Development Magazine Summer 2016

Development - Ownership

Reliable Bandwidth for Office Buildings

The Exchange Building in Seattle now features upgraded connectivity that has attracted new technology and creative tenants. Beacon Capital Partners

Building owners who provide cutting-edge Internet infrastructure are positioning themselves for long-term success.

IMAGINE A DAY at the office without the Internet. Everyday functions such as email are suddenly unavailable, limiting employees’ ability to complete even the simplest tasks. Unfortunately, spotty connectivity and mediocre technology infrastructure are problems that plague the productivity of businesses around the world.

From tech startups to financial firms to medical practices, companies depend on strong connectivity, and that dependence will only continue to grow. Commercial buildings that keep up with the fast-paced changes in technology will be at a distinct competitive advantage for attracting and retaining tenants.

When brokers understand a building’s telecom infrastructure, they can better help their clients find exactly what they are looking for. Likewise, when owners understand their buildings’ telecom infrastructure, they’ll know what services they can and cannot provide for their tenants.

The multitude of high-speed Internet service options available to tenants, resilience of infrastructure that prevents service outages and readiness to support new tenants and Internet service providers (ISPs) all dictate how well-connected a building is. The future depends on connectivity, and buildings, brokers and landlords that don’t prioritize these tech-forward capabilities will be left behind.

Despite the overwhelming demand for robust Internet connectivity, information about a building’s tech infrastructure has historically been hard to come by. When asked by a client if a potential office space has high bandwidth capabilities, brokers often don’t know the answer and need to defer to landlords, many of whom do not fully comprehend the tech offerings of their buildings. Historically, there has been a major disconnect between the three main parties in a commercial real estate lease transaction when it comes to connectivity. WiredScore’s Wired Certification, an international standard that identifies best-in-class Internet connectivity in office buildings, helps close that information gap by offering information about ISP carriers, cable type, points of entry into the building, shared or dedicated facilities, equipment that is protected from flooding and more. Brokers and prospective tenants can use this information to identify the best-connected properties.

What Landlords Need to Know

To stay ahead of the curve, building owners need to evaluate the types of IT infrastructure that they provide to tenants. The two truly enterprise-grade transmitters for Internet technologies are fiber optic and fixed wireless. Both offer high speeds and dedicated bandwidth, as well as service-level agreements (SLAs) that guarantee their reliability. Fiber offers the highest speeds for Internet technology transmission and, when possible, should be every landlord’s first choice. If fiber is unavailable, fixed wireless is a strong alternative. Unlike fiber, which uses fiber optic cables to provide access to high-speed Internet service, fixed wireless uses microwaves beamed from one rooftop antenna to another, eliminating the need for physical cabling from the street.

Offering at least two dedicated SLA-based Internet providers is critical to attract large, sophisticated tenants, as well as smaller ones that are dependent on the Internet for their day-to-day business operations. While these tenants may not necessarily require high bandwidth capacity, they need the reliability of fiber and/or fixed wireless. Many startups and tech companies won’t even consider leasing an office that does not have at least one SLA-based Internet service available. The most sophisticated and tech-savvy tenants will only lease space in a building with multiple dedicated SLA-based Internet providers servicing the building via separate points of entry.

Separate points of entry means that cables come into the building from the street in at least two separate locations, typically on opposite ends of the building. This is important to tenants because buildings with a single point of entry also have a single point of failure for all Internet service. Separate points of entry ensure that if cables in one location are severed as a result of construction, manhole fires, weather or other unforeseen circumstances, the building still has service coming in through another location. This redundancy enables businesses to operate seamlessly on physically diverse back-up Internet connections.

Buildings without a second point of entry can use fixed wireless as a redundant service option. As an over-the-air Internet transmitter, fixed wireless completely eliminates the possibility of a street-level disturbance. Access to several backup options is quickly becoming one of the most important aspects of connectivity for businesses.

How can a landlord improve a building’s connectivity without making a major investment? Carriers will often pay for a building’s infrastructure upgrades, provided they find it profitable to do so. A carrier typically will evaluate a building’s potential return on investment to determine whether it is worth upgrading the infrastructure.

