CAN guide How to mezzanine*library.uniteddiversity.coop/Community_Assets/CANGuide-HowtoMezzanin_000.pdf9 •You want a high quality, professionally serviced office but can’t afford

guideCANHow to mezzanine*

*to mezzanineto create high quality, low-cost office space

Contents

3 Welcome

4 Before you read on

5 The Mezzanine

7 Mezzanine 2

9 Who it’s aimed at

11 Step 1: planning it

15 Step 2: doing it

19 Step 3: keeping it going

21 We wish we’d known that…

26 At Mezzanine 2

27 What next…

3

…to CAN’s guide to planning, setting up and running a mezzanine.

When Community Action Network (CAN) started in 1998, our aim was to

network social entrepreneurs within the voluntary sector: to increase their profile,

to raise their sights and to help them learn from each other.

We pursued this goal in many ways. But perhaps the most successful mechanism we

stumbled upon was the idea of creating a ‘physical centre’ – shared offices where a cluster of not-

for-profit organisations could work alongside each other. We began with five tenants and a short

lease on 3,500 square feet just off Leicester Square. For five years, our Mezzanine in London’s

Waterloo brought together 25 tenants in over 19,000 square feet of space. Today, our third shared

space houses 40 social enterprises in 21,000 square feet of high quality offices at 1 London Bridge.

Hopefully, this may soon be expanded to 30,000 sq ft and 60 organisations.

Our success has led to a stream of enquiries about how we did it, so I am delighted to be able to

share this story and the lessons learnt with you. It has not, by any means, been plain sailing. We

have made mistakes and tried to learn from them. But I am convinced that for the social sector,

there is a huge benefit to be had, all around the United Kingdom, if organisations can get together

to share facilities and knowledge. If we can be of any assistance in advising on your own situation

and plans, please don’t hesitate to get in touch: CAN is here to help any group that would like to

learn from our work.

Adele BlakebroughCo-founder and Chief [email protected]

welcome

CAN guide How to mezzanine

About this resourceWe have chosen to publish this guide in two parts:first, we have prepared this abridged, printed booklet, whichprovides the key messages and points of information for doing a mezzanine project; second, this booklet is supported by acomprehensive series of downloadable resources, giving a widerange of extra detail, available for free on our website.

This approach not only helps us keep our distribution andprinting costs as low as possible, but ensures as many people as possible have easy access to this material.

To get the details that sit behind the tasters provided in thisbooklet, go to the CAN website, where you can find briefingnotes that cover key sections of this booklet in greater detail.

Remember that doing a mezzanine…

• Is about wanting to provide a greatmanaged office service.

• Is not about developing a property portfolio on the cheap.

• Requires an attention to detail and quality.

• Is only one way of providing co-location.

• Needs to have a clear champion who will drive it forward.

• Will demand financial discipline.

! before you read on…

www.can-online.org.uk/publications/

4

5

...19,000 square feet of office space in London’sWaterloo, was shared by some 25 social sectororganisations, from 2000 to 2004. It was a highly

practical solution to a fundamental problem faced bythis sector: how to find attractive, flexible, affordable,

stylish and friendly offices in a great location.

Business school gurus who study small business call this sort ofthing a ‘cluster’ – and have figures to prove how much addedvalue such groupings create. It’s hard for us to calculate the truevalue of the relationships in our Mezzanine, but we do know thatevery year, members saved a combined total of £230,000 in directcosts alone, due to economies of scale and sharing facilities.

Mezzanine Services Ltd (MSL), a company limited by guarantee,was set up by CAN specifically to manage the Mezzanine. Tenants were members of MSL and paid a fee to cover rent andthe operating costs of providing a full-time office manager, office equipment, mail and franking services, and acommunications and IT infrastructure that wouldn’t be out of place in a multinational business.

Our approach not only saved us money, but also played a majorrole in promoting interaction between organisations, making thesum greater than the parts.

themezzanine


7

…is the name of the new social enterprise, formed by CAN in 2004, to take on new space as the Waterloo office lease was coming to anend. Our landlords had submitted plans to redevelop the site and

were only prepared to renew our lease with short notice clauses. Thiswas a hard moment. We thought we ought to move on but we didn’t

believe we could better the position and quality of the Waterloo office.

