In this spotlight interview, Taj Adhav of Leasecake, a commercial real estate lease management platform, shares his thoughts on the current retail real estate landscape including which types of companies are adding space and why medtail may be the hottest new segment when it comes to malls and shopping centers.
Leasecake is designed to be the sole source of truth for all lease and location information, helping multi-location operators save time, minimize risk, and better manage their growth. It recently signed Sola Salons as a client to keep track of their hundreds of locations.
00:48 What are you seeing right now in the leasing world?
01:27 Are you seeing shorter term leases?
02:27 Can you explain blend and extend?
03:10 What are the options and incentives to keep current tenants longer or into space now?
05:20 What are you seeing in terms of pop-up shops and D-To-C brands?
06:42 What do fitness brands look for in space size?
07:58 What are your thoughts on the new mask-less guideline?
08:52 Are you seeing any big brands being ambitious with space?
10:04 What is the problem Leasecake is trying to solve?
11:24 Can you talk about the savings from making tenants aware of clauses in their contracts?
13:06 What was the process like of raising capital for Leasecake?
15:33 Is the goal for Leasecake to be that operating system for commercial real estate?
16:56 How much is Leasecake working with office vs industrial vs retail?
18:22 What’s your take on remote work and people going back to the office?
19:54 Thoughts about warehouses changing.
21:31 What size portfolios does Leasecake work best for?
23:59 Is this sort of your dream job with bringing your past experience all together?
Deidre Woollard: Hello, Fools. Welcome to another Millionacres Spotlight Interview. I've been doing a lot of thinking lately about commercial real estate leasing, what's going to happen, especially on the retail side. The more people I talk to, the more curious I get, the more numbers I see, the more curious I get. I'm here with Taj Adhav, who is the Co-Founder and CEO of Leasecake, and he's had more than 25 years in technology and business. He was an early hire at Channel Intelligence, which then had a successful exit to Google. He's managed more than two billion in assets for Disney development. He's seen so much that happens when you manage a large portfolio, which is just a lot. I'm really excited to talk about Leasecake and a little bit about your career. What are you seeing right now? How is leasing changed in this hopefully post-pandemic world?
Taj Adhav: Yeah. Thanks, Deidre, for allowing me to be a part of this. I think what we've seen certainly over the last year, is retail real estate is kind of fall into three categories and through a tenant operator. You're either struggling, you're learning, you're getting smarter, or you're taking advantage and got strong and got stronger. I think the ones that are struggling are trying to figure out effectively [inaudible 00:01:22] how to shift and scale organization.
Deidre Woollard: Interesting. One of the things I've heard of is shorter-term leases. Is that something that you're seeing?
Taj Adhav: Certainly, there's kind of great correction that's happening. From a landlord's perspective, they're looking at lots of different creative ways to keep really strong retail tenants in place and we haven't seen a ton of shorter lease terms. I think certainly more favorable lease rates to ensure that they stay longer term. You've heard the notion of blend-and-extend. Taking a look at the financial metrics that are driving the success of the particular retail tenant and saying, "Hey, we're going to weather this one with you, and let's make sure that you can successfully move beyond this and the landlord can recover the rents through a slightly longer term. Those are the smarter ones getting really creative with their tenants and are rolling up their sleeves.
Deidre Woollard: Awesome. Can you just explain what blend-and-extend is for the audience?
Taj Adhav: Yes. It's basically saying, "Look, if you're paying 40 bucks a foot for retail space in a prime area and you've been impacted, customers, consumers aren't showing up in your store, let's reduce the rate, blend it into a rate that's more affordable, and then extend the term of the lease." That's the simplest way to look at. There's lots of different mechanics behind it, but it's basically saying, let's make sure that you succeed. We're all in this together [laughs] and blend-and-extend is one of the concepts that they use.
Deidre Woollard: What are some of the other options and incentives that landlords are looking at to either keep tenants longer or get tenants into space now?
Taj Adhav: Yeah. I think there's a variety of things. If you're looking on the retail side with quick-serve restaurants, there's certainly a tighter retail footprint that usually works more successfully and certainly we've seen that during COVID. If you're a restaurant operator with, say, 3,000 square feet, you probably don't need that space and if you're running a really well successfully with touchless pickup, or contactless delivery, you're going to need to make sure that you're operating in your kitchen really effectively because you just don't need the table space inside. A tightening of the space, a little more increased density in a retail shopping plaza, for example, and then on the other side, I think it's a diversification of the mix of retail. Medtail obviously a very large growing area in retail real estate where because of health concerns, because consumers, there's less and less time to do things, it's so much easier to pick up coffee right after you've had your workout and then let me go in where there's chiropractor, dental office, quick doctor's check up or the like. Medical retail space is certainly a very active area that we're seeing growth in and again, it kind of runs the gamut. Anyone that is in any kind of personal services, dental, doctor, physical therapy, etc., you've got to be where customers are, and I think that's where you can increase the diversification of your retail real estate portfolio by serving more markets.
