High-Tech 'Haves' Sizing Up Bankruptcy Deals

Dallas-based Partners National Real Estate Group Inc. has been doing tenant rep for high-tech clients since 1992 and more clients than ever are asking if cheaper space for multiple sites can be had from a bankrupt company instead of the more traditional avenues. "The perception of a company that's going under is there's going to be a great opportunity to acquire," P. Kane Dossett, Partners president, tells GlobeSt.com. "The challenge is to get it built out to their specs."

Michael C. Rareshide, Partners executive vice president, says that the space and subsequent build-out simply are not as cheap as some "haves" expect. And, the "have-nots," bolstered by bankruptcy judges, still believe they can recover 95 cents on the dollar for their investment in spaces. Both are unrealistic expectations, the executives concur.

The cherry-picking trend is surfacing just as demand is riding at 20% to 30% of what it had been in first and second quarter 2000. For a tenant rep, that's not such a bad deal since data center owners are dickering instead of putting on airs with their previous "take it or leave it" attitude for their high rents. Some tenant improvement incentives are surfacing just so space can get filled. Credit-worthy tenants have been known to chop as much as 25% off the going rate, according to Partners, which steers clear of owning or managing properties.

The availability of high-tech space in today's market is a direct spin-off of e-commerce's failure to hit the marks that had been projected, says the Partners team. It will come, but just not as quickly as the "if you build it, they will come" mentality that had prevailed about a year ago. Dossett and Rareshide expect it will take possibly another two years, maybe more, before the e-commerce marketplace catches up with the data center space that's come on line, including those that are up for sale.

Austin-based Aperian is a good case in point, having just announced that it's selling all of its data centers. Not only was second round funding unavailable, but the goal of a dozen centers was unattainable. According to Dossett and Rareshide, a 200,000-sf data center requires $40 million to build out.

Aperian is just one of multitude of data center developers facing problems with today's sagging tenant market and high development costs. According to Partners, too many have fallen short in attempts to mimic the success of Chicago's 1.2 million-sf Lakeside Technology Center, which had been fully leased when it was still six months away from delivery, say Dossett and Rareshide. Now, there's an overbuilt market.

Partners says it's near impossible to determine the amount of available data center space nationwide. Just in Dallas, more than 2.5 million sf of the 5.9 million sf of leading data center space is up for grabs. Partners researchers have come up with that number by just looking at the leading 14 centers, three of which have yet to deliver and reportedly are still without any tenants.

The Partners list does not include Dallas-based Archon Group's redo of Prestonwood Mall under the company's Genisus program, an undertaking to build like data centers nationwide. Archon is declining interviews on the program's status, but brokers circles are buzzing that the first tenant has yet to be signed in Dallas.