December
5, 2000
EAEL/NAELB February 5th Joint Meeting
"For Rent"/Economic
Sign Indicator
One Day, all Business Broker/Funding Meeting, Atlanta Marriott Hotel
February
5th ( actually there is a get acquainted evening available on February 4th ).
To learn more, click
here.
This
is a joint meeting of the Eastern Association of Equipment Leasing and the National
Association of Equipment Brokers. It will be a no-nonsense, roll up your shirt
sleeve, business meeting. Well worth the money.
You can also get the registration
form on line.
Please note both the National Association of Equipment Leasing Brokers
and United Association of Equipment Leasing will have their regular
confrences in May, two weeks apart.
(
I would hope one day that these meetings will be further apart, giving more people
the opportunity to go to both, rather than to just choose one. Perhaps our meeting
schedule postings will help associations plan dates that will afford more opportunity
to increase attendance, rather than choose one over the other---editor).
One of my personal indicators about the economy are apartment rent signs on my
way to work. For almost thirty years, I drive the same way to work. Except for
the times the college ends, around June, and students may go away for the summer,
there are rarely any "for rent" signs, except when the economy is going the other
way...Evidently, people leave the area, or move back home, or double up with a
friend, or triple up.
Coming down Bascom and Washington, I am seeing more "for rent" signs. Not a good
sign that we are going to have a good Christmas. Also, I look for commercial rent
signs, and stories like this, that appeared in the Los Angeles Times.
Demand for Westside Office Space Slips With 'Dot-Coms'
Real
estate: A cooling trend is striking in a market that has recently been one of
the hottest in the country.
By BOB HOWARD, Special to The Los Angeles Times
Troubles
in the "dot-com" world and a general cooling of the economy have triggered the
first slowing in years in Los Angeles' most popular office market.
The vacancy
rate in the extremely tight Westside has climbed at least four percentage points
since it hit its low of 3.4% early this year, according to commercial real estate
firm Julien J. Studley Inc. Slower leasing by no means represents a dramatic downturn,
experts say, but even a cooling trend is noticeable in an office market that has
been one of the hottest in the country in recent years.
"I don't mean to say
that we are in a recession or that the market's falling," Studley Vice Chairman
Howard Sadowsky said, "but this is definitely a market that has flattened out."
Internet and electronic-commerce firms created much of the demand for Westside
office space during what Sadowsky called "the height of the frenzy" this year.
Dot-coms remain an important force in the market, but demand for additional space
from dot-coms and traditional tenants has dipped.
"For the last three or four
years, this sort of thing [a slowdown] was unheard of on the Westside," Sadowsky
said.
Although the general slowing of the economy may reduce activity in office
markets throughout Los Angeles County if it continues, Sadowsky said, the impact
of the dot-com slowdown is by far the greatest on the Westside.
Internet-related
firms in the last three months have either vacated or offered for sublease more
than 560,000 square feet of Westside office space, according to a Studley survey.
The dot-com tenants have gone out of business, realized they rented too much space,
or merged with other companies and need less space, said Bruce Schuman, a senior
vice president at Studley.
During the height of the boom, Sadowsky said, the
dot-com companies were determined to find space on the Westside at almost any
cost. Some took more space than they needed, expecting to grow, he said.
Prospects
still remain bright for owners of office space, said Tom Herta, vice president
for Menlo Park-based Spieker Properties, a real estate investment trust. He said
the vacancy rate in Santa Monica is close to 2%, compared with the overall 7.5%
rate of the Westside market.
"We're not seeing the start-up dot-coms that
we saw six months ago," Herta said. "We have not been seeing as many prospects
come around, but the quality of the prospects is better." Disenchantment with
dot-coms has many landlords eager to do business with the kinds of traditional
businesses that commanded top attention during the last real estate boom in the
1980s, such as law and accounting firms.
"Some of the most beautiful tenants
in the pageant right now are good, old-fashioned insurance companies," said broker
Robert Chavez of Staubach Co. Chavez represented one of the Westside's biggest
dot-com tenants, IXL, this year when it signed a 10-year, $40-million lease at
Howard Hughes Center in Westchester. IXL is closing that office as part of a corporate
restructuring, the company said last week, and Chavez is marketing its 100,000
square feet as sublease space. At the same time, he said, IXL is negotiating with
landlord Arden Realty in hopes of terminating the lease.
