Square Feet: Someday Worth Billions, but Now, They Need a Desk

SAN FRANCISCO — In the 20th-century workplace, Duncan Logan might be considered an abusive landlord. He rents working spaces without doors or walls between tenants. Instead, his renters work at long tables, and sometimes those tables are shared with other companies.

Yearn for privacy? “Headphones are the new cubicle,” he said.

In today’s tech world, though, if Mr. Logan did have a door it might be knocked down by clamoring start-ups. What RocketSpace, the office rental company he started in San Francisco in a building on its last legs in late 2010, does provide is lots of high-speed Internet access, proximity to well-regarded young companies, amenities like free beer and occasional chats with the likes of Steven A. Ballmer of Microsoft, Dick Costolo of Twitter and the venture capitalist Vinod Khosla.

That, it seems, more than makes up for the lack of privacy. Besides, in an era of oversharing on social media sites, who needs privacy when you can have collaboration?

“I was here until 10:30 the other night, and so was the guy at that company, and them over there,” said Michael Perry, indicating two tables close to his own at RocketSpace. His four-person start-up, Kit, is trying to use online data so brands can find their most vocal supporters on places like Facebook. “When I was working alone, I thought I had a billion-dollar idea,” he said. “Here, everybody thinks they have a billion-dollar idea, and they’re hammering away. That’s inspiring.”

Rents are up and vacancies scarce in San Francisco as the tech boom has traveled north of Silicon Valley. And novel, flexible office plans have come with it.

According to the real estate service CBRE, technology now accounts for 75 percent of new office demand in San Francisco, compared with the historical norm of perhaps 30 percent. The city seems like a place where almost any space could rent. Some start-ups are setting up in the Tenderloin district, long considered one of the city’s worst neighborhoods.

Even in the hot San Francisco market, however, RocketSpace appears to be making a 20 percent premium to current office rental prices, based on its 580 desks, leased by some 130 companies. Mr. Logan, who leases space inside two buildings near the old Pacific Stock Exchange, charges $700 to $800 a month for a “desk,” or table space.

Unlike temporary offices like Sandbox Suites or WeWork, which rent desk space to freelancers and others, or the so-called incubator spaces that take equity for their start-ups getting off the ground, RocketSpace expects companies to increase staff under its roof, and to pay cash. Once a start-up gets to about 30 people, it is time to move out.

Mr. Logan, 41, works hard at making sure renters have credibility by checking their backers and work histories. He cultivates relationships with venture capitalists and has researchers looking for the next hot thing. There are lots of free Jolly Rancher candies and boxes of coconut water, but renting here takes money, well-known backers and a personal track record at hot firms. “From the start, we’ve vetted which companies would be here,” he said.

If he reaches his goal of filling a thousand desks by the end of the year, Mr. Logan should get more than double the typical per-square-foot rate associated with fancier offices. His costs, besides the tables, Wi-Fi and free beer, include the odd translucent panel between spaces, padded chairs with backs so high and straight that they can be pushed together to enclose a meeting of four people, and an automatic espresso maker in the common kitchen.

Companies that have passed through RocketSpace, either as local start-ups or initial satellite offices, include such tech darlings as Zappos, Uber, Spotify and Kabam, an online gaming company.

“It was amazing — lots of tables, so you can’t tell where one company began or ended, a receptionist who didn’t know who you were, people talking in whispers because everyone is working so closely together,” said Steve Swasey, the head of communications at Kabam. “It’s just how our office looks now, even the wires hanging from the ceiling.”

DealBook: Debating, Yet Again, the Worth of Law School

Harry Campbell

In the debate over whether law schools are worth what they cost students, sober analysis often seems to give way to angry rhetoric.

The heated response to the recently released paper titled “The Economic Value of a Law Degree,” which found that a law degree on average had $1 million in value, thus was no surprise. The indomitable Elie Mystal at the Above the Law blog, called the study “garbage,” stating that it was an “advertising piece for law schools still hoping that they can trick prospective law students into making bad choices.”

What does this study do that it can inspire such anger? The paper looks at what a law school graduate can expect to earn from a law degree. The authors, Michael Simkovic, a law professor, and Frank McIntyre, a labor economist, find that the “mean annual earnings premium of a law degree is approximately $53,300” a year, and that the average pretax value of a law degree over a lifetime was $1 million. In other words, the average law school graduate can expect to earn about one million dollars more than if they had not gone to law school.

Averages, though, are only part of the story, as they can be biased upward by a small number of high earners while many others make nothing. Mr. Mystal’s critique strongly focused on this point.

