There’s a revolution under way in commercial real estate, and San Diego companies are leading the charge to sweep away the old paradigms.
It’s a technological revolution where Internet bandwidth, high-speed fiber optics, cellular communications, and computerized building monitoring are becoming just as important as vacancy rates, location and physical condition of a building, some analysts say.
“The formation of provider companies to provide high-tech features to buildings is a major trend in the real estate industry,” said James Sullivan, an analyst with Prudential Securities in New York. “We’ve seen it for just a little while, but it continues and will accelerate in the last six months of the year.”
For example, decades-long experience has shown that the geographical location of a retail property can spell the difference between success and failure of its tenants, Sullivan said.
– Value Of Location
May Be Diminishing
However, now, with some major retail property owners teaming up with high-tech companies to make things such as Web sites available to small local retailers, location may decrease in importance as the tenants develop markets on the great mall of the World Wide Web.
“If you have a great retail location, the tenants will still want to be there, but if it lacks in high-tech amenities the tenants and consumers will ultimately pressure the property owner to provide them,” Sullivan said. “For example, we’re seeing in the mall sector of the REIT industry an intensification in the level of Internet services the owners are making available to the consumers to benefit their retail tenants.”
Another analyst, Chris Hartung of Banc America Securities in San Francisco, said he believes the addition of E-commerce applications to commercial real estate could add as much as a 15 to 20 percent increase in value to it. That’s because increased business for retail tenants means more cash flow to landlords who are usually paid a percentage of the tenant’s revenues as rent, he said.
Hartung added that there will also be an increase in value for residential properties such as apartment complexes that offer high-tech services to those operating in-home businesses and to office buildings as well.
One local real estate company, Pan Pacific Retail Properties Inc. of Vista, is getting in on the ground floor of E-commerce in order to help its retail tenants boost their sales.
– Property Owners
Team With Techs
In February, the strip shopping center owner announced a strategic alliance with Eversave.com, a new Internet company with Web sites that link the computer-savvy consumer with local business owners by providing Web pages to the retailers.
The Eversave Web sites provide shoppers with online access to information and special offers at their neighborhood centers. They will also provide retailers with a cost-effective, direct advertising medium to local customers, said Stuart Tanz, president of Pan Pacific Retail Properties.
“We’re very excited to be joining forces with Eversave.com as their first retail REIT partner and have Eversave.com roll out its program on the West Coast using our shopping centers,” Tanz said.
The company owns nine strip shopping centers in the Portland, Ore., area and this month started rolling out the Internet service for its retail tenants there.
“The local merchants are very receptive to this idea because they view this as a great opportunity to have a presence on the Internet without establishing their own Web page by themselves and spending advertising dollars to drive traffic to their Web site,” Tanz said this past week. “It levels the playing field and allows the small retailer to compete successfully with the major chain stores.”
Pan Pacific isn’t the only REIT that owns local real estate and is getting on the high-tech bandwagon. Kilroy Realty Corp., which owns several office and industrial projects in San Diego County, announced in February that it was teaming up with Winstar Communications Inc. to provide advanced, high-speed communications capabilities to Kilroy’s properties.
– Providing Tenants
With Internet Access
Under the terms of the agreement, Winstar is permitted to offer its fixed wireless broadband communication services, including high-speed Internet and telephone services, to Kilroy’s tenants, said Jeff Hawken, chief operating officer of Kilroy Realty Corp.
Winstar works with commercial building owners and managers to provide tenants with a wide range of E-commerce solutions, including data, voice, videoconferencing, and Web hosting, he said.
InBuilding Systems Corp. of San Diego is another local company that is participating in the rewiring of America’s commercial real estate. It provides high-speed dedicated broadband Internet services to small- and medium-size tenants in office buildings.
“Traditionally, high-speed Internet access has been cost-prohibitive for many businesses and installing within multi-tenant buildings has required months of contracted labor,” said Joe E. Russell, InBuilding’s CEO.
The company changes all of that by installing the high-tech hardware in a central location in each building and connecting the tenants using existing copper telephone wire and Digital Subscriber Lines, or DSL. A DSL modem is then placed in the tenant’s space and provides direct, high-speed connection for the local area network and the Internet, he said.
Another local company, Carlsbad-based PhatPipe Inc., last month rolled out a package of technology products and services its CEO said will give commercial property owners another revenue stream besides rent.
– Moving From Floor
Space to Cyberspace
“The real estate industry soon will fundamentally shift from leasing floor space to leasing access rights to cyberspace,” said David Robinson, PhatPipe’s founder and CEO.
The products and services the company offers include advanced communications infrastructure, heating and air conditioning monitoring from a remote location, and an electronic marketplace for products from computers to office furniture, he said.
By bundling all the services together through one provider, the building owner is able to achieve economies of scale that couldn’t be attained when individual tenants Local real estate company Pan Pacific Retail Properties Inc. of Vista, a strip shopping center owner, recently formed a strategic alliance with Eversave.com, a new Internet company with Web sites that link consumers with local business owners by providing Web pages to retailers. The shopping gopher (above) symbolizes Eversave’s ‘product and price finder’ system. The system allows members to send a message out to multiple merchants in a particular product or service category requesting specific or general information, including price and availability.make their own arrangements, he said.
“As the Internet continues to revolutionize the world of business, many of today’s small- and medium-size companies are focusing more on their virtual needs than their physical needs,” Robinson said. “PhatPipe makes it possible for commercial real estate owners to meet the demand for both floor space and cyberspace.”
He added the company has already signed agreements to provide technology to Center Point Properties Trust and East Group Properties, both of which are publicly traded REITs, and other companies. All of the companies together have a total of 200 million square feet of commercial space, he said.
Carl Garland works for the Sterling, Va.-based company, Current Analysis, which provides consulting services to telecom and information technology companies.
He foresees a major increase in revenues for landlords who provide high-tech services and features to their building tenants.
“It’s a bundling of products and services so that a building manager can go to a company and basically do one-stop shopping,” Garland said. “Such things as Eversave’s Web pages also help boost the retail tenant’s sales and consequently the rents.”