ENTER THE ENTREPRENEUR:
As yesterday’s CEOs are wheeling what’s left of their businesses to the curb, opportunity is cropping up everywhere. Four reasons an economic downturn is the best time to start a business.
As Companies Drop, So Do Rents: Dot-com excess has created a ton of available space
You know what happened when Boo.com and Icebox.com went out of business? They moved out of their offices, and they did it in a hurry. Know what that means for someone starting a business? Greater availability of office space and, more important, cheaper office space. A February report from national real estate broker Insignia/ESG found availability in downtown Manhattan jumped more than 18 percent in January, while south of midtown, average asking rents dropped by $1 per square foot. On 10,000 square feet, the money saved pays for a VP of marketing.
Dot-com woes have created space in other parts of the country as well. David Ege, a co-founder of San Francisco-based communications company Mobido, recently found loft space in SOMA, one of the city’s most-sought-after neighborhoods. Ege credits his company’s windfall to overbuilding (fueled by the market demand of 18 months ago) and to landlords’ becoming more realistic about the long-term prospects of dot-com companies and the economy as a whole. “Landlords were demanding a high rent and stock in your company, which is crazy,” says Ege.
Failed businesses are also freeing up prime space in the form of subleases, shared space, and just plain defaults. “Companies, especially dot-coms, are closing their New York offices and don’t know what to do with all their space,” says Ruth Colp-Haber, a partner at New York-based commercial real estate firm Wharton Property Advisors. The shrewd move? She recommends subleasing or sharing space. That way, the entrepreneur won’t have to design and pay for an office’s infrastructure. “It’s all already built out,” Colp-Haber says. “And that can save a huge amount of time, hassle and money.” Insignia/ESG managing direction Jeffrey Bernstein agrees. In cases where dot-coms have been forced to cut labor but not fold entirely, he says, space can often be picked up for a few dollars cheaper per square foot than the market rate. Would-be entrepreneurs get a break on rent, while the somehow-still-alive dot-com gets to slash its rental costs.
To find these deals, you have to be willing to chase the hearse. Knowing which businesses are laying off employees is the first step to locating subleased space at a great rate. (Hint: if you haven’t already, bookmark fuckedcompany.com on your browser.) By talking to the business directly, an entrepreneur can save the struggling company the time and expense of employing a broker, and potentially negotiate a better price. In the case of a company that’s folding, there’s also the possibility of picking the business’s lease as a discounted asset, Bernstein says. This means a renter could be paying a market rate from a couple years back—which could translate into a significant savings.
—Jude Stewart for MBA Jungle, May 2001
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