But the authors also found that median additional lifetime earnings for those with a law degree were $610,000. That means half of law school graduates made more and half less than this amount over their lifetime. So even at the 25th percentile, lifetime additional earnings were $350,000.

Thus, the earnings for 75 percent of law school graduates easily exceeded the amount of tuition paid, even with tuition at about $50,000 a year. The authors also found that the median law degree holder earned 60 percent more than the median college graduate.

This data refutes some of the arguments made by those who say law school is a “scam.” It is no surprise that this study would be attacked by many of the same people. After all, the law school scam industry has been bountiful for some, just like being a Kardashian.

To be fair, this criticism is also well intentioned. These commentators are springing to the defense of real law students who cannot find jobs. But it is simply that, and when the rhetoric dies down, perhaps this paper will turn to a more serious and needed study of what is going on in the law market and what the true value of a law degree really is. (And yes, in fair disclosure, my bias is that of a tenured professor at a major law school.)

In particular, even beyond its salary points, the paper by Professors Simkovic and McIntyre makes a number of new points that should inform the debate. Bureau of Labor Statistics data on lawyer salaries is often cited to justify the assertion that law school is not economically justified based on current lawyer salaries.

The study’s first major point is that these Bureau of Labor Statistics figures are probably biased downward. The reason is that the numbers do not include the salaries of self-employed lawyer, who are not only sole practitioners but also mostly law firm partners.

Among the AmLaw 100, the top 100 grossing law firms in the country, the average partner earned $1.47 million in 2012. This study corrects this downward bias by using broader-based data compiled by the Census Bureau.

Projections by the statistics bureau are often cited as supporting a shortage of jobs for law school graduates. But to my knowledge no one has actually looked back at prior years to see how accurate these forecasts have been. It may well be that the statistical projections are unreliable or it may not, but no one has even looked.

The study’s second major point is that loan default rates for law graduates are much lower than for college graduates. The Department of Education only reports default rates for independent law schools.

Using these figures, which go through the recession into 2011, the authors project that the average default rate for law school students who graduated in 2009 was roughly 3 percent. By contrast, the default rate for students with an undergraduate education or less was 19.2 percent.

The default rate among law schools varies significantly, and some, like Vermont Law School, had a 0 percent default rate. The authors cite this finding as justifying the conclusion that most law school graduates are earning enough to cover their debt, refuting a common claim made by commentators.

Because this data is based on numbers provided by independent law schools, which tend to rank in lower tiers, default rates at more highly ranked schools may be even lower.

The study’s third major point is that about 40 percent of lawyers currently do not practice law. Much has been said about the number of law school graduates who are not finding law jobs, and surely there are many who do want law jobs but cannot find one.

The full-time employment rate for law graduates who obtained legal jobs was only at 56.2 percent last year, according to the American Bar Association. But given these figures, it appears this has always been the case, and it is hard not to conclude that many lawyers do not go to law school to be lawyers (again, no one has really looked to see if this is true or not, though). Indeed, according to the Simkovic-McIntyre study, 50 percent of senators and 10 percent of chief executives at large companies are lawyers.

While the attacks on the article will probably continue, it would be more beneficial to everyone if the paper instead inspires a deeper look at the data. To my knowledge, this is the first study performed by a professional labor economist to look at this issue since the financial crisis.

Much of the previous research has been akin to forecasting the weather during a hurricane. The biggest critics of law schools have looked at the current data and simply assumed it would always be the case.

To be sure, the job market for lawyers has historically been a cyclical, and it is currently at a low. Law jobs are harder to find, and law school graduates have too often been left struggling. This is one thing that has always been the case, but it is more so now.

Still, no graduate program promises its graduates a job. Just look at those offering doctorates in English. But even if 75 percent of students have an economic justification for law school, not everyone does. In this light, every potential student should do a real cost-benefit assessment in light of the law school tuition he or she will be paying.

This study steps outside the current tempest to look at data over a period of decades. Since only 2 percent of a law school graduate’s lifetime earnings come in the first year after graduation, the longer term is arguably a better measure; looking at current employment rates is only one part of that picture.

Ultimately, that is what the debate over law school boils down to these days. Will the recent turbulence persist, or will the historical data win out? If the current figures represent the new normal, something about law has changed and there will be fewer jobs going forward.

But that may not be the case. The market may recover, as markets tend to do and as the population grows. There may even be more legal jobs if, for example, the Dodd-Frank Act becomes a full-employment act for lawyers.

