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Focusing on Small-Space Users

Crain's New York Business

By Shira J. Boss

October 16, 2000

The Internet aids many brokers in targeting a neglected market:

Two years ago, executives at real estate brokerage William B. May International sat down and decided that the time had come to swim against the tide.

Few companies, including their own, were paying much attention to small spaces.

"The larger brokers find that companies needing 8,000 to 10,000 square feet are not cost-effective for them to handle at times," he says.

Getting attention

After years in which it was difficult if not impossible for the small-fry users of space to get the attention of real estate brokers, the tide has begun to turn. Increasingly, small-space users need not resort to word of mouth, notes posted at the corner deli or the help of a novice broker.

These days more and more brokers are challenging the old assumptions and are targeting users of small amounts of space. Increasingly, they are doing so via the Internet, which allows them to reach out to large numbers of small tenants incredibly cheaply and thus to make up in volume what what they sacrifice in big commissions.

Several on-line services , such as Cityfeet.com and Offices2share.com, have sprung up in the last year advertising shared spaces, sublets and short-term offices for small companies. Some even advertise space in specially built prewired office suites that come complete with shared common areas and even support staff.

Helping to feed the market has been a greater availability of space via sublets. With rents as high as $100 per square foot in midtown buildings, tenants are looking for ways to trim their expenses. They are carving out spaces they can go without and subleasing them to small operations happy to find any room to call home.

By far, the biggest changes, though have come about as a result of the Internet and the on-line services that it has spawned.

A couple of years ago, for example, Jeffery Landers took his traditional commercial real estate business, Landers Commercial Real Estate Inc., on-line with a searchable database of Manhattan. Quickly, he noticed that many of the site's visitors were looking for six- to nine-month leases for under 1,000 square feet.

Second thoughts

At first, he rejected those deals as unprofitable. Then, as the requests continued to accumulate Mr. Landers had second thoughts. "After a few months, I said 'Wait a second, something is going on here.'" In response he relaunched his Web site as Offices2share.com, and geared it toward subleased spaces as small as 80 square feet.

"These are the types of spaces below everyone's radar," Mr. Landers says. "Brokers don't want to deal with them, and many landlords don't want to deal with them.

In fact, some of them are shared spaces, posted by companies looking to lease extra space to a complimentary business: A law firm rents to an accountant, or an Internet company rents to a Web designer. "I've seen out-and-out barter," Mr. Landers says, referring to free rent in exchange for services.

At present, searching the site is free. Mr. Landers plans to begin charging $60 per month for listings soon. By doing that, he will be moving closer to the pay-per-use model pioneered by Manhattan-based Cityfeet.com, which links landlords and tenants looking for spaces under 10,000 square feet. On both services, the landlord's contact information is listed on-line, so the site's work is done once the listing is posted.

The listings themselves were originally free. Cityfeet.com, though has just started charging a $60 fee to list space, and Mr. Landers plans to levy an identical charge beginning in January. Cityfeet.com also makes money from referrals to brokers, movers, furniture providers and other services.

"It's hard to get a broker excited about leasing an 800-square-foot office and conference room, but you put it on our site and people call you," says Guy Shannon, Cityfeet.com's founder and chief executive. "We want to be the eBay of local real estate."

Since it began 17 months ago, Cityfeet.com has expanded to 22 employees. In February, Mr. Shannon plans to roll out his service in other cities. He expects to post his first profits within a year.

A third company, TenantWise.com Inc., is more of a hybrid. It's combining on-line listings with traditional brokerage services. Companies shop for spaces on the site, then TenantWise.com sets up appointments and takes a commission that is subject to some negotiation.

The basic model is to charge the landlord 80% of what a usual commission would be. Of that amount TenantWise.com takes half, and the other half is returned to tenant in the form of free rent or some other break.

"We had been doing high-touch, low-volume work, and now we're doing low-touch, high-volume work," says M. Myers Mermel, CEO and founder of TenantWise.com, who previously handled real estate investments for the Corsair Group, a Manhattan-based commercial real estate firm.

Even some big-name brokers are easing into the small-space market. Julien J. Studley Inc., for example, hopes to tap the under-5,000-square-foot market with a pass-word-protected site that its clients can use to search for spaces themselves. Shifting most of the initial legwork to the tenants frees the brokers' time for closing deals.

Copyright 2000 Crain's New York Business, Inc. All rights reserved.
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