Deidre Woollard: Yeah. Totally. That's one of the things that I've been talking to other analysts about is about more medical in malls and also cosmeceutical, that sort of evolution of where you get your Botox and things like that. Also want to ask you what you're seeing in terms of pop-up shops and direct-to-consumer brands, because it seems like there's a little bit of activity more direct-to-consumer brands. Some of them that thrived during the pandemic are now actually looking for physical space which is kind of exciting.
Taj Adhav: Yeah, We're not really seeing the pop-up shops in terms of selling direct-to-consumer goods, but certainly direct-to-consumer personal services, like you mentioned, cosmeceutical. Personal services, get your teeth whitened, a quicker turn areas. I think there's definite potential, but it's like how do you maximize your real estate footprint. We're seeing the gamut, but again, I think it's really the landlords who can be creative with their mix and be more appealing to different types. That's what we're seeing. We're seeing, the growth on the fitness category, believe it or not. This is where the strong gets stronger personal services, massage, tanning, all of that is definitely a pretty big angle of what we're seeing certainly from our side, on the software side.
Deidre Woollard: Interesting. I think with the fitness, is it the studio size or is it the like full gym size in terms of space?
Taj Adhav: On the retail side like a shopping center, it wouldn't necessarily be the full-service size. We do see that, but I think if you look at, let's say, it's a rolling club or the different kind of [inaudible 00:07:17] gym , the Pilates as an example where you can control the number of people. It's a very 1-5 very structured training, that's we've seen is quite successful. It's a fascinating mix. Again, the bigger ones like we see Planet Fitness, Anytime Fitness, those with larger footprints are really growing strong through taking advantage of weakness, but also smaller, newer concepts on the boutique side are winning as well simply because of how they can manage the number of customers that are walking in the door with really curated controlled expense, give safety and comfort for their guests and their staff.
Deidre Woollard: Interesting. I know it's probably too soon to know, but what are you thinking about the new mask lift guidelines? Do you think that's going to then increase the need for retail space? Is that going to have an impact?
Taj Adhav: I think it depends market-to-market, state-to-state. We've seen certain areas. I'm in Florida, and so Orlando is a lot different than Miami. But I think we're already seeing some openness and some greater comfort, and certainly a lift in consumer spending at retail shops because it's starting to open up. It is still a bit early to tell, but I'm fairly bullish and I'd say, certainly our customers are fairly bullish on future retail real estate in terms of how they want to take advantage of weakness in the market and find even better locations they can expand into and more affordable.
Deidre Woollard: I've seen that dollar stores are adding a ton of space right now, that's really big. What other segments are you seeing? Any big brands that you are seeing being really ambitious with space?
Taj Adhav: I would say, back on the personal services side, we're seeing some pretty strong growth there. It's surprising. Most people would say "Oh my gosh, fitness clubs they're going to be dying, they're definitely more at risk." But along that theme of you're either suffering or you're getting smarter, or you're growing. Most of our customers are getting smarter and growing. Medtail, personal services side chief. If you look at concepts like Sola Salon's growing because the they do great jobs for people with the smaller studio and salon-based organization. Sola's going to send a footprint. Each one of those smaller little salon building are very controlled [inaudible 00:09:54] gives a sense of comfort to their guests instead of walking into a large gym or large salon. That's a what were seeing, there's a couple of examples.
Deidre Woollard: Awesome, thank you. Let's talk a little bit about Leasecake. Your a newer company. Tell the audience what the problem is at Leasecake is looking to solve?
Taj Adhav: There's so much risk that's really buried in actual real estate lease. Renewal options that might be forgotten, rent increases, lease termination clauses, personal guarantees, all of those things. There's really no system for. What we've done is created a way to easily access and be proactively notified for all of those things that matter. Primarily we're really in the answer business. Everybody lives on their mobile device. It's moving away from antiquated solutions like spreadsheets or Dropbox folders or corporate share drives. I think frankly, that's what the commercial real estate industry is really needing. We've seen phenomenal growth all last year just because of that. There's no other time [laughs] did it expose the risk of being a retail tenant or being a retail landlord in COVID. People needed to know who their landlord was and what the rents were and what am I renegotiating terms that are important. We've seen phenomenal growth, it's pretty exciting.
