The Cambridge Group LLC - Maxfield Real Estate Group

 The Cambridge Group, LLC

  • Development, Management, and Consulting Services
  • Industrial & Business Incubator Projects                        
  • Mixed-Use & Adaptive Re-Use Properties                      
  • Shared-Office Facilities                                       

Incubator Search Criteria–see general characteristics for incubator buildings

Incubator Projects—Introduction and Concept Summary

 The Cambridge Group, LLC seeks to make productive use of the growing inventory of vacant or underutilized industrial buildings and failing or failed community shopping centers.  Often one of the best uses of old buildings is for adaptive re-use and mixed-use projects or industrial and business incubator facilities.

Mission Statement

The Cambridge Group, LLC provides consulting services and/or acquires, develops, and manages industrial incubator operations or other adaptive reuse properties inOhioand adjacent states.  Each facility is formed as a separate LLC joint venture with potentially different investors, stakeholders, and sometimes the building owner.  The managing entity of the incubator will usually seek to acquire a negotiable equity interest in each client/tenant business locating in the incubator operation.

Consulting Services

Due to the abundance of potential projects and opportunities, The Cambridge Group, LLC may just take a consulting role in a project by advising and assisting the owner of the building.

 What Is an Incubator?

 Incubators are a proven model for starting and growing new businesses and promoting entrepreneurship by providing the tools and support network necessary for successful ventures that will diversify economies, commercialize new technologies, create new jobs, and build wealth.  The incubator is managed by a professionally-trained incubator manager who also functions as a consultant to each tenant start-up.  The new start-up businesses are often referred to as “clients” of the incubator operation as well as tenants.

 Some Industry Basics

The typical industrial or business incubator facility is located in an urban area and requires less than 40,000 s.f. of overall space housing about 15 to 25 start-up businesses.  These start-ups are generally more successful than most new businesses and historically demonstrate a success rate of over 80%; and they generally are built into clusters of focused enterprises that service a particular technical industry or market sector.  Most incubator tenants “graduate” into a larger space within 18 to 36 months.  The growth rate of incubator facilities was nearly 99% from 1980 to 2002 and it remains a strong component for economic development planning in theU. S.and globally.

Types of Incubators

Traditional Non-Profit Incubators—are usually assisted by some grants, funding, or various tax-abatements and incentives by local, regional, or state economic development entities.

For-Profit Incubators—typically do not use any governmental incentives or stimuli unless there are tax abatements, trade zones, or other incentives already in place.  No special incentives are sought.  But individual tenant start-up businesses may apply for additional assistance on their own.

 Basic Approach or Acquisition Strategy

 The Cambridge Group, LLC seeks to acquire suitable facilities by purchase, master lease with purchase option of a building or portion of a building for conversion to a business or industrial incubator operation that will house 10 to 35 start-up businesses or more.

Purchase

We may use a variety of purchase strategies and creative transaction structures including selling financing and/or seller equity participation as well as the numerous real estate exchange techniques, such as using another piece of property as the down payment on the acquired facility.

 Master Lease (with Purchase Option)

A master lease with option to purchase will generally run from1to 5 years.  Some master leases are structured as cash flow or performance leases and are tied to actual cash flow of the incubator operation.  These are usually set as a fixed percentage of gross rent orNOIfrom the monthly or quarterly operating statement.

In both cases, the “Incubator Enterprise” becomes a major tenant for the building or facility.  For smaller buildings the incubator will comprise most or all of the building.  Larger buildings or properties with multiple buildings or floors will divide into sections—some will be for incubator/new business start-ups and some spaces will be for traditional tenants.  Some traditional professional service tenants and consultants will also be secured to assist and support the incubator businesses.

Management

The Cambridge Group, LLC will manage most of the facilities it acquires or develops.  Management services are highly intensive and costs for operating an incubator enterprise are about double what property management costs are for a traditional real estate investment and can run 10% to 20% of revenues.

Cambridgewill consider providing outside fee management services on a case-by-case basis, usually with some equity participation in the future value of the building created by a successful operation.

 Finding Tenants and Start-Up Businesses

The key difference between renting to start-up businesses and to a traditional tenant is that incubator tenant/clients must submit a business plan proposal to the incubator management team to be considered for the mix of new start-ups.  The type of start-up must be aligned with the industry focus that was determined as the highest and best industry cluster or sector for this facility location.

The other major difference with a For-Profit incubator facility enterprise is that the managing entity usually takes a limited equity interest in the new business start-ups in proportion to the value of discounted or free services provided by the managing incubator entity to the new business tenant in the form of rent, utilities, other overhead, and support services.

When the tenant grows out of their start-up space, they can either move to another area of the building or move into their own new location.  At the time they “graduate” and move out of their start-up space or the facility, the tenant/client business must “buy back” the equity given to the entity that was negotiated with their start-up package.  The equity is determined by either a pre-set standard business valuation formula or an exit business appraisal is performed to determine the buy-back value.  In some cases, by mutual agreement, the equity can be left in the business.

The basic premise is that if you have an incubator facility that houses 25 start-up businesses and the facility owns a small piece of each business along with receiving an overall fair-market rent (some now, some later), a few businesses will be highly successful and perhaps go public or be acquired by a larger company.  And the 15% of businesses that fail, the managing entity may be able to share in the sale of the business assets as a limited equity partner as well as have a lien as the landlord or master lessor.

Industrial/Business Incubators—Everybody WINS

For the Owner—creates cash flow; increases building value; potential to participate in the operation and/or invest in start-up business; equity participation

For the Operator—creates cash flow; fees; equity participation

For the new businesses—easy start-up; support services; more access to financing

For the community—employment; payroll taxes; other taxes; multiplier effects for job and tax-base growth

 Advantages for Client Start-Up Businesses as Tenants

Clients/Tenants have optional and easy access to:  business plan assistance; management consulting; marketing plans, research and support; advertising, promotion, & public relations; engineering; legal services; bookkeeping and tax counseling; in-house sales reps; financing & venture capital; state & local government assistance.

 Typical Concessions or Assistance Provided to Tenants/Clients

Actual rent can be as low as 25% of market rates for the first year

  • Utilities can be provided
  • Some professional services can be provided free or at a discount: legal, accounting, sales reps, marketing help, advertising, secretarial, shipping or delivery services; other
  • Assistance with securing financing, venture capital, or direct loans
  • Shared use of special equipment: office machines; towmotors; trucks;
  • Office furniture

The concessions and services package offered to a prospective tenant/client are negotiated on a case-by-case basis with respect to the submitted business plan.  The market value and/or actual cost of concessions and services provided to tenants or clients of the facility are converted to an equity interest in the business and/or are secured by a note against the business and its assets.  The terms of a note are negotiated with respect to the risk in that business and it may be an amortized, a cash-flow note, or an accrual note.