Although Chavez agrees
the activity is leveling off on the Westside, he said demand for office space
is still strong enough that Arden might be able to lease the IXL space to new
tenants at higher rates if Arden agrees to terminate the lease.
The leveling
off is so new, having begun just in the last six or eight weeks that many people
are unaware of it, Schuman said. Rental rates have not declined, which typically
occurs when vacancy rates increase, although some landlords are beginning to offer
other concessions, such as move-in allowances or more money for customizing space
to a tenant's requirements. "For most of this year, we were on the chasing side
of deals. Now we're getting phone calls from landlords," Schuman said. "They're
telling us they're more flexible than they were three months ago."
Other businesses
are already benefiting from some of the space vacated by dot-coms, Schuman pointed
out. For example, DotTV, the official worldwide registry for Internet domain names
ending in .tv, moved into approximately 30,000 square feet of space at 1100 Glendon
Ave. in Westwood within weeks after the space was vacated by Thirsty.com.
"It was a good opportunity for us," said Craig Frances, president and chief operating
officer of DotTV, which moved into the Westwood space from its quarters in Pasadena.
The former Thirsty.com space was ideal for DotTV because the offices were already
wired for high-speed Internet access and the lease included furniture, Frances
said.
Some landlords may also benefit when dot-coms vacate space because "they
did the deals two years ago, at lower rates than they're getting today, so they
might be able to get higher rates with a new tenant," Schuman said.
On the
other hand, Schuman added, the situation can work against landlords when tenants
who have excess space offer to sublease it at lower-than-market rates, competing
against full-priced space offered by landlords.
Even with a slight leveling
off, the Westside markets are maintaining office vacancy rates lower than those
in most other parts of Los Angeles County, where vacancy rates range from less
than 10% to more than 20%.
And the Westside still needs more office space,
noted Sadowsky, who said the relative lack of new construction and the difficulty
of gaining approval for new projects means vacancies are likely to remain low
as long as the economy remains stable.
Or in the Seattle Times, about Dot Com Business Creating Vacancies Dot-com blues:
Will we all be singing?
By
Alwyn Scott
Seattle Times business reporter
In its heyday just a few weeks ago, SeasonTicket.com beamed game highlights
to sports junkies over the Internet.
But the startup's first season ended Friday with a gavel clap.
"Any more bids?" said Jim Murphy, founder of James G. Murphy auctioneers,
over a Dell laptop as 400 bidders looked on. "Sold for sixteen hundred!
Thank you."
Bang. Another dead dot-com.
The drumbeat of dot-com failures sounding around Seattle these days
is getting louder. And it poses uncomfortable questions for a town
that knows boom and bust all too well. Is the era of prosperity ending?
Is the New Economy a myth? Is the great bull market finally bust?
In short, was that it?
There are plenty of portents. As early as April, some researchers
predicted that many online retailers would go bust this year.
So far, at least 11 dot-coms have closed their doors in the Seattle
area, and more than 2,000 workers have lost their jobs to bankruptcies
and layoffs. Nationally, more than 100 dot-coms have shut down or
cut staff, and job losses top 12,000, according to a Seattle Times
tally of published reports.
The Nasdaq Composite index has tumbled 35 percent, pulled down largely
by dot-com stocks. Amazon.com shares, for example, have dropped 79
percent since December. Mighty Microsoft, the Midas that made, by
some counts, 10,000 millionaires here, trapped many in stock-option
debt as its share price fell 53 percent this year. Shares of many
smaller companies have fallen by 80 percent to 90 percent.
Evidence of the slowdown is everywhere: The U.S. economy expanded
2.4 percent in the latest quarter, less than half its pace just six
months ago. And unquestionably the Puget Sound region is cooling.
Houses are staying on the market longer, office vacancy rates are
creeping up, and some car dealers predict that sales of luxury models
will fall 15 percent next year, largely due to the loss of frothy
wealth. Job growth, at around 1.9 percent, is roughly half what it
was last year. High-tech job growth has slowed to 2.5 percent from
4 percent last year. Ad agencies, accountants, lawyers and public-relations
firms are seeing some of their new business literally disappear -
some without paying bills.