After much research and discussion, internally, with Trustees and external experts,we thought there was unlikely to be a better market in which to take on a new‘long’ lease, between five and ten years. We engaged a property agent to help with the search and quickly narrowed down our shortlist to four buildings. Tough negotiations resulted in an affordable cost for one outstanding space at 1 London Bridge and we entered into a seven-year lease on two floors, totalling21,000 square feet.

We created Mezzanine 2 Ltd, a company limited by guarantee and registered charity,to be the leaseholder. The member scheme we had used before was not acceptableto our new landlord and so we agreed a form of annual licence for our clients. Thislicence allows organisations to occupy their space, connect to phone and broadband,and share meeting rooms and conference facilities for a fixed fee. Our researchshows that this fee is roughly half of comparable London office space. Extras,charged monthly, include photocopying, phone calls and mail franking.

Thanks to funding from the London Development Agency, we have been able torefit the space to a high standard but our business modelling did show that, evenwithout this funding, the concept would have been viable.

mezzanine2


?

9

•You want a high quality, professionally serviced office but can’t affordit on your own.

•You are a group of people who are already sharing a building and wantto know how to make it run a lot better.

•You own, or have access to, a building that isn’t fully occupied and youare thinking of letting space out to make some money.

•You are a group of organisations that would like to work together ina shared office environment.

who it’s aimed at

information can be found at www.can-online.org.uk/publications/more


step 1

11

planning it

Check your motivationsThe success of creating a mezzanine ismeasured in terms of how well it enablesits tenants to prosper. So start by thinkingabout the types of organisations youwant as tenants, and how yourmezzanine is going to support themin being successful.

Before you commit to spending money,take time to articulate what it is that youwant to achieve. At CAN, for example,we wanted our tenants to network andhelp each other win business. Refer back to your plans over theduration of the project to make surethat it still fits with what you originallysaid you wanted.

Explore your property optionsAs you start to look for a property, usethis time to refine your ideas about whatsort of space you want, and to figure outwhat you are prepared to compromiseon. You will probably be thinking aboutthe relative value of size, quality,accessibility, parking, location etc. Also,consider what you want it to say aboutyour organisation. An open plan loftspace, for example, will feel completelydifferent than a purpose-built cellularoffice. Talk to estate agents and localauthorities, and use your network ofcontacts, to see what is out there.Designers and architects can also besources of useful advice and insight.

Build your waiting listRemember that your success relieson delivering a service that providessomething better than tenants can getelsewhere. So start by carrying out asurvey of potential customers’ needs toassess what you could provide them withthat would improve the quality of theirworking lives. Areas you might want toemphasise include the networkingopportunities and the time and moneythey could save on dealing withcontractors, cleaners, IT maintenance,landlords etc. As well as these practicalissues, you need to make sure thattenants share your philosophy for theoffice space.



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Plan your financesThe general advice at this stage in thegame is to be realistic about costs andmake sure you have included ALL ofthem. Be brutally honest with yourself,and don’t fudge your finances to showthat it’s going to be self-sustaining if itis not. Test all your assumptions, anddon’t be shy about seeking advice fromoutside sources, such as your bank, local Business Link, accountant, and stakeholders. It takes time and effortto get this right and always requiresseveral goes before it works really well.On our website you can find somespreadsheets, based on our own figures, that will help you assess whetheran opportunity is likely to be financially viable.

Seek your primary tenantsIt is important to pick your first tenantscarefully. They should not only act as adraw to others, and be relativelyestablished, but also have a long-termcommitment to the project. At theMezzanine, these organisations helpmake the business more stable andsustainable, so we value them very highly.

Our tenants sign up for a fixed one-yearperiod subject to a two-month noticeperiod. We ask for the Licence fee to bepaid three months in advance and for a three-month deposit. We try to ensurethat we have a secure income stream, at least in the medium term, by keeping a waiting list of potentialreplacement organisations.