Deidre Woollard: I was looking at the materials on your site, and one of the things that you talked about is the savings that can happen. Keeping people aware of clauses in their contracts and things like that. Can you expand a little bit about how that works and how it maybe keeps landlords and tenants in a better frame of mind?
Taj Adhav: Yeah, absolutely Deidre. We've discovered to serve in what those leases commercial real estate. We said, "Where's the app for that?" There's obviously two parties that are signatories to a lease. Ultimately, it's a partnership. For a tenant to make sure that they focus on their own business, while at the same time being in accordance with all the lease terms and making sure they don't get hit with any land mines. That's important from a tenant perspective. Then from a landlord perspective, they want to make sure that they're compliant with the lease as well, and having the symbiotic relationship. If a tenant succeeds, then they succeed. The tenant grows and they add more space. Bringing those two parts together in a way that there's a seamless and transparent view between both in terms of what matters to each party is really the key driver. But on top of that, 30 percent of tenants are landlords too, so one part over the other. Many of our customers that are tenants, a couple of retail buildings or shopping centers. We find that that market is definitely it's been on top.
Deidre Woollard: You're based in Orlando. One of the trends that I'm seeing is startups don't have to go to Silicon Valley, they can be anywhere. You've raised three million dollars this year, what was that process like for you?
Taj Adhav: I would say it was very exciting and very rewarding. Because frankly, we've been in business for three years and it started over a cup of coffee in a diner. While we recognize the market opportunity, we were very thankful that our earliest customers became investors. But because of what happened with COVID seeing more and more of our retail growth, we've been talking to probably over 100 different VCs, certainly over the course of last couple of years. Because of the growth that they saw in what we were doing back in February of last year and then in May of last year then in June and July, more of them got interested. It was great to see an alignment of venture investors that said, "Geez, what you're doing is fascinating. We've never seen this kind of growth." Not only in the retail side, but certainly office and industrial with our customer base. That part of it was refreshing. When we looked at East Coast investors and West Coast investors, we've got a good mix. We moved from term sheet to fully oversubscribed round, and we closed that in February. I think there's definitely opportunities outside of the typical markets, Silicon Valley, New York, LA. Technology can exist anywhere. I think talented groups of people with their minds to it and that are innately trusted, empathetic, and have a high degree of curiosity. If they're focused on the problems and they're listening to customers, we can actually change markets and transform business. That's the part that we found the most rewarding. it was nice to get investors that CR vision of really being a global business transformation opportunity, and truly an operating system because that's really the dependency that we have across our customers.
Deidre Woollard: Is that the end goal for Leasecake? Is to be that operating system for commercial real estate?
Taj Adhav: Absolutely. That's definitely the goal. I would say this, it started with the simple statement right over a cup of coffee. "If everybody in business owns or leases commercial real estate, where is the app for that?" Well, we've created this simple surprising brand called Leasecake. This is an opportunity for us to become the Dropbox of lease and location management. The DocuSign for lease and location management. The Google Sheets version of lease and location management There's a lot of different opportunities, even LinkedIn. To create a network effects company, it's not just a landlord solution or tenants solution. As we've talked, both parties need to communicate, both parties need to be on same page, even though they might have some opposing forces. But the combination of all the people that were part of that successful growth, CPA firms, insurance brokers, real estate brokers, lenders. That entire community is who we're serving today, and providing a solution that is beyond just commercial real estate. That's why in the business transformation perspective, that's why we're quite different from most other companies.
Deidre Woollard: Interesting. You just mentioned earlier that it's more than retail, they're also working with office and industrial. What percentages of each are you currently working with within Leasecake? How much of it is retail versus office and industrial?
Taj Adhav: I would say probably, the numbers just last week, about 60 percent retail, 20-25 percent office. Then the balance on the industrial side. Like I mentioned, retail tenants, 30 percent of them are landlords too. While they may own their own shopping center, they may own their own mall, as well as run their multi-unit office. Having them being able to diversify into, they own office buildings as well, or they happen to be in the delivery business and they happen to have some land, and they're leasing land from an industrial perspective with a new more warehouse floor. That's where there needs to be a solution that not only fits all the business ecosystem involved in commercial real estate, but also all the use cases of whether you're landlord or a tenant. That's what we love doing. It's like a one size fits all in a very consumer-centric, simple and surprising brand called Leasecake. [laughs]
Deidre Woollard: Office, what are you feeling about office? There's so much talk right now. What's your take on remote work? Are we going back to the office? What do you think?
