Gridium: Hello everyone and welcome to this conversation with Nigel Marcussen, professional engineer and VP, Head of Building Engineering at WeWork. Nigel has been working on the engineering and project side of the built environment for over a decade with early stints in the United Kingdom and Italy.
My name is Millen and I’m with Gridium. Buildings use our software to fine-tune operations.
Nigel and I will explore how his team has managed to deliver productive and collaborative environments in WeWork’s buildings throughout this period of hypergrowth—and the growth is phenomenal. From a coworking company to one of the most valuable startups of all time. From a $1 million seed investment round to a multi-billion dollar investment about a year ago. From a single location in New York to over 425 spots across the globe, with a portfolio that is—at least at this moment—over 45 million square feet in over 100 cities.
Since it is at such a scale that you and your team operates, I’m really excited to have you on the podcast, Nigel. Oh, and my office is in one of your locations here in San Francisco and I’ve got to say, I dig it.
Nigel: Fantastic. Thanks for the kind intro Millen and very glad to be joining you.
Gridium: Before asking about the interesting projects underway at the We Company, can you tell us a little about your path into the built environment?
Nigel: Sure. So, I’m from New Zealand originally. Ended up in the States via London and Italy. My first job out of college was as a building services engineer, as it’s called in the UK. I think I ended up in engineering from sort of having an understanding of how things function and how things go together. I’d always been inspired by buildings.
What I’ve learned to love about being in the built environment is having something there that I’ve really contributed to that people spend a lot of time in, and that grows and evolves over time. I don’t think it was something I realized that I’d come to really appreciate when I thought about going into engineering, but it’s become the key thing for me.
Gridium: And about those projects that are underway, can you tell us about your new Powered by We offering? You managed the building information modeling team at Arup here in San Francisco. How did that experience on the technology side prepare you to work on technology and Powered by We?
Nigel: Powered by We…WeWork’s core offering is providing space for people to make their living. The success of WeWork as a product has really led to a much larger demand from larger customers and from enterprise members and that’s really pivoted into the idea of space as a solution, space as a service. And so the Powered by We offering is the idea that we can come to you.
So where we really started several years ago, we sourced the real estate, we provide a relatively standard product. We’ve already pivoted towards now actually offering that service to other companies, potentially in their own real estate; so real estate they may source themselves and are looking to re-energize or bring some of the WeWork culture into it. We now offer that as a service where we can build out space in enterprise members’ own facilities. So that’s leading to a lot more customization.
And for us, technology is really about creating meaningful connections and utilizing space more effectively. So a lot of what we’re looking at there is understanding how space is used, where the inefficiencies might lie, how that might change over time; and so not necessarily having a static design that’s designed once and then it supposedly stays the same, but actually coming back and revisiting and moving things around.
Whether that’s adding conference rooms, moving phone booths, whatever as usage patterns change. I think that’s been one of the really exciting things for me, being at WeWork, having worked in consulting for most of my career, a frustration was designing a building, building it, and then walking away on day two and not really understanding how it was used.
There are challenges as a consultant: no one really wants to pay you to come back and look at their building again. And so the chance to come back and really understand that thing that we’d spent all of our time on was being used for was very rare. And so we’re really trying to leverage technology and the opportunity that we have being an owner/operator to really understand how space is being used and understand how we can feed that back into design and understand how we can change the space and evolve it as people’s needs change.
Gridium: I know that community is a central element to your company’s approach. WeWork has acquired the software coding outfit Flatiron School and the online community that helps organize real world events, MeetUp. What is your approach to ensuring WeWork’s buildings and its operational strategy accommodates all this activity?
Nigel: Designing for flexibility is the key problem that most designers are trying to solve for when coming out with designs for office space or for anything that the use isn’t necessarily defined and understood at the time, right?
So, sort of leveraging on that technology again, a big focus for us is really understanding how the space is being used and understanding how we can optimize it. For office space, I like to talk a lot about our diversity and understanding how our diversity changes in different markets.
To me, the diversity is made up of a number of components; you know, we rent our office space so that the percent sold in a particular building plays into that. The utilization of the space, so if we rent an office to a member as a 10-person office, are they actually using it for 10 people? Or did they put 4 people and a couple of sofas in there? Or are they using it for a conference room?
Understanding these things helps us better design the systems around our members. And then who shows up, right? Who actually comes to work during the day; we have a very diverse membership portfolio, so that can really change from market to market, from building to building. Understanding those three things together then really helps us inform the decisions we make around a particular building; the load capacity that we’re putting in one market versus another market.
