Summary:
This story is about a 15-year relationship that led to the Ivy Group’s recent brokerage for the sublease of a commercial property in Silicon Valley for Knightscope, Inc. headquarters.
Knightscope, Inc. (NASDAQ: KSCP) is a robotics company specializing in autonomous security robots for public safety, using AI-driven technology to help protect lives, property and infrastructure. It is a design, R&D, and tech advanced manufacturer here in the U.S., providing robots to patrol campuses, malls, hospitals, casinos, and government buildings.
Tim Vi Tran, CEO of the Ivy Group, a premier commercial real estate brokerage firm in Silicon Valley, holds top commercial Realtor® designations as CCIM & SIOR after more than 25 years in industrial property sales, purchase and leasing services.
Tim advised and brokered this sublease negotiation for Knightscope, and secured a 33,355 sq. ft. space at $2.37/SF NNN , with 10 months of free rent (valued at more than $790,000). The master landlord, Siemens Medical Solutions, spent $11 million in tenant improvements but never moved in.
Upon Tim’s advice, Knightscope’s initial 100,000 sq. ft. plan was scaled down to 33,355 sq. ft., to better match their current real estate needs and financial capabilities. The deal saved them 30-40% off current market rates, totaling $5 million over five years.
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Initially, Knightscope was thinking of leasing a 100,000 sq. ft. property, believing that they can grow into it.
“In my gut, I didn’t feel like that space was the right size for them at this time, and I wasn’t just going to do a deal just to collect the commission. I’m going to do what’s right for their business, because that 100,000 sq. ft. deal, they’re either going to succeed wildly, or they’re going to fail and the company is going to shut down,” said Tim.
The company grew over the years from leasing 4,000 to 13,000, then to 18,000 sq. ft. of space. “I know you don’t just grow from 18,000 to 100,000 sq. ft. That just doesn’t happen overnight, unless you’re Microsoft, Google or a company that can swallow that cost, or like Siemens who spent $11 million on improving a property and never occupied it. Siemens can take those kinds of risks, my client cannot,” said Tim.
“It’s my job as their real estate advisor to look out for them…more than just get a deal done, get bragging rights and get paid a commission. I’ve got to look out for this company, so they can be around for another 10-20 years,” Tim explained.
“We must have looked at 20 or 30 buildings, and there were a few that they really liked, and the one that came down to the end is this 33,355 sq. ft. That’s about a $5 million lease commitment – the base rent, the ‘triple net’ expenses, all the operating expenses, and the annual increases.”
“The other 100,000 sq. ft. building they were initially interested in was bigger, and it was a sublease, and they’d have to commit to eight and a half years. That would have been a $32 million commitment.”
Tim guided the company to assess from the perspective of financial and other commitments – the difference between $5 million and $32 million, time commitment, and the lease rate basis.
Even though the 100,000 sq. ft. building was a good deal, and despite the great quality of the property, there is the difference of $27 million between the eight and a half year sublease and the smaller space with a five year sublease. Tim also compared to other properties on a price per square foot basis – the lease rate basis. “We looked at how much money they have to put into the space, to clean it up, to build it out, to get permits, etc. And it would have been a million, or half million. It would have been 12 months dealing with the city. They needed a space where they could literally move in, do something real quick and be in business, and keep moving forward”, said Tim.
“We looked at so many buildings. Some of them were like, five bucks a square foot. Some of them were two, some of them were three, some of them were even one dollar a square foot.”
“I showed them the dollar per square foot property. It’s unsafe to even get out of the car in the parking lot. They’re going to spend probably a million dollars over 12 months to fix this place up. So you don’t just look at the price per square foot basis. You look at everything, the whole big picture, the parking, what type of landlord you’re dealing with, how much power does it have to run your business, etc.”
“There’s so many factors. We compared all these different properties, putting all the pluses and minuses against each other in an easy, summarized matrix, and let the board and the company make their decision, the right decision. With that being said, I also feel like they’re going to outgrow the space in about two years or three years, which is fine – when the time comes, we restart the search to get a second building.” Tim stated.
Even though Knightscope’s sales are expected to grow and the employee headcount will likely double, Tim advised them to rent based on the current needs with maybe 10% to 20% growth expectations, as long as they have the adequate space for their current needs for design, manufacture, and a place where investors can meet at their corporate headquarters.
Tim continued: “We’re trying to do what’s right for them. I go find a space based on their numbers. Because I’ve been following this Nasdap publicly traded company’s quarterly and annual reports. I have invested in the company, I’m on their investors’ calls, so I know that they’re not quite ready to make such a big jump.”
Tim offered Knightscope his thoughts, they listened and took a more prudent and realistic approach. Instead of 100,000 sq. ft., Knightscope decided to be more realistic and subleased a 33,355 sq. ft. property. Tim negotiated really hard for them, and got a very spectacular deal: 10 months of free rent. That’s unheard of. And the starting rent is about $79,000 per month. 10 months of free rent saves them over $790,000 immediately.
Additionally, Siemens Medical Solution is the master landlord. They never moved in. The property sat on the market for maybe two to three years after they spent $11 million to improve the property. The lease rate for what Siemens is paying is roughly around $4.00 to $5.00/SF NNN. Tim secured it for Knightscope for a starting lease rate of $2.37/SF NNN, another huge savings.
Tim helped them successfully negotiate their sublease from Siemens 30% to 40% below market rents for similar space. “Siemens is basically subsidizing the rent”, said Tim.
On top of that, because Knightscope didn’t take a bigger bite than they could stomach by leasing a larger property, the lower square footage also saves the unnecessary rent that they can put into research & development, company growth, etc.
“This is what we do with all our clients: walk the client through the process. We helped them structure the sublease for a great deal, which earned their CEO and CFO’s confidence in us. They also needed to do some TI (‘tenant improvement’) work. So we recommended IT guys that can run the data cables, and we recommended a contractor to come in and redo some of the walls and floor plans, electrical work, etc”, Tim continued.
“We are more than just an agent. We actually provided additional services like recommending trusted vendors. They went with both of our recommended contractors as well.”
“We’ve been working with Knightscope for about 15 years. We started with them when they were just in their infancy. As they grew, they kept coming back to us because of our market knowledge and our trusted advice”, said Tim.
The Ivy Group has extensive experience working with companies in R&D, design, robotics, advanced manufacturing, hardware, software, AI, supply chain logistics and distribution in Silicon Valley, Fremont, and the greater San Francisco Bay Area. The Ivy Group is regarded as one of the best in commercial and industrial real estate sales, purchases and leasing.
“Relationships are everything. We earned our status among the ‘Ivy League’ of commercial real estate brokerages by always going above and beyond for each and every client. That’s our secret source,” concluded Tim Vi Tran, with a beaming smile of genuine fulfillment and satisfaction.
When you need to sell, buy, or lease a commercial property, the Ivy Group is ready to help you reach your goals with more than 100 years of combined experience and expertise in real estate, investment, technology and engineering. Contact us with your next real estate needs.