Taj Adhav: Yeah, I think the employees are going to be the ones that are driving the return of the office. It's certainly obviously disruptive office use and there's some pain points there, but remote work is definitely a thing. I'd say that's one of the silver linings of COVID. Having corporate office tenants understand and embrace the notion of remote work. But I think those days are over, I think. You're going to start to see employees say, "I need to go back into the office again." But [inaudible 00:19:11] love remote work, needs to be a blend. Because if you're young, energetic, you've got a lot of drive and you want to lead teams, you got to be visible. You got to be seen, you got to be in the office, you got to show your boss what you're made of. I think that's what we think is starting to happen, this balance. It's so easy for a head of corporate real estate within a company to say, "Oh my gosh, we're going to actually get free rent across over 10,000 employees in our office space, because they are all working from home." It's great for the bottom line, but it's not great from an employee's perspective and certainly from a growing and finding talent, finding collaboration, water cooler conversations. That's definitely something we're seeing.
Deidre Woollard: Interesting. On the industrial side, one of the things that I've been studying a lot is the changing nature of industrial space that it's becoming more automated. There's more to it now than just a warehouse. Is that something that factors in the leases as you work between landlords and tenants?
Taj Adhav: I think there's a couple of things, and I would probably touch on this hybrid. Definitely warehouse space, massive growth. There's no question about it comparatively to retail. I think the opportunities are not just the store stuff, but the delivered stuff. Delivering stuff requires vans and drivers and places to park those vans, so you're starting to see very creative uses of basically, vacant lots. Abandoned buildings that happened to be unusable, but that two-acre lot is unused land. No one's going to develop an office building or a retail center on it, but if you're a creative landlord and you're able to market and lease that raw land as parking space for vans, we're seeing that. I think there's a couple of aspects on the industrial side, that is if you're successful, you'll not only need a tighter way to store and manage your inventory that you're delivering. But also the logistics where those vans going to park, so it's pretty fascinating.
Deidre Woollard: One last question about Leasecake. Is it mostly for relatively large portfolios or does it also work for smaller portfolios?
Taj Adhav: It's for both. We have small portfolios, if you will, I'd say five locations. They might have a hundred employees across those five locations, it could be a variety of different user types. But ultimately, there's always a small back-office team. If they're outsourcing their real estate department, they want to stay lean, they could use Leasecake. We have users and systems for hundreds of locations, corporate users that have bought Leasecake for 150 locations for, let's say, Ideal Image MedSpa, certainly Sola Salon is using this across 500 of their franchise locations. Again, I think it's about helping people understand the opportunity that technology can impart upon their organization, stay lean and allow everybody to be on the same page because you might not be immediately hiring, but let's use the team that you have and use them much smarter and much more strategically. Whether you're small, whether you're large, there's definitely a play. We've got some customers that have 120 locations and they're inviting probably a hundred of their team members. A hundred location operator could have easily several thousand employees. Managing all of those teams across those 100 locations, one of the leaders that need to know what's going on, it's going to stay one step ahead. That's where we're really that one-size-fits-all. We've got some Fortune 100 companies using us, we've got some mom-and-pops. Some of these companies, when you call them mom-and-pop, they're not making 80 or 100 million a year in gross, so it's pretty rewarding because I think frankly, we help people sleep better at night [laughs] and we give them a better way to do business in respect of what size you are, we're just easy.
Deidre Woollard: I like that, so is that part of why you love what you do? Is this your dream job of bringing your past experience altogether?
Taj Adhav: Yeah, I'd say this often. I feel like I've been training for this all my life. I was a CPA, Big Four, a decade at Disney I was an engineer, I helped build a software company. But I think my parents were commercial tenants for 10 years, came to this country with six dollars in their pocket. My co-founder is a landlord with large commercial real estate portfolio. Bringing all of that past experience into an opportunity, it's very rewarding. I certainly jump out of bed in the morning, I think our team definitely does. But end of the day, I think there's really three things that people look for. Whether you're working for us or whether you have your own successful company. You want to love what you do, love the people you're working with. You want to be financially secure, but you want to also be involved in something that's purposeful. Change the world or make a difference. What we're happy about is our customers love Leasecake, and we would say that Leasecake is love. We're about trust the system, we're empathetic and we're very curious and continuing to iterate and solve problems that everyday these business centers face and they've never had a solution for it. That's what we love.
Deidre Woollard: Awesome, perfect. That's a great place to end it. Thank you very much for your time Taj.
Taj Adhav: You're welcome, Deidre. Enjoyed it, thank you.