A building with a single point of entry and only one service provider, for example, offers no alternate service options for tenants and has a single point of failure for Internet service in the building. The building owner could allow a second carrier to approach tenants who are looking to change service providers. If the carrier can convince at least one tenant to agree to switch providers, the carrier will generally cover the associated costs of servicing the building. During the installation process, that carrier can also create a second point of entry, a feature that will be advantageous to tenants. In order for improvements to take place, owners need to ensure that the building has the capability to support new providers. Building management should never sign an “exclusivity agreement” with a provider that will prevent additional carriers from entering the building. (These are more typically found in residential buildings.)

exterior view of office building

When completed in 2017, 150 North Riverside in Chicago will offer tenants their own dedicated fiber optic communication systems as well as Wi-Fi throughout the property, including a two-acre park along the river.
Riverside Investment & Development

Building owners often need to invest some of their own capital to ensure that their building gets access to fiber and thus is able to attract fiber-dependent tenants. Recognizing the long-term value of offering redundant fiber services, Caspi Development invested in retrofitting the technology infrastructure of 161 Bowery, a seven-story mixed-use building in New York City. The owner introduced fiber into the building using microtrenching, a state-of-the-art, cost-effective technique to bring high-speed Internet service into hard-to-reach buildings that aren’t located in well-connected areas. Caspi does not own the fiber and paid a one-time installation fee of approximately $100 to $150 per linear foot; most New York City installations cost around $25,000 to $35,000. The building, which earned Silver Wired Certification, is now the Bowery neighborhood’s first office space for tech tenants.

For new developments as well as existing buildings, determining the property’s proximity to fiber optic service providers can be a daunting task. A good first step is to ask several of the larger telecom companies in the area to assess how far the site is from their networks. The further the building is from a fiber optic route, the more it will cost and the longer it will take to provide service. Since it takes most providers 60 to 90 days to get their fiber to a building, timing is extremely important.

Many developers elect to pay for an initial month-to-month or one-year contract with one or more service providers to ensure that fiber will be ready for a new building’s first tenants. The alternative is to wait for tenants to sign leases, then immediately put them in touch with carriers. This is always a risky move, since unforeseen construction issues can delay the installation of fiber by weeks or even months. Fixed wireless has been a savior for many buildings and tenants waiting for fiber, since it only takes five days to install.

Three Examples

Incorporating high-quality tech capabilities into buildings during the development phase can be a great way to distinguish a property and boost leasing activity even before the project is completed. This is evidenced by 150 North Riverside, one of Chicago’s most technologically innovative commercial real estate developments and the first Wired Certified Platinum Development in Chicago. The development team at Riverside Investment & Development set out to create an office building that anticipated tenant demand for best-in-class power and telecommunications redundancy and bandwidth. To achieve this, 150 North Riverside incorporated points of entry on both the north and south sides of the building, provided ample space for growth in the building’s riser closets — rooms on each floor through which the cables run — and constructed a dedicated telecom room on the sixth floor with protective cabinets and cages for equipment.

Although construction won’t be completed until 2017, the building has already inked deals with some high-profile tenants, at rental rates in the mid-$30s to mid-$40s per square foot per year, gross. The Hyatt hotel chain has signed on to move its global corporate headquarters into 250,000 square feet, while financial services firm William Blair will occupy 332,000 square feet. With the majority of the building’s 1.2 million square feet of rentable space already preleased to major corporate tenants, 150 North Riverside is well on track to meet, and possibly exceed, its target of 97 percent occupancy long before completion. With its state-of-the-art tech infrastructure, the building is well-positioned to satisfy these tenants’ tech needs from the moment they arrive into the foreseeable future.

East End Capital took a different approach to offering modern technology to its tenants. When the company purchased 321 West 44th Street, a 100-year-old building in midtown Manhattan, its occupancy rate was only 72 percent and it was in desperate need of rehabilitation. With the vision of attracting technology, advertising, media and information (TAMI) tenants, East End upgraded the building to provide tenants with a host of technology features, including fiber cables run to every floor and diverse points of entry from the street, as well as fixed wireless access from the roof. Because East End owns the building’s fiber, it can better control the services it offers and the associated costs, providing a distinct advantage to tenants.

