Building owners scramble to find tenants amid fall of dot.com firms
dallasnews.com
04/20/2001
By Steve Brown / The Dallas Morning News
Real estate investor Justin Small has had his fill of the so-called new economy.
"I wouldn't touch another dot.com company if they paid me up front," said Mr. Small, who just a year ago was leasing old commercial buildings near downtown as fast as he could fix them up.
Lately, he's been scrambling to fill two vacant buildings on Ross Avenue that were left empty when the dot.com tide went out.
"I had to kick the old tenants out," Mr. Small said. "They were 45 to 50 days late on their rent and had about 10 people left working in there. Fortunately, I've found new tenants to take the space."
Other building owners haven't been so lucky.
A number of dot.com and other high-tech companies – the area's fastest-growing commercial tenant base over the last several years – have jilted real estate investors, leaving them with empty offices and half-built projects.
After courting these companies during the last few years, developers and building owners can't say enough bad things about the tech industry.
"I'm sitting there with one building full of construction materials that looks like someone dropped a bomb on it," said investor Jeff Swaney, who was remodeling buildings in Deep Ellum for dot.com and software companies. "All of those tenants are bailing out.
"It looks like this stuff may wind up being $2-per-square-foot warehouse space again."
Dallas real estate broker Jerry Fults of Kennedy-Wilson International said the dot.com fallout "is not going to go away anytime soon."
"Now that even TI [Texas Instruments] is laying off people, it tells you the severity of the situation," Mr. Fults said.
"And make no mistake about it, this is having an impact on the entire real estate market."
The cutback in high-tech leasing was a major factor in the 670,000-square-foot net decline in first-class office occupancy during the first quarter, leasing agents say.
And it's not just the funky office space near downtown that's being hurt.
Corridor slowdown
California-based Cisco Systems Inc. – which is eliminating 3,000 to 5,000 jobs – recently decided not to finish two of the four buildings it is constructing in Richardson. The interior of one will not be finished out. The other will be left with just the foundation poured.
Real estate brokers say that Nortel also won't immediately move into one of its new buildings in Richardson's Telecom Corridor.
And a Nortel spokesman said he could not speculate on when the building would be occupied.
Even building owners who have not lost high-tech and Internet tenants can be a victim of the down market.
Developer Lucy Billingsley said some tenants in her International Business Park on the Dallas North Tollway are hunting other companies to sublease office space they never occupied. "I have three or four companies that leased extra space to accommodate growth," Ms. Billingsley said. "Instead of growth they now have excess space."
Building owners don't relish the idea of competing with their own tenants to fill empty office space.
"It's really a quick turnaround from the ya-ya days when these companies were taking the office space before we could finish it," Ms. Billingsley said.
Filling the gaps
Leasing agents are being hired to fill the gaps that Internet and high-tech companies are leaving behind.
Garland-based Software Spectrum Inc. recently canceled the opening of a 73,000-square-foot call center in North Richland Hills. The software firm has hired Trammell Crow Co. to hunt a new tenant for the space.
In Deep Ellum, Alen Hinckley is leasing a block of prime office space on Canton Street that Sticknetworks, a wireless Internet company, doesn't need.
The high-tech firm has "sublease" signs outside the building and on its Web site, offering 10,000 to 15,000 square feet of space.
Inside, construction is unfinished.
"They have tried to lighten their load a little bit," Mr. Hinckley said.
"It's the same problem everybody else has in the dot.com industry."
Mr. Swaney has stopped construction on one Deep Ellum office project and is trying to sell a vacant building.
"The office market in Deep Ellum has gone from 170 miles per hour to zero in just a few months," he said. "I hope everyone had their seat belts on."
Lucky few
Lucky landlords are still finding non high-tech tenants.
Mr. Small leased one of his empty buildings on Ross Avenue to a restaurant and is close to completing leases with two more firms.
Hall Financial, which had been leasing large blocks of office space to Internet and high-tech companies, just announced a major lease in a Frisco office park to an "old economy" company. Levi Strauss & Co. has leased 29,000 square feet of office space in the Hall Office Park at 2601 Network Blvd. The San Francisco-based clothing company will use the space for a regional office.
And Deep Ellum art gallery and commercial tenants that had been priced out of the market may find landlords more eager to do a deal.
"Some of the old tenants we chased out of here a year ago to make room for the dot.com companies may end up coming back," Mr. Swaney said |
