HITCHIN' A RIDE DOWNTOWN EMERGING HIGH-TECH FIRMS STAKE OUT NEW TERRITORY AMONG OLD HIGH-RISE SPLENDOR.

Byline: GREGORY WILCOX Real Estate

Like all revolutions, this one started with a single act of defiance that largely passed unnoticed. Nick Desai enlisted in the movement early on.

It was 1999, with the Internet economy at its zenith. Desai, an optimistic entrepreneur, wanted to move his fledgling company, Zkey.com, from Sunset Boulevard and Wilcox Avenue in Hollywood to someplace where there was room to grow and rents were balance-sheet friendly.

At that time, the city's Westside and the 101 corridor - nicknamed L.A.'s Digital Coast by some local boosters - were the new favorite places for dot.com companies. Rents reflected this popularity, while the commute during rush hour is one of the great L.A. challenges.

Giving downtown a soul is another.

But that is where Desai affixed his company's nameplate, taking 12,000 square feet of space on the 12th floor of a building at 548 S. Spring St., a gritty neighborhood that cops an attitude when the sun goes down.

The move caught some by surprise.

``We came down once after dark and my friends said, 'Are you crazy? You're going to get killed,' '' Desai recalled with a chuckle. ``But here we are a year and a half later, and we're staying.''

Today, companies like Zkey are becoming the rule rather than the exception as the city's downtown evolves into a magnet for high-technology firms.

One venture capital concern alone is responsible for bringing 14 tech companies and 1,200 workers to an area that once was almost the exclusive domain of bankers, lawyers and accountants.

More are poised to join the mix, with 16 businesses currently looking for 600,000 square feet of office and retail space in the area, according to the Downtown Center Business Improvement District.

The dot-com sector is under pressure these days, as is evident by the financial flogging being dished out in the financial markets and the growing wave of layoffs.

Still, some, like Zone Ventures, a downtown-based venture capital firm whose $35 million fund brought those 14 tech companies to the area, see more more room for growth.

David Cremin, a partner in the fund, says downtown and high-tech is proving to be a good fit.

``I think we could easily put another $100 million to work,'' he says of the downtown area.

Companies are attracted by comparatively low rents and space is available, along with a huge labor pool. The area has a couple of attractive social bookends, too, with Staples Center to the west and the Disney Concert Hall under construction to the east.

High-quality office space in the business improvement district rents for $2.28 a square foot. By comparison, the rate is $2.72 in Burbank, $3.77 on the Westside, $3.74 in Westwood, $2.48 in the west San Fernando Valley and $2.31 in the Conejo Valley.

The vacancy rate is around 21 percent, one of the highest in the region.

``You've got a lot of new tenants coming downtown and a lot of people don't realize that. It's a very misunderstood market,'' said Jack Kyser, chief economist of the Los Angeles Economic Development Corp. ``People don't quite understand what's here. It's got somewhat of a bad rap, yet it has a heck of a lot of amenities.''

Desai loves his space in the Spring Street building - he's got windows that open and a beautiful view - and the fact the area is in an empowerment zone, which means tax breaks.

Location is also a plus.

Downtown is one of the few places the rapid transit system actually goes, so tech firms and others can draw talent from anyplace close to a subway or Metrolink station, thus opening up areas like Orange County and the Inland Empire.

Zkey.com develops software used by the makers of hand-held communications devices for customers worldwide and being based downtown has not been a drawback, Desai said. Indeed, the company's 40 employees commute to downtown from throughout the area.

He thinks it really has a chance to be something special.

But the picture is not all rosy, either.

``Walking around these streets in the daytime is fine. But walking around these streets after dark is not something I would want to do. I'm worried about getting a gun or a knife pulled on me,'' he said.

And for this section of town to really blossom, some upscaling is in order. He laments a lack of a social scene in the neighborhood and would like to see a Starbucks and Jamba Juice join the tenant mix.

So downtown today is really a tale of two cities.

Four blocks north and three blocks east is Hiwire.com, which develops targeted advertising for companies that provide streaming audio over the Internet. The company is housed in a snazzy office on the fourth floor of the Wells Fargo building. It is ringed with windows, which management reserved for the workers, has exposed ceilings, stylish furniture and pingpong and pool tables.

Upscale restaurants and coffee shops are close by, and even the McDonald's across the street agreed to stay open later than usual so the evening crew could grab a bite.

Unlike Zkey.com, downtown was not really Hiwire.com's first choice. But since it was funded by Zone, it was the only choice.

``When we got our first round of funding, the stipulation was that we had to be downtown. I wasn't too thrilled about it, but now I love it. It's great,'' said Jim Lambert, the company's founder.

He lives in Toluca Lake, does not drive a car and commutes to work every day via the Red Line subway.

The 24,000-square-foot space was custom-designed for Hiwire and the company moved in last June. It has 66 employees today and room to grow, Lambert notes.

Zone's Cremin says downtown and high-tech are proving to be a good fit, especially since the area has empowerment zone designation. Not only were companies required to locate in the zone, they had to hire a certain percentage of workers from it, too.

The fund has been exhausted.

And Cremin calls the program a ``double bottom-line success'' - investors are starting to get a return, and there is an economic revival under way. And he notes that six of the 14 companies funded by Zone are minority-run.

``Since we're seed-stage venture capitalists, our strategy is to take pretty long shots, swing for the fence, and sometimes we'll miss. With companies like Hiwire and Zkey, we hit the ball out of the park,'' he said.

The knock on downtown has always been that it was an OK place to work, but there was no compelling reason to hang around after closing time. Compounding the problem was the rash of mergers and acquisitions that saw some of the best-known corporate names in the West disappear from the downtown skyline.

When the new millennium dawned, the San Fernando Valley boasted more Fortune 500 companies than downtown.

Now it seems that a ``there'' is actually taking shape where once there was none.

A major grocery store chain and a big-box retailer are considering a downtown address to serve a hip crowd moving into loft apartments being built in old, empty buildings, according to the Business Improvement District.

The business group, arguably the biggest booster of downtown, notes that the number of residential units there is expected to grow 55 percent, an increase of 18,400, by 2004.

The group, formed four years ago, has helped organize property owners and implement a ``Purple Patrol,'' guides who wear purple vests and monitor and dispense information.

There is also a safety patrol, and trash is routinely picked up and graffiti removed on a daily basis.

``Downtown Los Angeles is well on its way to becoming a vital, 24-hour city, where people come to live, work and be close to all the entertainment and culture a great city center has to offer,'' said Carol E. Schatz, president and chief executive officer of the group.

CAPTION(S):

3 photos

Photo: (1 -- color) From left, Sonia Davila, Clifford Gregory and Kristy Christiansen pose amid vintage splendor outside the building at 548 S. Spring St., where Zkey.com operates.

(2 -- color) With plenty of open space, scooters are a favorite mode of transportation by workers even inside at Hiwire, located on the fourth floor of the Wells Fargo building.

(3) The recreation area at Hiwire includes a pool table and a pingpong table so workers can unwind during the day.

David Sprague/Staff Photographer