Aires.
The Blackstone deal paved the way for the two different types of management contracts that are now the core of the company’s business — one where the landlord pays the operating expenses, and another more lucrative deal where Industrious covers the operating costs. Both sides agree on a split of the revenue in both types of contract.
It’s a more conservative but less profitable approach than competitors like WeWork, which signed long-term leases that put it on the hook for pricey rent that became difficult to pay when its offices didn’t fill. Industrious’ model is a reflection of Hodari, who friends and colleagues describe as frugal.
“He’s the cheapest person I know, and I think that’s part of what makes his business go so well,” said Ravi Gupta, Hodari’s roommate at Yale Law School. “You compare him to some people who are famous names in the coworking space, who are doing things like buying wave pools and flying private jets, and Jamie is way more likely to take a Greyhound than hop on a private jet.”
Demand-side economics
After the pandemic upended the office market, demand grew for coworking space as more tenants were looking for flexible options that allowed them to quickly expand or contract their footprints. Hodari has called it the “golden age” of flex offices, and Industrious has tripled its revenue since before Covid by opening more locations to meet the growing need.
“For lots of Fortune 500 companies now it’s like 20 percent that work in the headquarters and 80 percent of the company is spread out around the world,” Hodari said. “How many companies want to sign 48 different leases in 48 different cities?”
Industrious’ average desk rate is about $800 per month, though desks may run up to 50 percent higher or lower depending on the location. Contracts are month-to-month or up to three years. Tenants who rent private offices can visit any Industrious location by reserving space on an app. A small number of clients subscribe to Industrious like a gym membership but aren’t tied to a specific desk.
At the 80,000-square-foot Industrious at Vornado’s Penn 1, tenants use the space for temporary teams in New York, if their office is undergoing construction or if they have a special project for a short period of time, said Glen Weiss, co-head of real estate and office leasing for the landlord. There are also lots of small companies or teams that need a place to hang their shingle, Weiss said.
Vornado decided to partner with Industrious at Penn 1 before the pandemic, even though Weiss said he was growing wary of the increasing amount of flex office space available and the large number of operators.
“Everyone was doing it, everyone was leasing space to the coworking companies, and I kept saying, ‘I don’t think this works,’” Weiss said. “Now, here we are, post-pandemic, work from home, hybrid, everything that’s happened, and I think now it’s rightsizing itself.”
The industry has consolidated into three main players — the other two are IWG and WeWork, which will exit bankruptcy under the ownership of software firm Yardi Systems. Hodari envisions a future where every major company has a main headquarters and a flex office partner so employees can work from multiple locations, whether they’re traveling or want to be closer to home.
“I really think every company in the world, if they have a somewhat distributed model, is going to run their own headquarters but largely work with a partner for all of their regional offices,” Hodari said. “I think if we hit a ceiling, it’s not for a structural reason. It’s because we lose a step on product quality or we’re putting something into the market that’s the wrong product at the wrong price point.”
Divergent paths
It was 2017 when Neumann invited Hodari on his private jet to Atlanta, where Industrious had several offices, and asked Hodari to join forces. The meeting turned ugly when Neumann threatened to bury Industrious if Hodari didn’t agree to sell him the company, saying he would offer all its customers a free one-year subscription. For those who remained with Industrious, he’d offer two years, then three, according to Hodari.
“It seemed so obviously not true. It just didn’t pass the smell test to me that that was an actual thing that they were going to do, and they actually did do it,” Hodari said. “They ended up in Atlanta and Dallas and a few other cities saying any Industrious customer can get a year free at WeWork, so that was kind of scary.”
The senseless move was characteristic of Neumann, who continued to make the kind of precarious decisions that Hodari painstakingly tried to avoid. While WeWork burned through money and expanded at a frenetic pace, Industrious grew methodically. That is in part due to Hodari’s sense of responsibility to his employees and family, which now includes a wife and two young children, he said.
“I just think that running some super-risky business that’s a total roller coaster and constantly having ups and downs would be unsustainable,” he said. “I feel like a lot of why we’ve chosen this more risk-mitigated business, including giving up some upside, is a bit more personal.”
Community building
Although Hodari has shunned Neumann’s business model, he’s created a culture at Industrious that’s somewhat reminiscent of WeWork — with animated pep talks, staff outings to ballgames and an annual three-night offsite at a summer camp for employees.
“Part of the culture is about having these moments and these rituals that people want to tell their friends about,” said Industrious COO Liz Simon.
And, like its competitors, Industrious is trying to create a sense of community at its offices. At Penn 1, Industrious clients can mingle over breakfast at the coffee bar or charcuterie boards during happy hour. Leather banquettes, wrap around terraces and copious slabs of black marble create the ambiance of an upscale hotel lobby.
As Hodari walked briskly along Sixth Avenue toward Penn 1 for an afternoon of meetings, he brought up his 89-year-old father, who moved to a small village in Italy a few years ago from suburban Michigan in search of community and now sips espresso every morning and gossips with friends.
“That’s helpful to see for me because obviously Industrious has some echoes of that. I can see how valuable it’s been for him to be a little more surrounded by other people than he would have been if he’d been living in Oakland County, Michigan,” Hodari said and paused for a moment.
“It might be a stretch to say the intent of Industrious is to create a 200-person Italian village in Prospect Heights,” where his firm has a location, said Hodari. “But his village is tiny — it’s essentially the same size as an Industrious.”