Office suite operations falter in dot-com fade. (Up Front).

It seemed like a fine idea at the time.

Lease space in a trophy office building, reconfigure it for as many individual offices as possible, and wire it to the hilt. All that was left was to staff it with secretaries and technical support, then wait for entrepreneurs willing to pay $8 to $10 per foot for convenience and flexibility to come rolling in.

That was the plan when market leaders, Dallas-based HQ Global Workplaces and Regus Business Center Corp., a New York unit of Britain's Regus plc, began their expansion activities throughout Los Angeles in late 1999 and early 2000.

In less than two years, HQ had acquired 10 executive suite operations and opened one of its own. Regus built out 325,000 square feet in seven Class-A office buildings throughout the county.

Things have changed.

The two leading executive suite operators, which had a combined 18 locations throughout the region, now face a bevy of challenges in their efforts to stay afloat. A majority-owned subsidiary of New York-based holding company FrontLine Capital Group Inc., HQ filed for Chapter 11 bankruptcy protection on March 13.

Slammed by the dot-com implosion, increased price-sensitivity from prospective clients and long-term lease obligations signed at or near the top of the market, the Westside and South Bay operations have suffered.

Dave Toomey, a partner at CRESA Partners who represents clients interested in some of the Regus leases, said when HQ and Regus went into expansion mode, the tech companies and dot-coms dominated the clientele. "The demand is just way off for this type of space," said. "They just expanded in the heat of activity."

HQ, which had more than $100 million in assets and more than $100 million in debts when it filed for protection, according to a Reuters report, can either renegotiate or walk away from its leases without incurring extensive damages. It's likely to make the most of the situation.

"They are taking a very aggressive stance," said Michael S. Greger, partner at Allen Matkins Leck Gamble & Mallory's Irvine office representing one of HQ's Orange County landlords. "The general strategy is to threaten the leverage they have to reject the lease and use that as a bargaining tool."

Officials at Arden Realty Corp., which rents space to both firms at Howard Hughes Center, declined to comment on the situation.

HQ officials neither confirmed nor denied closure of any L.A. County operations. But according to a March 13 motion filed in U.S. Bankruptcy Court in Delaware, the company had ceased operations at 43 of its 350 nationwide locations, including four in L.A. It did not specify addresses of the sites.

HQ terminated leases set to expire between November 2003 and February 2007, according to the filing.

"We were certainly hard hit by the economy but we can see that it's in recovery mode right now," said Nancie Sauer, president of HQ's Metro Los Angeles office. Corporate downsizing is causing more entrepreneurs to look to the service, she said.

"We're moving on with the centers we entered 2002 with," said Randy Johnson, director of national marketing at HQ. "We're always negotiating agreements. That's just part of the normal course of business."

Among Regus' leases are deals at Santa Monica's Water Garden and the Warner Center in Woodland Hills.

"It probably gives Regus more of an edge if they did want to renegotiate leases," said Pillsbury Winthrop LLP Partner John Duffy, who represents the company on its lease deals. "Regus' line to landlords could be, 'You don't want more space coming back to you.'"

He would not comment on whether the company has started to take this approach.

A Regus spokesman could not be reached for comment.

Regus has been aggressive with its clients, dropping monthly rates to compete directly with the growing sublease market. The company is marketing about 150,000 square feet of its executive suites at rates "competitive with sublease space," according to Toomey, whose specialty is tenant representation on the Westside and in the San Fernando Valley.

"It's a different program now," said Toomey of the company's approach to offer straight sublease space along with executive suite capabilities. "They'll go either way."

Because of the short-term nature of executive suite occupancy - most tenants use the space for less than a year - Regus is counting on rate reductions to be a short-term solution for attracting market share, according to CB Richard Ellis Vice President Kent Handle-man, whose company is marketing Regus' space.

"It's kind of like the hotel business - you can buy occupancy with rates," said Handle-man. "They'll be positioned to adjust upward as rates allow."