Drawing the line
Firms absorb costs of installing Internet access, banking on sale of monthly service
07/27/99
By Guy T. Baehr
STAFF WRITER
ad.doubleclick.net
Most office building owners in New Jersey still don't know a DSL from a POP or an ISP from an ISDN, but they're about to get a crash course in such Information Age jargon.
Call it bricks & mortar meets virtual reality.
Two fast-growing New York- based companies that have already wired more than 100 buildings in Manhattan for high-speed Internet access and data transmission have crossed the Hudson River to do the same thing in New Jersey. At least nine others -- hailing from Tampa, Fla., to Bellevue, Wash. -- are close behind. The advertising blitz, too, has begun.
''Beneath this classic facade lurks a screaming high-tech machine" says the ad copy below an older-looking building pictured as a giant printed circuit board in one magazine.
The process is not without irony: In some cases, obsolete mail chutes are being taken out of service to accommodate the digital cables for faster e-mail.
It's also nearly irresistible. Technology and competition have driven costs down to the point that all the companies will now wire most buildings for free, just to get a shot at turning the tenants into paying telephone or Internet customers.
The new entrants are going after office buildings with lots of small to medium-size tenants -- from new media start-ups to established law firms -- that are growing impatient with their dial-up modems and only slightly faster ISDN (digital) phone lines.
It's a huge market. One study estimates that of the 700,000 multi-tenant office buildings in the United States, only 10,000 have been wired for 24-hour high-speed access to the Internet.
''Our niche is with tenants that have five to 50 people hooked up to the Internet," said Rich Feuer, who runs the New York sales office of KIVEX.com, a 5-year-old Maryland Internet service provider, or ISP, that has wired more than 250 buildings in major metro areas. (One lure: free high-speed Internet access for the building owner or manager.)
In the six months since Feuer opened the company's New York office, KIVEX.com has put its high- speed DSL (Digital Subscriber Line) service into 40 buildings in Manhattan and 10 in New Jersey. "We don't even have a sales staff in New Jersey yet," he said.
Deciding which companies will best meet tenants needs in the new millennium -- as well as providing the best deal for the landlord -- isn't for the digitally challenged.
Key issue: Do you give the digital company exclusive access to your tenants? Current thinking among cyber-savvy Manhattan landlords: No, encourage competition. Have at least two or three competitors wire your building, but screen them. Don't let just anyone into your risers -- the vertical channels used to run phone wires, electrical conduits, plumbing pipes, and the new digital lines, from floor to floor.
Mark Schaevitz, who oversees almost 3 million square feet of prime Class A office space in New Jersey, admits it's a brave new cyber-world he doesn't fully understand. "They don't call me techno-peasant for no reason," he said.
Nonetheless, the architect- turned-property manager has already learned to toss around tech-speak terms like "broadband" and claims he's looking forward to the Internet invasion of the buildings he manages for Long Island-based Reckson Associates Realty Corp.
''It's an amenity, like food service, meeting rooms or a fitness center," he said. "Right now very few buildings in New Jersey have it. But I imagine it will become typical in the next few years. People will get used to it, and then they'll demand it wherever they go. It'll be on everyone's check list."
With ever-faster Internet access and ever-cheaper telecommunications services driving more and more of the U.S. economy, office tenants of all sizes -- and their landlords -- are beginning to worry as much about cyberspace as about parking space.
''It's not location, location, location any more. It's now location, bandwidth, location," says John Gilbert, chief operating officer for one of Manhattan's largest office developers, Rudin Management Company.
That's because bandwidth -- or digital data-carrying capacity -- determines how fast data can travel over the Information Highway, so wiring an office building for "broadband" access to the Internet is like widening the road in front of it from a one-lane dirt road to a six-lane divided highway.
Rudin, a family owned company, got the notice of others in the real estate industry a few years ago when it helped create New York's "Silicon Alley" -- Manhattan's version of California's "Silicon Valley" -- by wiring up the long-vacant 55 Broad St., one- time home of the junk bond firm Drexel Burnham Lambert.
Within 18 months of its July 1995 transformation into the New York Information Technology Center (nyitc@55broadst.com), the Rudins had it 100 percent rented to 80 Internet-intensive tenants, from such blue-chip firms as IBM to such little- known startups as Warp 10 Technologies.
The self-proclaimed father of the Internet, Vice President Al Gore, last month called it "the smartest building in the world." Whatever its IQ, the building's asking rental rates are now double what they were five years ago.
The same year the Rudins opened 55 Broad St., Daren W. Hornig, a 27-year-old commercial real estate broker, started his own business to wire office buildings for owners who weren't ready to take on the digital challenge themselves.
''I was getting strange questions from some of the tenants I was dealing with -- 'I need T1.' 'I need FO.' -- and I didn't know the answers," said Hornig, who was with two of Manhattan's largest brokerages, Newmark Partners and the Galbreath Co.
Hornig found out the answers -- T1 is high-speed digital data line that can handle 1.5 million bits of data per second, or almost 28 times the capacity of the fastest telephone modem you can put on a home computer; FO is short for Fiber Optic, a kind of laser-based data transmission line made up of glass strands that can make a T1 look slow. A standard fiber optic cable, known as an OC (Optical Carrier)3 line, can transmit 155 million bytes per second, or more than 100 times the capacity of a T1 line.
In the process, Hornig decided the bandwidth revolution was the business opportunity he'd been looking for all his life.
''I always knew I would go into business for myself," he said. "I learned selling when I was 12 years old working in my father's furniture store on 14th Street in Manhattan. I had a T-shirt business in college, and I had a vending machine business after that."
''My concept was to work with building owners. By wiring their buildings for high bandwidth access, we could add value for their tenants and develop customers for our services," he said.
Actually, it's better than that. Hornig's company, OnSite Access, typically runs a T1, a T3 or an OC3 into a building's basement -- creating a POP (Point of Presence, a direct digital connection to the Internet and the nation's emerging fiber optic digital telephone network) and then runs smaller individual connections to each floor, all without charging the owners a penny.
It then signs up individual tenants as customers for its Internet access and local and long-distance telephone service, paying an agreed- upon cut of its billings to the building owner.
Not surprisingly, landlords have seen this as a good deal -- a way to be more competitive without spending any money, with some new cash flow thrown in as a bonus.
Scott Jarus of New Brunswick, its 43-year-old president and CEO, said it costs OnSite up to 30 cents per square foot to wire buildings -- although that can vary widely with a structure's age and construction. At that rate, wiring a 100,000-square-foot building would cost $30,000 -- or about five times the cost of resurfacing the 400-car parking lot such a building would typically have in the suburbs.
Despite the heavy upfront costs, OnSite has had no trouble raising money. In April, the limited partnership raised $60 million in private equity financing -- twice the goal -- to expand into 14 key metro areas across the nation. The biggest investor has been Schaevitz's company, Reckson Associates, which holds a one-third interest in OnSite.
-------------------------------------------------------------------------------- |