Gridium: And when I think about your challenge of operating across 100 cities it’s remarkable. What are some of the lessons your team has learned about operating a portfolio that spans the globe?
Nigel: We’ve always had a core design principle of you should feel at home in our space, in any WeWork you come into, but it should also feel very unique.
If you’re a member in Shanghai and you’re visiting New York and you need to use a conference room, you should be able to walk into a building. Your access card should work, you shouldn’t have to talk to anyone to get special permissions to get into the building. You should be able to navigate your way through the building in a familiar way, but it should feel very unique—there should be design elements that really speak to New York versus the building you’re in back in Shanghai.
I think that needs to carry through not just to our product, but also to the processes that we apply, the things that we put into buildings; people’s expectations in different markets are different and trying to understand those and adapt the product to be flexible to suit specific needs of specific markets is very critical. But also, our processes: how long does it take to source and build a building in New York is very different than even other cities in the States versus other countries; so, understanding permitting requirements, understanding the different processes that we need to apply, how we can work with a general contractor and a subcontractor in one market versus another market, understanding what consultants will do in one market versus another market is key.
Gridium: WeWork is now owning buildings. What is different about operating a building you own compared to one in which you’ve leased space?
Nigel: The fundamental difference is that we can directly benefit from the positive impacts that WeWork brings to an asset and to a neighborhood. This is obviously why we’ve gone into owning buildings.
The operational requirements are not that different—we were already operating buildings that were, what we’d describe as “triple net”, so where we’re responsible for all of the operating expenses of any of the mechanical equipment within the building.
We were already, sort of, in that environment; the conversations around OPEX and CAPEX become very similar. The exciting thing for us is that we can now start, as we’re looking for these buildings, we’re typically looking for underutilized assets looking to reinvigorate them and we can do so in a manner that is better for our members, and we feel is better for the community.
And typically, what we’ve seen in the past, is really better for the asset and makes it a much more flexible asset. So, whether that’s looking at designing HVAC capacity for a building that’s perhaps more in line with today’s norms than norms of 10 or 20 years ago, or even looking at building programming and understanding how people now use amenities within a building; what people are looking for now is very, very different than the model of—again, even as recent as 10 or 20 years ago.
Gridium: Right. Nigel, I’ve read that the design of the IT room is highly specified and standardized for each new space that your team opens. That’s good for new equipment that you bring into the building; how do you go about taking stock of the physical assets—I’m thinking about those HVAC systems you just mentioned and other infrastructure that’s there in the building already?
Nigel: That’s really a cool function of the team that I run—we have a very detailed due diligence process in terms of trying to understand a lot of things around the building.
So, infrastructure: the HVAC capacity, electrical capacity, but even down to egress into the site, what’s construction activity going to be like? Are we going to be restricted because of the tenants within the building around our construction schedules and does that impact turn a 4-month schedule into 6 months and really change the financial model of whether that building is a good building for us or not. So we spend a lot of time there.
One of the ways we’re really pivoting that, and again thinking about technology, is starting to look at the characteristics of our assets and trying to correlate that to member experience. We’re looking at HVAC tickets that we receive in a building across that portfolio of 425 buildings, cross-referencing that with different types of mechanical systems, trying to understand: does a particular type of system lead to a better outcome for us and then therefore, create that feedback loop into our real estate sourcing team to understand, “Should we avoid this type of building?”
We have a research team, a fantastic research team here that spends a lot of time looking at the more qualitative side of things and speaking to our members, surveying them and doing some pretty detailed studies and trying to understand what they love about our buildings. And so again, trying to take that feedback loop. Obviously “daylighting” is something that comes up regularly, so as we get more and better data around the fact that our members prefer buildings with great daylight and it drives higher sales, it creates a strong argument to go back to that sourcing team and then really, during that due diligence process, understand, “Hey, this building is shaded and has small windows. Maybe it’s not the best asset for us.”
Gridium: I have to say, allow me to add that the windows set up at 650 California is not only beautiful, but it’s great to experience and these windows take up nearly all of each wall section. So, here in this nice conference room I have a massive window view of downtown San Francisco and it’s very pleasant.
Nigel: I think that’s the punched opening windows, right? I think that’s actually my favorite building from a facade perspective of all of our buildings.
Gridium: Elements of WeWork’s finances were made public by the bond offering in 2018. I’m referencing articles in the Financial Times. One of the line items shows WeWork spending $6 million a year on software. What role does software technology play in your operations?
