When Chumbo moved into the historic Fisher Paper Box Building in the warehouse district of downtown Minneapolis, the building looked much the same as it did when Fisher Paper opened for business there in 1905 — except that the old horse stable is now the employee lounge.

Fast-growing Chumbo, a Minneapolis-based online software retailer that has grown from 17 employees to nearly 100 in less than two years, needed more space, says Tim Burton, its president. But rather than go for the towers of glass and steel, firms like Chumbo prefer the funky old charm of the old ones, as long as they are thoroughly updated. Besides the funky charm, they also like ample parking, the nearby entertainment district and cheap rent. On average, rent is probably a third less than space in the core district, from $15 to $20 per sf in the warehouse district; rents would range from $20 to $30 or more in the downtown business district, according to brokers.

All over the warehouse district, Internet companies such as Bitstream Underground, Chumbo, the Geek Squad, Embedded Logic are moving into space once occupied by manufacturers and warehouses, such as S&S Warehouse, Fisher Paper Box Co. and Creamette Noodle.

But Internet companies like Chumbo represent a challenge for landlords and developers. While these up-and-coming companies like the old-style charm of renovated warehouse buildings, landlords are a bit uncertain about just what kind of risk their new tenants pose, and how to minimize those risks.

After all, few of these Internet companies have established credit ratings and little or no financial history. As a result, owners are asking for cash up front– sometimes as much as a year’s rent — and negotiating the terms of breaking the lease,” says Jeff Hart, a real estate broker with the Minneapolis-based Colliers Towle.

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