Build your alliesYou will need to identify yourstakeholders: these are likely to includeorganisations such as your bank, trusteesand funding bodies as well as thebuilding owner and your local authority.During your conversations try to ascertain the extent to which theysupport your goals. Be aware that as thenumber of stakeholders goes up, theamount of work required to managethem increases considerably, and themore difficult it becomes to balance theirinterests. More than anything you needto get your stakeholders and potentialcustomers excited and up-to-speed onwhat you are proposing and how it canbenefit them. Keep the message simpleand easy to grasp and be consistentabout what you say.

planning itSTEP 1step 1

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Find your core employeesAt the Mezzanine, three individuals sharethe responsibility for playing three keyroles: Tone Setting, Animating andEnforcing. The Tone Setter’s job is toconstantly demonstrate, articulate andreinforce the culture of the organisation.The Animator nurtures relationshipsbetween our tenants and encouragescollaboration. The Enforcer makes surethe bills are paid on time and that formaland informal rules are observed. If wedidn’t have really great people performingthese roles, the Mezzanine would notwork. Take time to seek out people whohave the maturity, people skills and priorexperience to perform these challengingroles, but note that these are notnecessarily three full time posts.

Get early legal adviceIt is crucial to make early contact with alawyer who has experience of workingwith property and social enterprises.There is a range of possible legalstructures that you could adopt, butremember that you must choose the beststructure to serve your goals. CAN startedto involve lawyers too late and almost lostthe first Mezzanine. Don’t let this becomean afterthought. You can find furtheradvice about legal structures in theextended version of this booklet, whichyou can download via our website.



step2

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doing it

Recruit your tenantsThis will probably be best achievedthrough word of mouth and yournetwork of contacts. At the Mezzaninewe don’t operate a formal recruitmentprocess but we do make sure that apotential tenant is likely to fit in by askingthem to come in and meet people andsee the space. We also try to work onpersonal recommendation; doing thisgives us some reassurance that we sharecommon values and goals. We alsocheck whether there is any potential forconflict of interest with existing tenants.By making the recruitment process quitethorough and not just taking whomevercomes along, we have consistentlychosen tenants with whom we candevelop great working relationships.

Write a business planThe process of preparing a business plandoes not have to be a complicated one.When done well, it will help you see ifyou really have a viable opportunity, orjust a nice idea. The plan should be shortand simple – a tool to help you ratherthan a hurdle that has to be jumped.There are plenty of sources of advice and help available, ranging from BusinessLinks to consultants, and even computersoftware packages. We made good useof PrimeTimers* as a source of up-to-dateexpertise. Whatever route you choose,CAN’s experience indicates that it is veryimportant that you are closely involved in its creation and development all theway through.

Design the workspaceWork with an architect or interiordesigner to ensure the space satisfies yourtenants’ needs and your own aspirationsfor the way the office will work, as wellas fitting your budget. For example,making the Mezzanine a modern, openplan office allowed us to fit in more desks(and hence generate more rental income)than taking a traditional, separate officeapproach. Whatever your budget, youshould always consider what the look andfeel of the space will say about you andhow it will encourage the culture andbehaviour you wish to create.



*PrimeTimers, partnered by CAN, was founded in 2001.See www.primetimers.org.uk

16

Create an IT strategyConsult with potential tenants as soonas you can to get an idea of their IT needsand current usage. Give one personoverall responsibility for voice and datanetworks, from planning to installationand maintenance. This can be acontractor but make sure you understandtheir approach and that they are talkingto your architect/interior designer. Expectthis to take up quite a lot of your time.Consider installing as much capacity asyou can afford. We didn’t put in enoughpower sockets or network connectionpoints at Waterloo and worked aroundit for five years.

Meet your legal obligationsIt is all too easy to drift into anarrangement that may expose you tounexpected liabilities. The most obviousrequirements for businesses come fromproperty and employment law, employer’sliability and financial regulations. You mayalso have to comply with regulations foraccessibility, data protection andenvironmental health. It pays to spendtime thinking through these requirementssystematically. You can find moreinformation about your potential legalobligations in the extended version ofthis booklet, available for download viaour website.

