When an emerging high-tech company is ready to leave the garage for real offices, its goals generally dwarf its budget. And start-ups, prone to explosive growth or bankruptcy, don't always know how much space they'll need tomorrow, if any.
This is unnerving for both landlords - more comfortable with big security deposits and five-year commitments - and techies needing to sign a lease.
And while city leaders say the commercial real estate community has done a good job making space available and courting highly desirable tech companies, landlords won't cut deals in strong economic times.
So when one company took a risk two months ago by offering rent discounts and leases that can terminate with 24 hours' notice, the result was a lot of interest and 10 new leases with tech companies. Houston-based Boxer Property Management Corp., a relative newcomer to town gunning to fill its 10 half-empty buildings downtown, said the program has helped boost occupancy from an average of about 45 percent to more than 90 percent in most of its buildings.
"Oftentimes tech companies are afraid to commit to space because they'll either be held back from hiring all the people they need or they'll be stuck with expensive rent on space they don't need," said Ann Lansinger, director of technology development for Baltimore Development Corp., the city's economic development arm.
Lansinger, who runs the city's business incubator program, said that when companies are ready to leave the nest there, local brokers help them to determine their space needs before entering into a traditional lease agreement. She said local landlords are helping to create a cluster of tech companies, which in turn should lure more to Baltimore. But, she said, "I don't know of anyone else doing what Boxer does with flexible terms. Developers are generally looking for guaranteed rent. That makes good business sense."
Boxer's tenants said the terms do ease the start-up stress.
"What would we have done without our lease deal? Good question," said Bill Bawcombe, vice president and chief operating officer of Mobile Coyote, who signed on about two years ago and helped inspire the 2-month-old formal program.
Mobile Coyote, which sells kits to make computers wireless, grew to fill the entire 4,000-square-foot top floor in Brown's Arcade on North Charles Street, although it initially paid for only 200 square feet.
Boxer bought the building in 1998 for $425,000, and as with most of its properties, invested just enough to make it appealing and ready for tenants. That means new carpet and fresh paint, although other treatments, such as wood floors, can be arranged for a price.
Amenities vary, but Boxer looks for old, even historic buildings, although not top-of-the-line. Michael Bradley, Boxer's regional leasing director, said such buildings have qualities that tech companies look for, such as big windows and location in the city. And they have cheap rent. The price is about $13 a foot, or $1 below market, and is discounted 50 percent to 75 percent for the first year.
"We wanted to fill the buildings," Bradley said. "We can't afford to do this forever. October will probably be our last month."
Bradley said that while the company buys into the city's push for a "Digital Harbor" and wants to help lure tech companies to the city, the deals are good for the company. He estimates that 80 percent will stay and grow in their buildings. There is some competition for tenants, with a 10 percent overall office vacancy rate in the central business district in the first half of the year, and a 12.7 percent rate for second-tier, or Class B, space.
More space targeting tech companies is coming. For example, Struever Bros., Eccles and Rouse is developing Tide Point in Locust Point, and two local developers are overhauling the old Montgomery Ward warehouse in the western part of the city.
Officials at LogiLearn Inc., which uses the Internet to train workers in specialized industries to be more efficient, just leased space at 10 N. Calvert St. They said they looked at 30 other properties around the state and rent money wasn't a huge concern. They liked the right to give 24 hours' notice in breaking the lease. As a newcomer to the United States, the Danish company saw the arrangement as Boxer's commitment to give consistently good service. Boxer also agreed to tear out their ceiling and help them to develop "funky" office space.
Bradley said everyone will benefit from the tech companies. LogiLearn, just getting started in 8,000 square feet, is already looking to hire 30 workers.