Expansion Teams

When Dave Kahng of iCollege.com began his search for the perfect loftlike aerie, his original target was, naturally, in the heart of Silicon Alley. “A year and a half ago, an architect we knew signed a lease for $18 a square foot. So we thought our upper limit of $28 was reasonable,” says Kahng. “But what we were seeing was so unacceptable we even went down to Wall Street. Which was great” – until his employees balked at the commute and the surrounding suit society. “It would have made them slightly unhappier.”

Just as Silicon Alley has reached critical mass as a legitimate New York district and Internet-company employees have been gloating about their light-filled open offices with trendy addresses within walking distance of Commune or Chelsea Piers, a bumper crop of start-ups are finding they can’t fit their Power Macs inside the Web ghetto and won’t be privy to such fashionable luxuries. “Right now, we’re racing to get any deal done anywhere,” says David Lebenstein, director of sales and leasing at Time Equities, who notes that even after the nasdaq slump, he can’t find enough spaces for Internet clients, however uncool the location may be. “We’ll take whatever we can close.”

The commercial crunch means that the Alley is turning into more of a six-lane highway, roaring north and west into the garment and flower districts. “Owners realize their properties are more valuable for other purposes than running a wholesale flower business,” sighs Pete Sutton, who formed the Flower Market Association of New York City to try to preserve the character of the district. Landlords in the garment district are also getting wise: “The average rent in midtown is $55 a foot, $35 to $40 in the Park Avenue South area,” says Brett Zelner, senior managing director of the Lansco Corporation. Landlords are not renewing the leases of longtime tenants paying $12 to $18 a foot, in the hopes of enticing dot-coms with their industrial spaces. “These ex-factories had run-down floors, run-down bathrooms, no A/C,” marvels Kahng. “They were asking for a year’s security. You can’t take it the way it is – but people did.

Other landlords, like Max Capital Management, are shelling out as much as $30 million a building to remodel former sweatshops. About.com signed on for 170,000 square feet in its recently revamped 1440 Broadway for $50 a foot. DoubleClick leased 400,000 square feet at 450 West 33rd Street. At 248 West 35th, Heung Fook Fashion, the company that manufactured clothing for Kathie Lee Gifford (and leased for $7.25 a foot), moved out and Resume.com, Netcentives.com, and the New York Institute of Technology moved in for an average of $30 a foot. “The garment district is just another office market at this point,” says Adam Hochfelder, Max Capital’s president.

“It’s important to get the right space,” says Corcoran.com CFO Tan Chen. “The garment district is ethnic restaurants; Silicon Alley is hip and relaxed.” The company finally found neutral ground at 41st and Madison. Restaurants, in fact, often make or break a deal: When Word.com finally settled on a former photography studio at 27th and Broadway, managing editor Michelle Golden reports, one colleague got pouty about there being nowhere to eat. “It’s a weird kind of nether space,” admits Golden. “We even started fantasizing about Harlem,” says editor Marisa Bowe. But it’s a good thing they didn’t. “There were some spaces in Harlem,” reports Time Equities’ David Lebenstein. “But now they’re gone.”

Expansion Teams