Negotiate leases and contractsIf this project is going to work, you mustbe rigorous with leases and contracts. Getto grips with the statutory requirements(Health & Safety, Fire Regs., etc.) foroffices and the costs of complying withthem. Expect this to take time and effort.Ask your lawyer to prepare sub-leases,deeds of adherence, etc quickly so youcan respond promptly to expressions ofinterest from potential tenants. Then geta standard lease or Licence drafted and amap showing the exact area allocated tothem (see the extended version of thisdocument on our website for examples).Don’t forget that you will be liable toredecorate when you leave (referred to asdilapidations); ensure you have writtenarrangements for this phase in place.State clearly what the tenant hasresponsibility for.

doing itstep2

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Set up financial systemsYou will need one system to deal withyour bank and another to deal withpayments from tenants and to suppliers.Invest in a robust accounting packagefrom day one and try to arrange yourcredit terms to have money coming inbefore you have to pay it out. Make clearthe consequences of not complying withthese terms to your tenants. Invest insetting up Direct Debits to collect rent(quarterly) and facilities (monthly)payments. Keep meticulous records.

Arrange borrowing or grant funding for the capital costs early, and allow adecent contingency.

Establish the management structureYour management structure should be setup to give your tenants the maximuminvolvement with the minimum hassle.There were five directors of MSL, three ofwhom come from CAN and the othertwo from tenant organisations, but day-to-day management was carried out byour office manager. In addition, alltenants were members of MSL and mettwice a year. Mezzanine 2 has a moreconventional Board of Trustees structure.The new office is run by a full timebusiness manager. Our management style is based on maintaining goodrelationships, rather than confrontation or regimentation; however, it has takentime and effort to get to this state. Make clear from the start what is andwhat isn’t negotiable.

Create an induction processNewcomers to the space should beproperly introduced, welcomed andadded to any email list or groups.Another tool we use is to ask newtenants to host drinks or a lunch for other tenants and explain what theirorganisation does and how it works. Taketime to introduce the Directors of othertenant organisations and make sure theroles of your Animator and Enforcer (see Step 1) are clearly understood by the new tenant.



step3

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keeping it going

Keep the space fullSpace can be filled either by bringing innew tenants or allowing existing tenantsto expand, and you should allow for bothoptions in your plans. At the Mezzanine,history shows we lose one tenant peryear but other tenants seem to grow byabout the same amount. This means thatwe usually fill our space internally as wegive priority to their requirements. Ourbusiness manager also has a waiting listof prospective new tenants. We alwaysask potential tenants to come in and visitus so they can see whether the set-up wehave would suit them, and so we candetermine if they would fit our cultureand way of working.

Keep reviewing the serviceAre you meeting your social andbusiness goals? Are your customers andstaff happy? Reviewing the financial,social and environmental impacts of yourbusiness can help you assess whether youare really offering what you promised.You can also get an idea of the lessobvious benefits you are providing andthe ‘added value’ of your business. Somebenefits can be hard to quantify, but youcan gain a lot of information by askingstakeholders how you are doing.

If you want to take this further, there areresources available on our website aboutmore detailed processes of impactassessment, such as ‘social auditing’.

Keep communication goingKeeping things running smoothlyrequires good communication with allyour tenants. You need to identify whichof their staff members have the authorityto make swift decisions. We tend to liaisewith tenants at director level on strategicissues such as budgets, fees and legalmatters, and with the individual officemanagers about day-to-day operationalissues. Some of our tenants had to createan office manager position when theycame to the Mezzanine. These peoplethen channel all feedback through ourown office manager.



20

Manage contractors and suppliersWhen looking for new contractorsand suppliers, be led by personalrecommendation. Then check them outfor yourselves; follow up references andmake sure the organisations you intendto use are affiliated with the appropriateprofessional bodies. Once you havemade your choice, don’t be afraid toask questions about things you don’tunderstand – and never assume theyknow as much about running yourbusiness as you do. Make sure thatthe terms of the contract suit you andstand firm about negotiating changes.Always make sure you can terminatethe contract if necessary.

Keep finances tightThere are a number of dangers youhave to watch out for here. Don’t allowyour tenants to treat you as one of thecreditors they juggle around. It may feelawkward but it pays to deal with anynon-payment swiftly and decisively.Writing clear sanctions into your tenancyagreements will mean you can implementthem with a clear conscience.

Keep meticulous records of suppliers’details and their invoices. It is amazinghow often this is not done by smallbusinesses. Ideally, the office managershould approve every invoice so thathe or she has an accurate picture ofwhat is going on.