The comprehensive modernization of the building and the addition of high-quality tech infrastructure, coupled with a rebrand as “The Plant” — named after The Record Plant, the famous recording studio that was once housed there — has had a tangible impact on the property. All but one of The Plant’s office spaces have been leased to TAMI tenants. Website and Internet content provider About.com leased a suite there because its executives recognized that the improved connectivity and redundancy would be an asset to their business. The building’s occupancy rate jumped from 72 percent to a stunning 98 percent, while rents leaped from $34 to more than $50 per square foot, gross.

table with facts

The Exchange Building, an iconic Art Deco property in the heart of Seattle, also underwent significant modernization efforts that have had a major impact on the building’s appeal. Owner Beacon Capital Partners wanted to invest in the future of the landmark property by upgrading its connectivity in order to attract tech and creative firms, compete with modern high-rise buildings and add value for existing tenants. In order to do this, the owner centralized the riser closet and brought in a new fiber provider to complement the providers already in the building.

Since the renovations, the Exchange Building has attracted a wide variety of new tenants. Those tenants are taking advantage of the substantial improvements in tech offerings, which have resulted in more reliable connectivity. Beacon has found that nearly every prospective tenant who tours the property asks about connectivity, capacity and number of providers, highlighting the importance of these factors to those searching for office space. Nuance Communications, Time Inc., Deloitte Digital and Zonar Systems have all signed leases at the Exchange Building, while existing tenant Slalom Consulting expanded its presence. It is clear that the technology revamp has contributed to a tangible increase in the Exchange Building’s attractiveness to tenants and will allow the property to remain competitive while maintaining its historic charm.

The Bottom Line

Commercial properties with advanced telecommunications infrastructure clearly are desirable to potential tenants and stand out in a market crowded with lackluster Internet access and reliability. Tenants are increasingly prioritizing connectivity as a key factor when selecting new office space, and buildings that are able to offer high-quality tech capabilities will have a significant advantage over the competition.

Commenting on the importance of investing in tech infrastructure, Andrew Kimball, CEO of Industry City — a mixed-use complex in Brooklyn that is being repositioned to attract creative and innovation economy tenants and a Wired Certified Platinum property — says, “Superior connectivity used to be a nice amenity, but now it’s an essential element, especially for the tech firms and tech-minded ‘makers’ driving the City’s economy. What differentiates a good location from the best location is the Internet speed, and we have it.”

In addition to attracting tenants, improving a property’s connectivity offers other important benefits. Buildings with top-notch Internet capabilities can be more appealing to potential investors. Reliable and plentiful bandwidth assures investors that the property has an advantage over the competition and will remain viable and desirable, which may lead to a more secure return on investment.

David Krasnoff, senior vice president, capital markets, at Avison Young, has noticed the impact that Wired Certification has on a building’s attractiveness to both tenants and investors, commenting, “In today’s market, it is more important than ever to leverage every competitive advantage possible. Having worked on several financings for ‘tech buildings,’ I can tell you that being Wired Certified is a big selling point for the targeted tenants. This translates into higher rental rates, better occupancy and, ultimately, higher cash flows and valuations, which in turn drive better financing terms.”

With data consumption and creation skyrocketing, connectivity has never been more important to all businesses looking to keep up in today’s digital society, not just tech companies. Tenant demands are evolving rapidly to meet the needs of a fast-paced global economy. Today’s tenants recognize the importance of bandwidth when choosing an office. In fact, connectivity is fast becoming a top priority for businesses seeking new office space. However, when it comes to connectivity, not all buildings are created equal. Building owners need to invest in the future of their properties in order to ensure their viability. As the economy increasingly depends on connectivity to thrive, building owners who remain ahead of the curve by providing cutting-edge tech capabilities are positioning themselves for long-term success.

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