This post is a contribution from Craig Baute, a professional coworking consultant who has been performing market feasibility and business modeling projections for commercial real estate developers and coworking entrepreneurs since 2014. Read his full profile here.

Although some coworking players get all of the headlines, most coworking spaces are local, small businesses with one or two locations. WeWork and some other growing chains might get valuations in the hundreds of millions or billions of dollars, but it’s important for coworking professionals to be grounded on the real valuation of a coworking space. In fact, most coworking spaces are not profitable for two years or so after being open and will have limited profitability due to the constraints of space and location. As a coworking consultant, I have helped spaces on both sides of the negotiating table and developed a few guidelines on how to value a coworking space.

Questions to Determine Coworking Valuation

How long has the space been open?

Coworking communities take time to develop, and once there members are very loyal. It’s a lot less risky to buy a space that has been open for a few years and a strong community. You will have to pay a bit more for it though.

How long is the lease term? Is there an option to renew?

There are two ways to look at this; 1) The more time I have to operate the coworking space with a known cost and location the more I’d be willing to pay. 2) The space could benefit by moving to a different location nearby so a shorter lease is better. (More often than not, the longer a lease or option to renew, the better.)

How much was put into furniture, desks, and decor?

Furniture and fixtures depreciate fast so this is an area that owners can feel burnt on, but it’s a fact of life. I like to pay attention more to more out the level of design and culture match of the design and it’s use. If the space is well designed for the marketing positioning that is needed to grow - great! If the owner missed the mark in design then a lot of it will need to replaced as part of a turnaround plane, then take that into consideration.

A lot of space owners will try to add the landlord’s TI (tenant improvement) budget into this, but don’t be fooled. You are paying for that with a higher lease rate, so take that number with a grain of salt. I like to focus more on the furniture and decor.

Does it have strong community involvement?

A strong community is one the things that are heard to measure and won’t be found on a P & L statement, but it can be the strongest competitive advantage for a coworking space. Coworking buyers should spend some time and talk to current members to gauge community involvement. This will help determine the risk factors of competitors coming in and the potential pricing power of the space.

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Does the space have a community manager or other staff?

If you are looking for a business that doesn’t require your full-time attention, then a community manager is a must have. A community manager also means that the person that most members have a connection to won’t be changing with a sale. If a space doesn’t have a community manager then you’ll need find out if they actually do need staff at the space and that they were just cutting vital cost to increase the valuation or if it’s well automated and self-sufficient.

Does the space have a strong brand and marketing materials created?

Coworking sapces are like many local businesses, they are hit or miss on the branding and that can be a good or bad thing. If the space doesn’t have a strong brand then it can more easily be transformed into the buyer’s vision. However, a space with a strong brand usually means it can grow faster with recognition.

Do they own the building they occupy?

This is a big one. If they own the building then you need to know if they plan on selling the business with a lease attached or the entire building. If they are just selling the coworking business, make sure their P & L has been based on rents they plan on offering the buyer.

How much debt does the company have?

Are you taking responsibility for their debt or are you buying the owner out and the seller pays off the debt? The easiest way is for the debt to be fully paid out by the current with the proceeded of the sale. At DenSwap, we generally determine the value of the business and then deduct any debt from the fair market value.