Encourage interaction and tradingThe layout of your space will affecthow easy your tenants find it to interactand to trade ideas and resources. At theMezzanine, creating areas with comfortableseating (that weren’t meeting rooms) hasencouraged this type of interaction.However, the most effective catalysts forcollaboration have been the most simple,such as the ‘borrowing’ of resources andinvitations to events – particularly thosewith food and drink!

This area is the domain of the Animator,so encourage the person with this role tokeep an ear to the ground, and to spotopportunities for your tenants to workwith you and with each other.

keeping it goingstep3 STEP 1

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Manage conflicts and disputesStart off by minimising the potentialfor conflicts and disputes by encouraginga sense of collective responsibility forthe space. At the Mezzanine this isencouraged by our Licensee structure.You should also have a clear processthrough which issues can be resolved.

A common area where conflicts arise isover money, especially non-payment ofrent. If it is important to you to give yourtenants some flexibility, then you couldconsider having an arrangement with aloan fund to help tenants out, rather thansubsidising them through your cash flow.

Enforce housekeepingKeeping everything running as it shouldwill take much more time during yourset-up period, but persevere. It will taketime and patience before the systemsfor checking and ordering supplies areembedded and everybody is clear aboutwhat is acceptable behaviour.

One challenge for us has been balancingthe aim of collective responsibility withtenants’ freedom to do what they wantin the spaces they have paid for. Onepractical tip we would recommend isto ask your tenants to sign a writtencommitment to maintain tidiness in thegeneral space – from CAN’s experience,a verbal agreement is not enough.



!

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we wish we’d known that …

• We should have bought an industrial dishwasher ratherthan a domestic one.

• However nice people are, they don’t pay their rent on time.Standing orders or Direct Debits from the start are essential.

• The size of most organisations fluctuates and to maintainhigh occupancy you need people to be flexible about theentire space. Sometimes this means organisations will haveto move within the space and, while we’ve had significantassistance, occasionally some of our members have refusedto move. We wish we’d made it a requirement (recognisingthat we’d use this authority sparingly).

• Integrated phone and data networks are much, muchmore complex than we imagined and require regularmaintenance. Had we known this we would havecharged more for them!

• Dealing with the Health & Safety, Fire and other legalrequirements takes five times more effort than you expect.

• When prospective tenants/landlords/contractors say ‘yes’ itdoesn’t mean anything until the contract has been signed.

• We should have written into our members’ contractssomething about maintaining the high quality look of thespace, e.g. tidiness, having clear desks etc.

• The demand for meeting areas will always be greater thanyou plan for.

• It’s important to establish the culture you want to maintainfrom the outset.


24

we wish we’d known that …

• It’s important to keep your charges transparent so thattenants are clear about what they are paying for. Havingan all-in charge makes us look expensive when we’re not!

• If you give people really nice coffee they will drinkloads of it!

• Unless you charge up front for social events (such as yoga,aerobics etc) then people won’t attend and you will be leftfooting the bill.

• We needed to identify the key players in each tenantorganisation at the beginning of our relationship with themand particularly those with the authority to talk to usabout money.

• Our tenants would grow and that we should have built inflexibility from the start.

• We should check incoming tenants’ financial statusand assess their financial health.

• Waterloo was going to become so popular!

• Cutlery, crockery and glassware disappear at anunbelievable rate. Provide only the basics and ask yourtenants to hire in everything they need for functions.

• We have to be constantly in communication to preventa state of ‘them’ and ‘us’ developing.

• We have to be firm about making sure people leave thecommon areas as they’d like to find them.

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at Mezzanine 2 …

• We treated the office move as a separate project. Thismeant appointing a project manager and support teamand giving them clear financial authority. We establishedan advisory committee and reporting structure so allconcerned were up-to-speed with progress on a monthly basis.

• We learnt from previous lessons and appointed legalsupport right at the beginning; we also used professionalsto help us negotiate the property deal. A local architecturalpractice was involved from day one; first on space planningto compare the short-listed buildings and then ondesigning, costing and managing the fit-out.

• We chose to take the risk (and potential reward!) bysigning the lease ourselves rather than the collectiveresponsibility members had for the Waterloo space. Thismade decisions easier as we didn’t have to get 25organisations to agree, but represented a significantlyincreased financial risk for CAN.


