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Dot.coms: 'Real Estate Costs, No Problem'

One thing startup dot.coms, ASPs included, don't seem to care about is real estate costs. They need a wired building, and they need it yesterday. Jerry Anderson, president of Coldwell Banker Commercial, did the deal for Coldwell's parent Cendant's move.com unit, a residential real estate portal, which expanded from 20,000 to 100,000 sq. ft. (1,858 to 9,290 sq. m.) in the center of San Francisco. "We could have gotten cheaper space," admits Anderson. "But my clients were saying, 'Look, we appreciate your trying to save us a nickel, but we need to be operational by Jan. 1.' " The expansion within the already fiber optically wired building took advantage of AT&T's vacating its space there. "Generally with these startups, I try to put them in places similar companies have outgrown," notes Anderson.

ASPs are taking a long look at old loft manufacturing and warehouse buildings that are often long-abandoned or filled with very low-rent tenants. Landlords in urban areas around the country are wiring these former white elephants to ready them for eager Internet companies willing to pay triple or quadruple the rents of any existing tenants. In New York City, the massive Starrett-Lehigh building at 11th Avenue and 26th Street, in far west Chelsea, where Citibank once stored furniture, is already half full of new dot.com tenants, including ASP Mi8.com, replacing warehouse and distribution companies that were paying single-digit rents.

The hulking former Port Authority building at 111 Eighth Ave. has also lent itself particularly well to new uses. "This building has enormous floor plates and elevators you can ride a truck into," says William Cohen of commercial broker Newmark & Co. The former warehousing and distribution space's giant elevator shafts have been turned into wiring and HVAC conduits, keeping upgrade costs low.

Geoffrey Kasselman, SIOR, a broker with Julien J. Studley in Chicago, sees a similar phenomenon there. "Functionally obsolete loft buildings are suddenly the rage among companies that have to house a lot of servers," he says. ASPs and ISPs can stack double racks of servers in high-ceilinged old space safe from natural light and, with high floor load and power capability, they can turn manufacturing space into what's called a "server farm." "Every major metro area is experiencing this," notes Kasselman.

New York: More than Manufacturing

Upstate New York has long been a leader in hardware manufacturing, but is now growing in software development as well. New York's Silicon Alley is already well known as a hot spot of dot.coms. New York Gov. George Pataki has announced a series of initiatives to encourage both hardware and software industry growth. His program calls for Upstate High Technology Enterprise Zones, emerging technology and research and development tax credits, financial support for development of Centers for Advanced Technology and a slew of other business growth incentives.

Exotrope in Elmira, N.Y., is one firm that has benefited and grown with New York's help. The company, which makes Internet filtering software, was originally founded in the area because of its demographic similarity to much of the country, and thus its usefulness as a test market. According to Exotrope Vice President and CFO Paul Hornbuckle, the company's offices, in a rehabbed 75-year-old department store in the center of Elmira, are in a state economic development zone. The landlord also enjoys various tax credits and low-cost loans because of his contribution to revitalizing downtown Elmira, all of which result in a lower occupancy cost for Exotrope. The company, at 300 employees, is just outgrowing the current space and plans to expand into a building next door.

New York has attracted and retained numerous other hardware and software companies recently. ATTO Technologies, a maker of hardware and software storage solutions, is investing $6.1 million in a new headquarters facility in Amherst, N.Y. Electronic Data Systems plans to open a facility there as well. New York won IBM's new global services call center over Boulder, Colo., and Charlotte, N.C. In New York City, Xceed will expand its Interactive Services Group, retaining 254 and adding 375 jobs, rather than move to New Jersey.

Just last year, the Long Island Technology Center opened in Great River, Suffolk County. A private-sector developer converted the 750,000-sq.-ft. (69,677-sq.-m.) former Grumman facility. Designated an economic development zone, the facility is expected to help grow software and technology firms.

Pennsylvania's 'PowerPort'

Similarly, Pennsylvania, one of the serious up and comers in high-technology, is proposing numerous initiatives to encourage hardware and particularly Internet-based growth. The state is partnering with Microsoft to create the "PA PowerPort," a highly enhanced Web site to give individuals and businesses easy access to governmental functions. Gov. Tom Ridge's 2000-2001 budget includes major tax cuts for business, a tax-free period for home computer-related purchases and a $20 million investment in technology-based education initiatives.

In Pennsylvania, the Pittsburgh Digital Greenhouse is focusing on encouraging development of next generation systems on a chip. Cisco Systems recently joined Sony Corp., Oki Electric Industry, Cadence Design Systems and Casio Computer Co. Ltd. as sponsors of the Greenhouse effort.