As for the argument that technology has changed everything in the law market, I was struck by a quote in a study from the Harvard Law Review in 1901, decrying modern technology by stating, “[t]he stenographer and the typewriter have monopolized what was his work … and he sits outside of the business tide.”

This quote from a hundred years ago shows that claiming change is afoot – bringing obsolescence and wholesale disruption in the law market – is a century-old phenomenon. The question is whether this time is different.

DealBook: What Barnes & Noble’s Retail Arm Might Be Worth

Though Leonard S. Riggio has sought to push Barnes & Noble into the future by supporting its Nook e-reader business, the bookseller’s chairman has long held a soft spot for the retailer’s brick-and-mortar outlets.

Now that he is planning to bid for those stores, how much will he pay? According to some analysts, maybe not all that much.

Shares of Barnes & Noble rose on Monday after Mr. Riggio formally disclosed his plans, rising 8.9 percent by midmorning, to $14.80. That values the overall company at about $863 million. Its total enterprise value is nearly $1.3 billion, according to Standard & Poor’s Capital IQ.

But by some measures, that means the physical stores and BarnesandNoble.com are worth virtually nothing. Microsoft and Pearson collectively bought a stake of roughly 23 percent in the Nook division last year, valuing it at close to $1.8 billion.

Clearly, Barnes & Noble’s board is not going to part with the company’s 689 outlets and online merchant operations for nothing.

David Schick, an analyst with Stifel, estimated in a research note on Monday that the retail operations were worth about $484.5 million. That is based on a multiple of 0.1 times trailing 12 months’ revenue, the same used in an attempted buyout of the smaller competitor Books-A-Million last year.

Mr. Schick added that he believed his estimate to be a conservative figure.

But James McQuivey, an analyst at Forrester Research, argued that Barnes & Noble had little ability to command a top-drawer price for its legacy businesses. The physical stores will continue to face the challenges bedeviling a vast array of retailers, with the Barnes & Noble name carrying weight for a declining number of people.

“Making a bet on bookstores now, when we don’t know what the ultimate footprint of those stores will be, will require getting a really great price,” Mr. McQuivey told DealBook in an interview.

Bucks: A Simple Place to Start: Your Net Worth

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

The world is a crazy place. We hear reports that say the economy is getting better. Next month, we hear that things don’t look so good. It feels like a tug-of-war, and we’re caught in the middle. Looking around, you may feel like the only thing you have any hope of controlling is your financial situation. So you want to make some changes and put a framework around your financial future.

But there’s so much information! Credit card statements, mortgage payments, insurance renewals, student loan bills and every other piece of financial data about your life can be overwhelming. It’s incredibly easy to throw up your hands and say, “I don’t know where to start.”

The best place to start is with your current reality. Seems obvious, right? But if it’s so obvious, then why haven’t we done it?

It can be painful. The reason you’re looking to change things is because something isn’t working. That something may be incredibly personal, like how you talk about money with your spouse. So we avoid our current reality and tell ourselves things will get better tomorrow.There are a million other things to do. We’re all busy. Thinking about what’s right and wrong with your current reality probably doesn’t make anyone’s Top Ten list.

But if you find yourself in a situation where you’re ready to make a change, the best place to start is at the beginning by creating a personal balance sheet. Your goal is to discover where you stand financially right now.

You don’t need a fancy spreadsheet or even a computer for this exercise. Just grab a blank piece of paper and a pen. Then draw a line down the middle.

On the left side, list all your assets in detail. Bank accounts, the fair market value of your home, investment portfolio. For every asset, list it and its value.

On the right side, list all your liabilities. Credit card debt, mortgage, school loans. Again, get specific and list the actual amounts of each liability.

If you don’t know, call your bank, credit card company or your adviser. In this exercise, guessing isn’t allowed, so ask the questions and get the real numbers on paper.

Then, add up all your assets and subtract all your liabilities. You now have your net worth.

What does it look like? If you’re not happy with the number you see, you have two choices that will probably involve some hard work:

Increase your assetsDecrease your liabilities

If you’re wondering why I suggest starting with something so simple, it’s because I keep crossing paths with people who don’t know how their assets compare to their liabilities. And the reality is that if you don’t know where you stand today, then how will you ever figure out where you want to be tomorrow?

So the next time you think you don’t know where to start, ask the question, “What does my current reality look like?” Once you know where you stand, then you can make an honest assessment of your options and what comes next.

This post has been revised to reflect the following correction:

Correction: October 1, 2012

It is the fair market value of your home that should be listed on the asset side of the ledger. This post originally suggested putting "home equity" there, but with "mortgage" already listed on the liability side, that would lead to an incorrect result.