Nigel: A key role. I think we’ve talked about it a little already. Just to contextualize that, you’re talking about less than a tenth of 1% of our gross cap as forecast for 2019, so while we’re spending a lot on software, we’re also spending a lot generally on buildings.
Gridium: True.
Nigel: I think you’re seeing there what we’re spending externally. We’ve also really found that a lot of out-of-the-box software solutions just don’t work for the way we work, the scale at which we work, the pace at which we work and the processes that we have.
We have an amazing in-house software team that develops a lot of what we work with and then when we’re using solutions that are available in the market, they’re also focusing a lot at integrating those solutions.
I think a big focus when you’re working at scale like this is single source of truth and fostering communication, whether it’s inter-team communication or the personal communication—inter-department communication—or whether it’s just communication around things: characteristics of a building, how many elevators are in a building for example.
Tracking that kind of information and making it available to all sorts of different use cases in our business and tracking it right from that real estate sourcing through to operations through to five or ten years down the line, as we’re starting to go back and look into capital upgrades, tracking that information through as the sort of single source of intelligent information becomes the main problem for us. So, all of our technology solutions are moving towards having that intelligent information—something that’s sitting on a PDF or a scanned drawing or even a spreadsheet somewhere on a network drive is dumb information that doesn’t suit anyone, so we’re looking at trying to harvest that and keeping it in an intelligent way.
Gridium: WeWork’s co-founders’ first foray into real estate centered on sustainable, energy-efficient operations. How is WeWork thinking about sustainability today?
Nigel: We think about sustainability pretty broadly. We design, build, and operate, so for us we’ve got to look across that life cycle.
We manufacture a bunch of stuff that goes into our building as well, so we’re thinking about that. It makes an interesting whole-life-cycle problem. We’ve also found that sort of industry norms don’t necessarily work that well for us, so sustainability certifications that are available in the industry aren’t really targeted at someone or at an organization with the influence that we have, and that’s sort of the scale that we’re at. We’re really trying to spend a lot of time focusing on where we can have the largest impacts.
All that said, WeWork is by its business model, very efficient and so there’s a large sustainability angle by the fact that we’re two and a half times more efficient with our space than a typical officer user. And that our business model revolves around the idea of creating flexibility without knocking things down and starting again.
We’ve also built out a sustainability team and their three core focuses are: energy, so not just looking at efficiency, but moving towards 100% clean energy; materials, so what we’re sourcing, what we’re putting into buildings, making sure that they don’t harm our members and harm the environment; and then creating healthy and productive workplaces.
Gridium: What role do you see for preventive maintenance in sustainable operations?
Nigel: It’s a huge role there, not just looking at time, energy, cost of facilities maintenance or facilities management that isn’t preventative. We’re really doubling down here and running a pilot study at the moment.
I’m describing it as the If This Then That for buildings with the goal of trying to link all of our systems and any potential system in the future to really start to think a lot more proactively around maintenance, around operations, around how these systems are talking to each other.
For example, having our sales platform talk to our lighting control systems to turn off lights in rooms that we know aren’t sold. Looking at temperature within space, trying to understand if it’s above set-point and then if it’s been above set-point for an amount of time, triggering an automatic alert to our facilities team, creating that ticket and getting them out there to look at it before someone has to manually complain and report it.
Gridium: Speaking of reporting, do you believe that there is a balance between comfort and efficiency?
Nigel: Absolutely. Comfort is one of my favorite topics—I wrote my thesis on it. There’s a lot of research around comfort being subjective and I think, particularly in North America, we have this tendency of certainly over-conditioning buildings, but assuming that everyone wants that same 72-degree space.
There’s a lot of research that shows that if you’re more informed about your environment and more in control of your environment, you’ll have better outcomes without necessarily needing more air conditioning.
The idea of adaptive comfort, the idea of putting someone in control of their environment and allowing them to change their environment, leads to them being—typically—more comfortable than they were before in exactly the same situation, exactly the same temperature, and without control. We’re really trying to move our product in that direction and try to find ways that we can, again, integrate technology, thinking about next generation of HVAC controls, moving towards open-source, the idea of sensors everywhere now that sensors don’t cost $200 a point. The idea that we can gather a lot more data, provide that data to our members, and then let them make the choices we believe will lead to better satisfaction to them and reduction in energy consumption.
Gridium: WeWork reached an impressive milestone in December—you now operate in 100 cities. By the way, congrats! That’s a ton of electric utilities. How does your team think about all the various utility tariffs under which your buildings are drawing power?
