Directory:Akahele/Wikimedia Foundation subletting space?

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The <a title="Internet Review Corporation at MyWikiBiz" href="http://www.mywikibiz.com/Directory:Internet_Review_Corporation" target="_blank">Internet Review Corporation</a> has discovered that the Wikimedia Foundation plans to <a title="WebCite record of LoopNet rental listing" href="http://www.webcitation.org/5jXSqfPxc" target="_blank">open up its office space</a> at 39 Stillman Street in San Francisco for sub-lease.

Our inside source at Grubb & Ellis says they're asking $25 per square foot, for the 3,000-square-foot space. (We presume that's an annual rate, which derives $6,250 per month.)

Why is this interesting?

It seems a bit strange that as recently as January 2009, the Wikimedia Foundation was lamenting how they had <a title="WMF explains space needs" href="http://blog.wikimedia.org/2009/01/21/a-note-on-the-wikipedia-usability-initiative/" target="_blank">"outgrown" their current space</a>, and to solve that problem, they conducted a competitive search for some overflow office space that they could rent. When the bids came in, the prices were all over the place, but they really thought the shiniest apple in the bushel was the offer from Wikia, Inc., which is the for-profit enterprise co-founded by the founder of the Wikimedia Foundation. While Wikia didn't present the lowest rental price (indeed, it was above the average of all bids collected), Wikia was extended the exclusive opportunity to <a title="Erik Moeller explains the deal" href="http://lists.wikimedia.org/pipermail/foundation-l/2009-January/049354.html" target="_blank">lower their price</a> to closer to the average of the other bids. Wikia complied, and that's how tax-advantaged money from the Ruth and Frank Stanton Fund ended up in the pocket of Jimmy Wales' privately-held company. Some have called this a "wired deal".

And this <a title="Brian Mingus on conflict of interest" href="http://lists.wikimedia.org/pipermail/foundation-l/2009-January/049343.html" target="_blank">struck some people</a> (those with brains) as a conflict of interest.

Now, only eight months later, are we to understand that instead of having "outgrown" its office space on Stillman Street, the WMF is swimming in surplus floor space, that they need to hire Grubb & Ellis to sub-let it out to someone else?

(Author's note: The Wikimedia Foundation has clarified that they are not swimming in surplus floor space. In fact, the entire staff plans to move soon to new space that reportedly offers more than three times the flooring of 39 Stillman Street's WMF-apportioned space. The "sub-lease" plans are still in place, but the contract is for the entirety of the soon-to-be-former WMF footprint. I also understand that the rented office space at Wikia, Inc. will be canceled and those code developers brought under the "home" roof of the Foundation. Apologies for making the above suggestion; although, in my defense, my initial e-mail about this to my Internet Review Corporation brethren expressed my first hunch that all of WMF was moving. I should have stuck with my initial gut instinct.)

Since we appear to have scooped this story, maybe the Internet Review Corporation should move its Akahele blog staff to San Francisco, so we can be closer to the action? What do you all think? Comments welcome below!

Comments

8 Responses to “ Wikimedia Foundation subletting space? ”

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Emperor Nice story. Donations of time or money to Wikipedia are also donations to Wikia, a for-profit company.

The silly thing is, Wikia makes so little money that Jimmy would probably be better off selling it and focusing on Wikipedia.

Have you explained “nofollow” recently?

Chuthya I think you have it backwards. If Wikia is subleasing the space, then money from the for-profit is going to the non-profit. Unless you’re claiming Wikia is getting some kind of sweetheart deal, or they’re getting the space rent free.

Cool Hand Luke No Chuthya, Wikimedia is currently leasing space from Wikia (paying rent to Wikia). When they initiated this arrangement, Wikimedia claimed that they were out of space. If they’re now trying to unload extra space, it would cast some doubt upon the prudence of the original lease.

Gregory Kohs WMF Deputy Director Erik Moeller has weighed in on this, confirming my very initial thought when I saw the real estate ad — the Wikimedia Foundation is seeking to up and move EVERYONE to a new, much larger space; and once evacuated, they wish to sublet the abandoned space to recuperate some of their investment into the original lease agreement.

So, while I got the story a bit wrong, it was still a nice scoop to be the first to find that the WMF is actually making good on their 2009-2010 plan to move off of Stillman Street.

John A The story is mostly wrong, Greg. Learn from your jounralistic mistakes – don’t trivialize them.

Gregory Kohs Duly noted, John. Good thing I’m not a journalist, eh?

Meanwhile, could someone give me an explanation why the WMF is seeking to sublet, rather than simply terminating their lease?

Anthony DiPierro If they can’t sublet it, then the owner won’t be able to lease it out, and the damages for breaking the lease would be huge?

Nil Einne Have to agree with Anthony DiPierro here. I’ve never owned a business (although I’ve discussed and offered some minor assistance to someone with properties before) only in my 20s after all. However I can guess what things may be like and would have expected anyone trying make such a big fuss about it to have some idea on how these sort of things work…

For starters, it seems there are three basic possibilities. The first one is that the WMF have no fixed term lease, they can leave whenever they want with a few months notice. Beyond the fact we can rule this out from what they’re doing, I’m pretty sure this is unlikely. For one, I don’t think it’s common with commercial property for a variety reasons, even less likely given that the lease was I presume signed before the current economic collapse.

The second is that the WMF have a fixed term lease (how long I’m not sure, 2-5 years maybe) with an escape clause. There are numerous possible escape clauses. E.g. one that guarantees them the right out of the lease, but they have to pay a likely quite harsh penalty. Or perhaps the escape clause only allows them to get out if a suitable replacement tenant for the same or better conditions is found. (In this case there may be no fixed penalty.) If the property owner finds the tenant (unlikely as mentioned below) it’s likely the WMF would have to pay for the cost to the owner at least.

The final possibility is there’s a fixed term lease with no escape clause. In this case the WMF has no choice but to keep renting the property until their lease runs out if they can’t come to an alternative agreement.

Sure in both 2 and 3 the WMF could try to negotiate something else with the owner. But the problem is the landlord has all the power here. The WMF isn’t in any danger of going bankrupt anytime soon. They are also not the sort of organisation that would dare or is able to just run away and hope the landlord doesn’t pursue them. And as I’ve said the current economic conditions are likely a lot worse then when they started.

So there’s no reason why the landlord would settle for anything much less then what they’re legally entitled to. Unless the WMF has a guaranteed out clause (or they’re required to by a non guaranteed out clause) they’re not even likely to look that hard for a new tenant until near the end of the lease. Why bother? And as I said, you can expect they won’t settle for anything less in rents and would likely expect the WMF to pay for all their costs in finding such a tenant. The WMF however clearly has far greater incentive to find a new tenant. They can manage costs. Importantly even if they can only find one for less then what they’re paying they can decide if it’s worth it for them to make up the shortfall.

Even if there is a guaranteed out clause, as I’ve said the penalty would likely be quite high so it would likely be far more effective for the WMF to just find a replacement tenant. BTW, although I know Erik said sublease I don’t know whether we can presume this is definite. It’s possible the WMF could convince (or it’s in their existing agreement) the owner to take on the tenant directly. Note, as I’ve already mentioned it is almost definite the WMF will have to make up for any shortfall whatever the case.

There are obviously a lot of variations on the above but ultimately what it comes down to is if you have a fixed term lease it’s likely in your interest to find a replacement tenant.