Staff memo i gate facility options

STAFF MEMO To: i-GATE Development Corporation Board of Directors From: Brandon Cardwell Date: March 9th, 2017 Subject: Discussion and direction on facility alternatives for i-GATE

Summary i-GATE’s current facility in Downtown Livermore, known as The Switch, is approximately 5,500 square feet broken out into two floors, with 3,500 square feet upstairs and 2,000 square feet of industrial basement space. The upstairs floor is dedicated to general office uses, meeting space, and a “makerspace”. The basement space is dedicated to technology research and development uses. Both spaces are currently at or near maximum capacity. i-GATE has enjoyed relatively high-growth since moving to Downtown Livermore, now serving over 15 member companies and generating nearly $10,000 per month, but the organization is constrained by the modest size and unusual layout of the current facility. In short, while i-GATE is now operating at a relatively high degree of financial efficiency, the organization is not as effective at serving entrepreneurs as it could be if it had more space.

Because the current facility has been provided by the City of Livermore rent-free, acquiring additional space at market rates would result in a significant increase in operating costs for i-GATE. Therefore, if iGATE chooses to expand its physical facilities in order to increase our effectiveness in serving entrepreneurs, the trade-off would be at least a short-term decrease in organizational efficiency.

The discussion we need to have now is whether i-GATE should seek to expand and risk this loss of efficiency, and if so, what form should that expansion take.

Discussion The decision before the board is about our physical space needs but also relates to i-GATE’s operating model generally. Two important questions have arisen which must be answered before we can move forward: 1) Should i-GATE seek to expand its physical facility offering?

2) If yes, what form should that expansion take? a. One larger space b. Multiple spaces across the region (with support from host cities) c. Other Background i-GATE currently occupies approximately 5,500 square feet of space in a former Pac Bell phone switching facility in Downtown Livermore. The facility was never intended to be inhabited by multiple people, much less numerous companies working in disparate fields of business and technology development.

The building, originally constructed in 1929, lacks wheelchair access, has only one bathroom, inadequate HVAC systems, and is generally showing its age, especially during severe weather.

Despite these challenges, the facility is now operating near maximum capacity and generating nearly $10,000 per month in revenue. This revenue figure represents approximately 70% of total organizational costs, which break out to approximately $6,000/month in facility related expenses and $8,500/month in general overhead and personnel.

The success of the current facility begs the question of whether it is now time to expand i-GATE’s facility offering. It is clear that the current facility does not offer much, if any, additional revenue potential, nor does it offer the opportunity to serve more entrepreneurs. And while the current facility is relatively inexpensive to operate, choosing to occupy it indefinitely would require the organization to invest in making the space wheelchair accessible, which would cost tens of thousands of dollars.

That being said, once all necessary improvements are made, i-GATE could continue to operate the space at a relatively small loss for years, assuming the City of Livermore continues to be willing to provide staff time and the facility at no cost to i-GATE. Our ability to serve entrepreneurs within the facility would be limited, but so would our financial exposure.

The question before the board is whether it wishes to prioritize i-GATE’s current highly efficient operating model, or if the board wants to see the organization take the necessary financial risks to increase its effectiveness in executing its mission of building a thriving startup community in the TriValley.

Facility Options If the board chooses to endorse expansion, the question how to expand must be answered. One option is to pursue a single larger space, while another is to explore establishing a network of facilities across the Tri-Valley. In order to execute the latter option, any partner city interested in establishing a space would need to provide financial backing, as Livermore has done for both the Longard Road and downtown locations.

If a single larger facility is determined by the board to be preferable, a space that meets this description is currently available for lease in Downtown Livermore. Located at 1911 Second Street just outside of the downtown core, the facility is approximately 16,000 square feet, broken out into roughly 7,000 square feet of ground floor office space and 9,000 square feet of industrial basement space. From discussions with the broker, staff has determined that the cost of leasing this space would be in the range of $20,000-25,0000 per month, depending on competition from other prospective tenants. This cost does not include utilities, operating expenses and general overhead, which staff estimates to be an additional $15,000 per month.

Staff estimates the revenue potential of the new space at full capacity would exceed the lease cost, though it is not clear how quickly that revenue will materialize. Nor is it clear that the total cost of operating the organization, including overhead and non-facility-related expenses, can be recovered through recurring membership revenue. In that case, public and/or private sponsorship of i-GATE would continue to be needed.

Consistent with i-GATE’s historical model for facility operations, the City of Livermore has indicated through its Council goal setting a willingness to provide financial support for an expansion of i-GATE’s activities. While the generous support of the City of Livermore would be critical to executing such an expansion, it is essential that all i-GATE partners discuss the implications of this decision before we move forward.

To help facilitate discussion, staff has provided the following facility-related options for consideration by the board: Option 1

Stay in current location and upgrade the facility

Option 2

Pursue larger space in Livermore

Option 3

Stay in current location and explore regional network of smaller spaces

Option 4

Pursue larger space in Livermore and explore network of spaces on case-by-case basis as opportunity arises

Recommendation Discuss and provide direction on the preferred facility model for i-GATE, including direction on whether to pursue 1911 Second Street as a future home for the organization.