For months now, industry observers have been saying it's just a matter of time before the thicket of dot-coms that has ushered in the New Economy begins to thin.
With decisions recently by several prominent commercial real estate dot-coms to close their doors and others that have decided merge with more traditional companies, it appears that time has come.
"It's very early in a very volatile market," said J. David Heindel, a San Francisco-based consultant to commercial real estate dot-coms.
Commercial Realty Online, or Comro.com, decided to shut its operations at the end of 2000, citing a plethora of similar information services in the industry. The company was started in 1995 and was bought in 1998 by Security Capital, of Santa Fe, N.M. Company founder Kevin Travers said the industry was slow to adopt Comro's services and the company had difficulty expanding its customer base.
Another real estate listing service, Realty IQ, laid off more than 100 workers at the end of 2000, most of whom worked at its New York headquarters at 59 Maiden Lane. Chief executive officer Bruce Zev Weissberg said the company was having difficulty obtaining a second round of financing and the layoffs were necessary to keep the company viable and strong for as long as possible.
Top executives at RealEstate.com resigned recently after the company was sold to JP Carey, an Atlanta-based investment-banking firm. Founder and former chief executive officer Alan Daniels cited internal difficulties with the company's management team.
The reasons for dot-coins' failures are many, but some common themes are the volatility of the stock market and the reluctance of investors to provide second or third rounds of financing. A simpler reason, however, is the duplication of efforts among companies.
Heindel said a good example is the number of dot-com companies dedicated to the development and building sector of the real estate industries. Not long ago, there were about a dozen companies in the sector, a list that has been whittled substantially. San Francisco-based Red Ladder went out of business and Cephron and Bidcom merged.
Some dot-coms are teaming up with more traditional players to stay alive. For example, Cushman & Wakefield recently announced that Zeborg, it online procurement partner has formed a strategic alliance with FacilityPro.com to form an "end-to-end procurement" service. Zeborg Facilities and FacilityPro will provide customers with the first e-commerce platform designed to deliver product and service savings to companies.
CapitalThinking Inc. recently formed an alliance with Reis, Inc., an information provider to the commercial real estate market. Under the agreement, CapitalThinking's ASP offering, Bluewire, will automatically access the comprehensive Reis databases via an XML feed and deliver customized market, submarket, and comparable data required for real estate finance decision-making.
Although it seems there are a large number of companies going out of business or merging, many industry observers point out that dot-coms failures do not necessarily mean disaster for the New York office leasing market. In fact, the space put back on the market has been a boon to some Manhattan neighborhoods that have been experiencing space crunches.
Eric Yarbro, first vice president of CB Richard Ellis, said it may be fashionable to knock the dot-com phenomenon, but electronic commerce is here to stay. Many companies will survive the fallout and New York's office leasing market will, too.
In 1999, dot-coms rented 9.5 million square feet of space and, in 2000 they rented 5.5 million square feet. Even if 50 percent of dot-coms fail and millions of square feet are put back on the market, it will not be enough to meet the estimated 14 million square feet of space that the market will demand, Yarbro said.
"The Internet is here to stay. Not all these companies will go out of business," said Yarbro.
He also pointed out that dot-coms tend to spend a lot of money to enhance the telecommunications infrastructure of their office spaces, which makes the space attractive to another company, he said.
"Dot-coms spend a lot of money on telecommunications, but not on walls. They tend to have wide open spaces with cubicles," Yarbro said, "It's the type of space people are looking for."
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