Nigel: So we have a team that focuses on this and really looking at portfolio energy buying, trying to move to… a goal for this year in the US and Europe is to move towards 100% clean energy procurement, primarily working with utilities wherever green power is available there.
Despite the 425 buildings, we only really ever pay for power directly in about 20% of our buildings, so I believe this is a fundamental issue of the real estate industry in general, in that it’s not necessarily incentivizing tenants to save energy. So, when we’re going into new buildings now, we’re really trying to negotiate with landlords; wherever possible, we want to be paying directly for energy—we don’t want to be paying through a common charge to them so that we can actually have an influence here, so that we can see the benefit of decisions that we’re making and so that we can start to really hopefully change how the industry is looking at this.
Gridium: That’s great. Is WeWork exploring on-site generation and/or energy storage?
Nigel: We are looking at energy storage in some of the markets that make sense. You know, again for us, given that we lease most of our space, on-site generation and storage doesn’t always make the most sense for us. So we’re trying to look for the best solutions that have the best impact, not just at a business sense but in that market sense.
Gridium: I’ve read about some cool experiments your team is conducting on the future of the office environment, including sentiment analysis with facial recognition, automatic desks and climate adjustments that are personalized by the user—and that’s just on the occupancy side. On the operations side, what do you imagine the future might look like?
Nigel: So I talked a little about the study we’re running at the moment, the pilot project that we have going. I think this is a really exciting time for the built environment that’s moving, particularly for us engineers, that we’re moving from a very closed ecosystem to the idea of everything being open.
And so, for us, we’re really thinking about any new technologies we’re putting into the building: does it have an API? Can we make intelligent decisions based on the data that that system provides and send it to other systems?
I see that as the future, rather than the strategy of years gone by where single companies created closed ecosystems and tried to have the full market share of everything. I love that now we’ve got people thinking about being great at very niche products and niche offerings that sort of sit within an open ecosystem. So, that’s really where we see the industry going and we’re really trying to drive that.
Gridium: I’ve been meaning to ask you Nigel about the main challenges. You’re operating buildings for nearly 400,000 occupants in a portfolio that’s growing so quickly. What are the challenges there that you would consider the main challenges?
Nigel: I think the same challenges that anyone that’s operating a diverse portfolio sees.
You know, we have 425 buildings, we’ve probably 425 unique different systems, the way they’re all put together; there’s some common threads, but there’s a lot of uniqueness there. We’re not always in the position to be able to shape those decisions either. For example, we have a buying agreement for a VRF system that we will put into buildings when we need to put VRF systems in, but we go into other buildings that already have a system and have someone else’s—have another manufacturer.
So, we’re constantly trying to think about how can we standardize, but knowing we can’t standardize, how can we integrate all of those systems? How can we have them talk a common language? How do we make sure our operations staff and our community staff are trained and understand one building, and then move to the next building and can understand that one as well. So, again, referencing that study that we’re running at the moment—we’re really trying to come up with a common interface for control systems. If we’ve got vendor X in one building and vendor Y in another building, can we build a common interface into those two systems so that our staff that are operating the buildings, really see one front-end and aren’t aware of what’s in the backend of building A versus building B. At scale, going back to what I was talking about before about communication, just managing the amount of information that we have and ensuring that the people that are operating the buildings have access to the best information about that building. Ensuring they’re all trained and have access to that is critical.
Gridium: In addition to this If This Then That pilot study, what’s most exciting to you now? What are you looking forward to over the next year or so?
Nigel: Really thinking about our team: how we can provide the best value and work better with our external partners. We’ve acquired general contractors now in two of our major markets. And we’re in the process of building one internally ourselves. I think that really becomes very exciting for us to start to really leverage relationships with the subcontractors; really start to think about efficiency.
We’re trying to apply a lot of Lean processes to the idea of design, build and operate, and so how can we look at what we’re doing and at all the wastage on site, whether it’s people, whether it’s materials. And it’s hard to have those conversations when you don’t have a partnership with the people who are actually doing that work.
It was always a frustration that I had as a consultant, that you’re so far removed from the guy who’s actually hanging that piece of duct to be able to have a conversation about how could you do this more efficiently? How could you spend less time doing this? How could we be prefabing part of this? How could we improve quality, improve speed, and reduce costs?
Gridium: Yeah, that sounds like a lot of fun.
Nigel: Yeah, a lot of fun. It’s what brings a lot of our team here—that ability to think about that vertical integration and think about looking at these problems with all of the experts in the room.
Gridium: Well, great. And thank you! This has been really interesting and quite good. Thanks for being with us.
Nigel: Great, thank you! It was a lot of fun.
