Good to be down and out

Going global is a bargain given the soft US real estate market

Manjari Raman

As the war on terrorism goes global and exactly one week after the tragic attacks on American icons of economic and military power, globalisation is a good word to focus on. Especially if your New Economy start-up feels as if it has been hit by a fireball in the last three quarters, with venture capital vapourising faster than you can say dotcom. But one man’s meat is always another entrepreneur’s bologna sandwich, and there are some pretty good bargains to be snapped up out there especially when the times are tough. And while expansion is probably the last thought on your mind, especially global expansion, if you let the panic subside for the moment, you just might just discover that planning an overseas foray right now could be a low risk, low cost game plan.

So, how about finally setting up that office in the United States as you had always planned to? Thanks to the bubble bursting, currently, there is a huge glut of office space right now, particularly in the New Economy havens girding the US from Silicon Valley to Seattle, Washington to Austin, Texas. But what is of particular interest is the fact that the hardest hit real estate demographic is the telecom-hotel-IT and telecom-friendly space, which is now lying vacant by the yard.

A recent study conducted by Lehman Brothers and real estate brokers Cushman & Wakefield found just how bad the situation was for New Economy landlords. As the information age boom took off in the US in the mid-90s, these real estate developers had sniffed a lucrative opportunity in converting old industrial buildings into New Economy shop floors which housed Internet routers and Web-page servers. Now, with the boom going bust and with it a majority of the potential rentiers, these telecom hotels are lying vacant and empty, with desperate ‘for lease’ signs trying to lure tenants.

The study, which covered the US and Canada, concluded that nearly 77 million square feet of property had come under telecom use in the last few years. But by June 2001, only 43 million square feet was still leased. A not-so-surprising finding: the Greater Boston area was the worst off, with a mere 25 per cent of its total telco space still occupied. That ratio improved to 56 per cent occupancy in New York, 52 per cent in Washington/North Virginia, and 43 per cent in Atlanta. Heck, that still adds up to a whole lot of empty prime office space in some of the most hi-tech metropolitan hubs of the world. In Boston alone, the study reckons, there is 1.1 million square feet of space lying vacant. So how does that matter to you?

Its simple. A soft real estate market is just what an ambitious Indian software company needs to leverage a foray into the US market. This is one time when a smart company can negotiate a long-term lease or rental agreement, capitalise on low mortgages and interest rates, and best of all, pick and choose a prime business address. To give you an idea of the kind of bargains in the market — the Lotus hi-rise in the heart of Boston, on the banks of the Charles River and cheek to jowl with the Massachusetts Institute of Technology, now carries huge ‘for lease’ signs on almost all the floors. And long haul Internet carrier Level 3 Communications has been desperately trying to resell 160,000 square feet of surplus space at the Needham Industrial Park.

Make no mistake: this is prime property developed especially for telcos and comcos. Most of it consists of industrial era buildings which were stripped to the bone and redone to match the demands of the New Economy. Their high ceilings and strong floors make them ideal for hosting racks of telecom gear, there is ample incoming electricity and last but not the least, they are fully rewired with fibre optics. By the way, in case you think you will drive a harder bargain if you wait some more, be warned. A lack of demand is creating its own supply for new kinds of tenants. Increasingly, many of the real estate developers are now considering farming out prime property to biotech start-ups, who are nothing but infotech sweatshops anyway. The only difference being, the bio-techs are more cash-rich and enjoy greater confidence of the stock market right now than most IT or telecom-based start-ups. These bio-techs can outbid you.

The point then is that if last year, you were ambitiously planning a Nasdaq listing, and you still plan on being around next year, this year is a good time to get a business address going in the US. Many of you have already renegotiated your lease and rental agreements or are in the process of doing so within the country. Now, spare a thought to your global ramp-up. You know what they say: when the going gets tough, the tough get going. To wherever the bargains are.