26

at Mezzanine 2 …

• We spent time on developing a really professional businessmodel. We found this instilled a lot of confidence in thebanks and funding bodies as they could test the robustnessof our business projections themselves.

• We assembled the team who were recruited to run theoffice early. It is easy to forget that it takes time to selectthe cleaning contractor, to develop meeting room bookingprocedures, to assign first-aiders and firewardens and allthe other myriad tasks involved in running an office.

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what next… give us a call

CAN – Community Action Networkwww.can-online.org.ukFloor 3 Downstream Building,1 London Bridge,London, SE1 9BG0845 456 [email protected]

DTI – Department of Tradeand Industrywww.dti.gov.uk – is a good generalintroduction about the whole range ofgovernment and legal issues. The DTISocial Enterprise Unit can be found at:www.dti.gov.uk/socialenterprise/

HSE – Health & Safety Executivewww.hse.org.uk – can help youunderstand your obligations and how enforcement of regulations iscarried out.

Information Commissionerwww.dataprotection.gov.uk – givesguidance on complying with dataprotection principles.

RIBA – Royal Institute ofBritish Architectswww.riba.org – will help you find alocal architect.

RICS – Royal Institution ofChartered Surveyorswww.rics.org.uk – can put you in touch with surveyors with experiencein all aspects of commercial property,including management, landlord and tenant issues, investment,auctions, purchase, sale and leasing.

Design Councilwww.designcouncil.org.uk – forinspiration on how you could usedesign most effectively.

Shor Associateswww.shor.co.uk – architects behindthe new Mezzanine.

PrimeTimerswww.primetimers.org.uk, businessinspired solutions for the third sector.

St John Ambulancewww.sja.org.uk – supplier of greatFirst Aider training courses.

The Phone Co-opwww.phone.coop – a social enterprisethat saves you money on your phone bills.

Green-Workswww.green-work.co.uk – a socialenterprise that provides furniture,moving services and furniture disposal.

… and don’t forget

Your local Council – for clarityon business rates, Council Tax,planning etc.

Your landlord’s Building Manager –a great source of information andadvice on all matters relating tooperating an office.

downloadable resources

You will find a range of downloadableresources that expand on the pointscovered in this publication at www.can-online.org.uk/publications/

We’ve also put a number of templatesthere for you to use:

• Examples of our standardtenancy agreements.

• Spreadsheet that will allow you toassess the financial viability of aproject using some rules of thumbwe’ve developed at the Mezzanine.

• A detailed financial spreadsheet thatyou can use once you have a betteridea of costs. This will allow you tomodel the venture and calculatebreakeven margins and revenues.


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Community Action Network

Founded as a company limited by guarantee in 1998, CAN is a national mutual learning and support network forsocial entrepreneurs. Since its inception, CAN has been at the forefront of one of the biggest challenges to affect theUK voluntary sector – how to find and create new,entrepreneurial ways of tackling social problems. Our 700members throughout the UK deliver high quality, practicalprojects in almost every field of social change and servicedelivery, from homelessness to schools and from health careto recycling. CAN members learn from each other and enjoya wide range of services provided through CAN’s LondonHeadquarters and its UK-wide network of Regional Directors.

At CAN’s new HQ at 1 London Bridge, some 40 social sectororganisations share 21,000 square feet of open planoffice space and this has become an important landmarkfor the social sector in the UK. As well as providing a highquality office solution, an independent study has shown thatthe original Mezzanine at Waterloo saved its members acombined total of around £230,000 a year. The currentcluster provides high quality space at roughly half the usual price. In addition, the open plan nature of the spacenaturally encourages interaction and shared working. Based on the success of this model and many other examples of co-location, CAN is supporting otherorganisations developing similar concepts around the UK.

CANFloor 3 Downstream Building1 London BridgeLondon, SE1 9BGT: 0845 456 2537F: 0845 456 [email protected]

Design and editing: Society Media 020 8442 1623

Photography: Insight Visual 020 7378 7943

Stuart Clarke 020 7254 9760

Documents

CAN guide How to mezzanine*library.uniteddiversity.coop/Community_Assets/CANGuide-HowtoMezzanin_000.pdf9 •You want a high quality, professionally serviced office but can’t afford