In the high-tech industry, where small start-ups can turn into billion dollar companies in a short period of time, finding a decent location at a reasonable price and landlords willing to accommodate a start-up's unique needs can be a daunting task.

A typical example is the case of the Clara Vista Corporation, a software company based in Fairfax, Va. In 1995 the company started with a total of three employees in what the President of Clara Vista, Leo Scott, called a "six hundred square foot office barn."

Clara Vista outgrew that space in six months, moved to another location, outgrew that location and so added a second office, and will be moving to a new location next March to house their thirty-four employees.

"It's our plan to keep doubling every year, but it's hard to explain that to landlords," Scott said. "We tend to have a two-year horizon while they have a ten-year horizon."

Dan Gonzalez, a senior associate with the Staubach Company in Northern Virginia who works exclusively with high-tech companies, says that the booming economy actually works against small companies looking for office space.

"Because of the strength of the economy, it's a landlord's market right now, and landlords are looking to lock in high rents for the next ten years," he said. "But a ten-year lease for a start-up company that is looking to grow is insane."

Gonzalez also noted that landlords are sometimes requiring heavy security deposits from start-up companies with little or no credit history, money that those start-ups desperately need to survive.

One of the solutions that Gonzalez has found is for start-up's to pay higher rental income in return for shorter and more flexible leases.

Another solution has been the construction of office buildings that rent exclusively to high-tech companies.

In Dallas, the INFOMART is one such building, with over a million square feet of leasable office space. Initially a technology marketing center with showrooms for large technology firms, INFOMART now leases office space to high-tech companies and is home to over 120 technology companies.

"It's not a problem for us if a small company suddenly needs more space," says INFOMART spokesperson Clint Conatser. "We just move them to a larger space within the building."

Conatser cited the example of OnRamp, a telecommunications company, that in 1994 only needed two hundred square feet, but now occupy twenty thousand square feet of office space within the INFOMART building.

However, these high-tech exclusive buildings are not always desirable to small companies.

"The technology industry is highly competitive, both in terms of the actual technology and the labor force," said Gonzalez. "Being packed in with competitors and companies that might raid your workforce is a real problem with these types of buildings."

Gonzalez also noted that companies have a desire to build their own identity, something difficult to do in a high-tech building.

And that desire sometimes leads companies to take drastic steps to get the space they need.

Ken Meyersieck, a vice president with Colliers International, a brokerage firm in Oakland, says that if start-ups have a weak credit history, that landlords will sometimes trade space for equity in the company.

"Luckily, we haven't had to do anything that drastic," said Scott, of Clara Vista. "Most landlords question our rapid growth and feel uncomfortable with us as potential tenants. We're just happy we've been able to get along so far."

Published: April 8, 1999

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