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It's a Rental

You can't build cyberspace without physical space, but do landlords like tech?

You have the hottest online concept around, and you're ready to sell your wares and services from your very own dotcom domain. You have a brilliant business plan and a bright crew. All you need now is a home for your team. But are landlords at all wary of leasing office space to dotcom companies?

"Absolutely," says Ross Moskowitz, real estate partner at Stroock & Stroock & Lavan LLP in New York City. Landlords aren't particularly receptive to the scant credit histories and uncertain futures that often define e-businesses.

As with any start-up, landlords will want to see your business plan, according to Moskowitz. But, unlike traditional start-ups, dotcoms tend to grow very quickly. Just ask David Liu, CEO of TheKnot.com, an online wedding emporium, whose company went from 28 employees to over 200 in about a year. "If you sign a long-term lease on a small space and outgrow it, you're stuck," he says. Add that to the fact that e-commerce tenants need state-of-the-art telecommunications and electrical systems, and Net--preneurs have some hard requirements to be met.

Meanwhile, some build-ing developers are actually designing properties with high-tech start-ups in mind. Leggat McCall Properties is developing a building in Philadelphia where the first floor is fully wired and made with lower cost buildouts to facilitate growth. "Tenants were continually telling us about their shorter business planning cycles and need for more flexibility," says Leggat executive vice president of development Eric Sheffels.

Even if you're dealing with more traditional landlords, you can increase your chances of getting a good space. Get a letter of credit from banks or references from your venture capitalists. Landlords may also accept a smaller security deposit in return for stock warrants in your company. "If [the dotcom] makes it," says Sheffels, "we'll be compensated for the risk we took on them."

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This article was originally published in the June 2000 print edition of Entrepreneur with the headline: It's a Rental.

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