But based on what's visible now, experts say dot-com deaths and the
stock-market swoon won't put Washington state into recession, let
alone the depression that some predict. Most of the slowdown is due
to old-fashioned higher interest rates, they say. And new businesses
that have diversified the Northwest economy over the last decade have
prepared the region to better weather a storm.
In this bigger, deeper pond, the region's dot-coms are a small pebble.
"When you look at the whole economy, the dot-com impact is and has
been smaller than many people believe," said Chang Mook Sohn, the
state's chief economist.
One reason: Dot-com employment is minuscule. Of the state's 2.7 million
jobs, Microsoft supplies 20,000 and Boeing more than 70,000. Dot-com
jobs number in the single-digit thousands, not the tens of thousands,
Sohn says. "If all of them fail, I don't think the economy would decline."
That doesn't mean the shifts aren't real, that there won't be more
business deaths, or that real people won't feel the pain.
Ian Pina joined SeasonTicket.com as system administrator six months
ago, lured from Deloitte and Touche by a higher salary, the chance
to work with cutting-edge technology and stock options that are now
worthless. He didn't get severance pay when the company closed.
"I probably won't do a dot-com next time around," says 29-year-old
Pina, preferring more stability for the family he's planning. But
with his computer skills, finding work won't be hard. "Most people
(who worked at SeasonTicket) have already landed another job," he
said. Indeed, in the funky world of dot-com bankruptcies, adversity
often leads to advancement and adventure. Consider Darryl Price. Earlier
this year the former executive director of business operations at
Group Health Cooperative gave up 13 years of seniority and jumped
to PointShare, a Bellevue-based dot-com that automates business transactions
for healthcare communities. Five and half months later, the 50-year-old
manager was laid off. With a wife and two teenage children to support,
he had set money aside, and says PointShare's severance package was
generous. The day he was laid off, several 20-something employees
who also were fired stormed out of the building, furious.
"It was their first job, and they thought they were going to be millionaires,"
he said. Yet within a week, they had all been hired in posts that
were just as lucrative, though likely no more secure.
And despite his age, Price is optimistic about his own chances. Dot-coms
"need people like me," he says. "I would go back into a dot-com in
an instant. They are one of the most interesting and dynamic business
channels I will see in my lifetime... . It's fun to be around that."
Seattle's commercial real-estate market is definitely slowing, but
that's after a vigorous run to its best condition in a decade.
About 2 percent of downtown space is vacant, and although that figure
has climbed slightly in recent months, it remains less than half what's
considered a normal level of vacancy. Rents are holding steady around
$40 a square foot, after sprinting up by a couple of dollars a week
at some points in the last year. That's a change from the late 1980s,
when vacancy was rising and rents were on the way down.
"Real estate always cycles," says Lisa Stewart, head of the leasing
department at Trammell Crow Co. "It's just a question of when. We're
not at doomsday yet. The statistics in our market have not demonstrated
any downturn."
And the current space shortage will lend support. Three new buildings
due to open soon are already leased, Stewart says. And landlords,
learning from the past decline, are demanding guarantees for a year's
rent from dot-coms that have scant income or assets.
"If the company goes poof, the landlord has a year to fill that space,"
Stewart says. The dot-com promise is slowly proving itself in many
industries. Some local dot-coms, such as RealNetworks and F5 Networks,
already have made profits. And although plenty of others will burn
out, most observers believe the Internet and its gains will endure.
The world is watching Amazon.com to see if this holiday season spells
victory or defeat. "If Amazon were to fail, it would be huge," says
Chad Waite, a partner at OVP Venture Partners, and an experienced
venture investor. "It would disprove the e-tailer model."
Few expect that to happen to Amazon, even if sales don't measure up.
The company is simply too big and too close to profitability to fail.
(Its book and music stores are turning a profit.) But Waite expects
a number of online stores to close their doors after the holidays.
"There are e-tailers out there with very, very high expectations for
the holiday season because they want to go public next year," he said.
"If they aren't going to make their plans, you're going to see more
of these lock up the doors and go home in late January and early February.
A lot of them aren't going to survive."
And many other businesses that looked viable a year ago look ridiculous
now that venture capitalists, who supply seed money used to start
companies, are growing cautious. Pets.com learned the hard way that
selling pet food online doesn't work. It went out of business. "Pet
food online is kind of a joke," Waite says. "One of them is too much."
Seattle Times staff reporter Katherine Long contributed to this article.
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