Money Buzz 03/02

The Least Lease

The flip side to the economic downturn is that commercial real estate is suddenly very affordable, says John Robbins, principal at San Ramon, California-based Kabler/Robbins Commercial Real Estate, who notes that prices have plummeted as much as 50 percent in the last year in some markets.

Even if you're locked into pricey office space, there's hope, says Alan Whitson, corporate facilities consultant and CEO of Newport Beach, California-based B. Alan Whitson Co. In a down market, it's never too early to open negotiations. "If you're in year three on a five-year lease, you can negotiate to extend for another five-year term at a lower rate," Whitson says. "Landlords are pretty smart--they know 70 percent of something is better than 100 percent of nothing, and they're looking for a stable income stream."

To win a better deal, come to the bargaining table prepared. "Know the market rates and what perks you can push for," says Whitson. "With negotiating, you don't get what you deserve; you get what you negotiate."

More Than Friends

When capital is hard to come by, entrepreneurs often have better luck raising cash close to home. But hitting up friends and family can backfire. "The same issues you have with any investor get compounded when you're borrowing from someone you'll be seeing at the dinner table every night," notes Herb Kozlov, a corporate finance attorney with New York City-based Parker Duryee Rosoff & Haft. "In the end, you may trash an important personal relationship."

Formalizing the transaction can help guard against friction down the road. "You want to be clear," says Kozlov, who advises creating an explicit loan agreement. "For example, is it a loan to the company or a loan to you personally that you are obligated to pay whether or not the business works?"

Boston-based Circle Lending offers an economical online service enabling would-be borrowers to create and administer loans with family and friends. "We charge a one-time start-up fee of $49 and 3 percent of each loan installment," explains Jill Miller, "and then we basically take care of the transaction." In addition to documenting loan agreements, Circle Lending enables borrowers and lenders to track and manage their transactions online, offers direct debit and deposit services, and sends e-mail reminders to borrowers when payments are due. Beats hearing it from your mother.

Buy, Buy Biotech?

Daily news headlines warning us about the threat of bioterrorism have opportunists wagering that biotechnology stocks will be the next rocket to take off. Yet pros warn that biotechs are tougher to make a call on than relatively reliable blue chips. "The problem with biotech companies is that the finance statements don't tell you very much," explains David Larcker, a professor at The Wharton School at the University of Pennsylvania in Philadelphia.

Because most biotech firms don't have earnings to speak of, investors typically look at companies' proprietary assets, collaborative efforts with other firms and the potential market for drugs in the approval pipeline. But how can you quantify those things when Wharton research says .02 percent of drugs screened by the FDA and just 23 percent of drugs entering Phase I clinical trials reach the market? "It's one of those things that sounds sexy and interesting, but unless you have a scientific background, it's risky stuff," says Larcker.

Dan Gillespie, vice president and portfolio manager for the Rydex Biotechnology Fund, advises individual investors to be selectors, not collectors, so "you won't crash and burn if the sector gets spooked."

While such advice may dull the excitement for those looking for a quick hit, Larcker seconds the rationale. "As part of an entire portfolio, it might be fine to have some biotech stocks," he says. "But in terms of whether you can ring the bell with a one-shot, that's a tough game to play."

Jennifer Pellet is a freelance writer in New York City specializing in business and finance.

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