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High-Tech, High-Rise Meet in Downtown L.A.

Real estate: Property owners are adapting their buildings to lure Net-savvy firms with acres of empty space and low rents.

September 12, 2000|JESUS SANCHEZ | TIMES STAFF WRITER

It doesn't get any more button-down than inside 333 South Grand Ave., a sleek downtown Los Angeles skyscraper populated with bankers, lawyers and consultants.

But in the new fourth-floor offices of Hiwire Inc., an Internet services firm, there's not a pinstripe in sight. Instead, the scene is dominated by techno-savvy twentysomethings huddling with fellow employees at space-age work stations, taking a break to shoot pool or zipping around the colorful interior on the company fleet of Razor scooters.

"It was really appealing to us," Hiwire President Jim Pavilack said of his firm's new offices.

Hiwire is representative of the high-tech, Internet and new-media companies that downtown boosters have set their sights on. The goal is to soak up the acres of empty office space in the central city and inject new life into downtown's business community.

A small, but growing group of downtown property owners such as Maguire Partners, Hiwire's landlord, are adapting their buildings and policies to cater to "new-economy" companies, which so far represent only a tiny portion of downtown tenants.

Representatives from downtown business groups are talking up the area at high-tech and venture capital meetings. Their slogan for the central city: "Plug & Play Downtown."

It's still not clear how many new-economy firms will make the move or whether they will make much of a dent in downtown's huge chunk of empty space. But new-economy companies remain the most promising prospects to fill gaps left by the shrinking Fortune 500 corporations, banks and other professional firms that have dominated downtown's tenant roster, said Carol Schatz, president of the Central City Assn.

"We have to create a new economy here in downtown Los Angeles," Schatz said.

The downtown area is already home to a few dozen Internet and high-tech start-ups housed in Bunker Hill skyscrapers and historic buildings along Spring Street. The 100,000 square feet of downtown space occupied by high-tech tenants is expected to nearly triple within the next year, according to real estate brokers.

A downtown high-rise is home to Zone Ventures, a venture capital fund focused on financing start-ups that are required to operate in and around downtown Los Angeles. EStyle Inc., a Zone Venture start-up and an online retailer of children's merchandise, is looking for 75,000 square feet of space downtown, according to brokers. That's more than three times the space it occupies in a Figueroa Street high-rise.

Real estate brokers who work with high-tech tenants say some of their clients are more willing to consider downtown since rents in the Westside--the preferred address of new-economy firms--have soared. In addition, many once highflying "dot-com" companies are scrutinizing their costs after their stocks nose-dived earlier this year. Why pay annual Westside rents of at least $40-a-square-foot when space is going for about half that downtown?

"They are at least considering downtown," said real estate broker Robert Chavez, president of the Los Angeles operation of Staubach & Co. However, "I have yet to have a high-tech tenant take the downtown bait."

But a few downtown buildings have succeeded in attracting the new breed of tenants.

Inspired by new-economy companies that have revived San Francisco's South of Market district and New York's Silicon Alley, the owner of the 548 Building on Spring wired the nearly 90-year-old complex to handle high-speed communications.

The high-speed wiring and bargain monthly rental rates--below $1 a square foot--have attracted nearly 40 Internet-related tenants. They occupy spaces as small as a bedroom and as large as an entire floor in the 165,000-square-foot building, which is 90% leased.

"Our target market is young, start-up tenants," said building manager Cherryl Wilson. "They are too big for the family room or garage but can't afford Culver City."

But Wilson and others warned that attracting a hot new-media start-up would require a dramatic cultural change for many downtown landlords used to dealing with blue- chip corporate tenants. Instead of negotiating with established, credit-rated companies that sign decade-long leases, property owners now face the prospect of signing a three-year lease to a months-old start-up that may grow phenomenally or flame out within a year.

"Landlords are having a hard time with it," said Whitley Collins, a broker with CB Richard Ellis Inc. "You have more landlords saying 'no' to short term deals than 'yes.' "

However, Maguire Partners--one of downtown's largest landowners--has taken a lead role in wooing new-economy companies. It gambled about $700,000 on remodeling the long-empty floor that Hiwire moved into last month. In addition, the large real estate company settled for a five-year lease instead of the 10-year agreement it seeks from law firms and other traditional companies.

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