The market is so weak that brokers say there isn't even enough activity to get a firm handle on prices. And for the few firms looking for space, landlords are suddenly rolling out the red carpet. For the local chapter of the environmental organization Greenpeace, the turnaround is a blessing: A year ago, its landlord in a marginal office building threatened the group with a threefold increase in rent - from about $20 to $60 per square foot - that would have forced it out of the city. This year it's been offered several dozen spaces in the low $20s, many nicer than its existing offices, with sleek furniture left behind by dot-coms thrown in for free. "Greenpeace has now become a very desirable tenant," marvels Bill Richardson, Greenpeace's national administration coordinator. It's no secret why: "We've been around for 30 years," he says.
As tenants negotiate with landlords to be let out of leases, sublease space at a loss or simply stop paying rent and wait to be sued, no one really knows how low the market will go. Most experts think the downturn won't be as tough on landlords as the recession of the early 1990s was, mainly because this year's bust was not preceded by the kind of speculative construction that took place in the late 1980s. And this bubble simply didn't last long enough to affect a significant proportion of the total office market. "There wasn't enough time for the debt to build up," says Mark Ritchie of Ritchie Commercial, one of the largest independent real estate firms in the Bay Area.
Still, many landlords, and especially the small landlords who developed modest properties hoping to cash in on the dot-com boom, are sure to regret their investments. Just ask Herve Vatinel, who in May 1999 bought a 50,000-square-foot building from a local school district for $8 million. The building at 330 Grant Street near the financial district was fully financed, Vatinel says, but as a condition for the loan, the bank insisted he have a tenant. Vatinel got his tenant in Groundswell, a technology consulting firm that agreed to pay $75 per square foot. Shortly after the sale went through, Groundswell pulled out. "Now we are at a standstill in this project," Vatinel says. "It is vacant and the space isn't finished."
In retrospect, the bloody collision between the real estate world and the Internet economy seemed inevitable. One is an industry of long lead times and careful planning. The other was moving too fast. And planning? That was so old economy. And so the two fed on each other to create an explosive mix. "I think it was one of the great speculative bubbles of modern commercial history," Ritchie says. As with so many other excesses from the dot-com bubble, the fallout will be felt for years to come.
