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Real estate owners filling space with young 'chippies.'.

During the past few years of servicing myriad information technology firms, we have been negotiating deals for space users whose needs are as diversified as the talents and services they offer. For web designers, programmers, technologists, marketers, interface developers, and even artificial robots, the requirements for office space and the deals we negotiate are often complex due to several factors.

To begin with, while many of these companies have experienced high levels of success by anyone's standards, they are still comparatively "young" by landlord's measures. This is still an up market, after all, and landlords would rather err on the side of caution. Therefore, the preference is to lease to well established firms with a proven track record.

For instance, even companies that have successfully received an influx of millions of dollars through initial public offerings of stock can be deemed a "high risk" by conservative landlords. There is a concern about where and how the capital will be invested, and whether or not the company will even be around in a few years from now, as technology grows not only faster but more expansive in its capabilities.

Further, with the rapid speed with which companies must be able to evolve as the industry grows, will these emerging firms become obsolete or be able to maintain their share of the market?

To compound the issue for landlords, most of these companies have relatively low revenues. Thus, tenants must be made aware from the start that high security deposits, and possibly a guarantor, will be required of them because they are still considered "young."

Due to the relative newness of the computer-related tenant mix with which we are working, the tenants themselves have certain specific needs. Since most of them require under 10,000 square feet, the competition for good, reasonably priced space is intense, but not insurmountable. In most cases, a shorter term is also needed, so we can often satisfy the requirement by finding a sublease. However, since often the sublease space lay-outs are not the right "fit," another way to satisfy the short-term space planning needs of the customer is to negotiate a termination clause on a direct, long-term deal.

Depending on the building's lender's policies, some landlords will provide our customers with a termination option as long as the un-amortized expenses are paid. If the floorplates are small enough, there are even still a few landlords who will actually give the customer options on contiguous spaces to accommodate potential growth needs.

And growing they are! All around Manhattan. While initially Silicon Alley's geographic heart was considered to be the Flatiron District, it now sprawls down Broadway to the Battery, and up Broadway into suburban Westchester. According to Digitalcity, New York's e-zine of digital age business and culture, there are now more than 1,100 Silicon Alley companies in Manhattan south of 41 st Street; another 450 in Midtown; and 571 spread out throughout the rest of Manhattan. Which leads us to the most interesting communication experience of all: Defining for your customer just where Silicon Alley is located!

Although the Flatiron District was the initial location for individual start-ups, The New York Information Technology Center at 55 Broad Street later became the anchor of Downtown's fastest growing totally-wired tech community, known as The Information Technology District. Many owners have joined the Plug 'n' Go Program, which provides pre-built, Internet-ready space designed specifically for growing IT companies requiring high-speed Internet bandwidth and affordable, good quality office space.

However, we have seen quite an increase in the number of buildings which have been upgraded or are slated to be wired in the very near future. The inevitability of most, if not all buildings, to modernize in this way is certain - including those which are located in Midtown.

Just as the Rudins were the first to develop a state-of-the-art technological infrastructure at 55 Broad Street, their building at 3 Times square will provide the same amenities to information-based industries, which will become an anchor for the Crossroads of the World in the heart of New York. The building promises to be the "World's Smartest," and will set the standards for technological sophistication in Midtown.

Sophisticated IT customers are a challenge to place. Not only are they "young," requiring smaller space, shorter lease terms, and stringent security deposits, but defining the "location" of Silicon Alley is intangible, and finding the right building becomes quite an issue, beyond it being merely "Internet ready."

At some point in the not too distant future, we predict that asking if an office building is "Internet wired" will be as archaic as asking "is it air conditioned?"

For the artistic, creative type, we need to place them in a very "cool" environment. Once we get past the educational period of establishing where they mean when they say "Silicon Alley," the usual area of choice is SoHo, and the space must have "wood floors, high ceilings and sky-lights." For artists really never have thrived in corporate environments, have they? And there is an understandable need for these tenants to have the panache of being in a "cool" space.

However, the corporate oriented servicing firms such as recruiters, software companies and marketing consultants usually gravitate towards typical business areas conveniently located near the major transportation hubs. These spaces offer the traditional office layouts and are often pre-built for immediate occupancy.

As IT companies quickly emerge as the city's prime economic generators, creating jobs and innovative products, and as they grow and diversify and continue to require larger office space, in a few years, these young chippies will soon realize the benefits of a softer real estate market cycle, and the truism of "age before booty" will certainly manifest itself - for as their balance sheets mature, so too will their negotiating strength come of age at just the right cycle.
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Copyright 1999, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:office building' up grade to cater high technology firms
Author:Hart, Angela
Publication:Real Estate Weekly
Date:May 19, 1999
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