Industrial parks and office campuses are getting smarter, and commercial buildings with high-speed Internet connectivity are no longer luxuries as companies desperately seek ways to connect to their customers, the outside world and their own employees via the Internet in order to gain crucial competitive advantages.
Most real estate owners believe their buildings must be wired for high-tech services for them to be competitive, reports a survey by Banc of America Securities Real Estate and Technology Weekly.
As a result, wired industrial parks, replete with a full complement of network services such as Internet access, high-speed data, long distance and local telephone services, video conferencing and more are becoming the rule versus the exception.
Industrial properties that house small- to mid-size businesses in suburban landscapes are rushing to build the infrastructures into their buildings that will not only enable tenants to cost efficiently get connected to a variety of network services, but provide the owners with a distinct competitive advantage and valuable marketing tools in attracting and retaining tenants.
The market is huge. For example, in 1999, more than 8,100 office buildings with more than 100,000 square feet and 2.2 billion rental square feet were located in major metropolitan areas, says a study by Torto Wheaton, a real estate consulting firm.
And their thirst for voice, data and Internet services is insatiable. More than $47 billion is spent by small- and medium-sized businesses for voice services, and $14 billion more is spent for data and Internet services. Just seven percent of businesses with less than 100 employees had Internet access in 1999, a number projected to skyrocket to 40 percent by 2003, according to a Cahners In-Stat Group study.
Those numbers, and the small capital investment required to wirelessly network an industrial property, are sparking a movement by fixed wireless providers, equipment manufacturers and industrial real estate owners, particularly Real Estate Investment Trusts (REITs), into the wireless industrial property space.
The REITS are getting the message from a growing number of tenants in their industrial properties: get us access, and get it fast.
Industrial buildings have been neglected because theyre removed from dense populations and have fewer employees in each building, but industrial campuses now have several companies and more employees. Now, there are between 10 and 75 buildings in an average campus, and thats the landscape of the business were trying to serve, says Don Ankeny, president and CEO of PhatPipe Inc., a broadband technology company that serves owners of industrial real estate.
Nearly 200,000 commercial buildings comprise the industrial park market, he adds, and they are easier to manage than larger, single-tenant buildings. Indus-trial real estate performs much better than office buildings and is an easier and less expensive product to build.
PhatPipes owner/partners include five of the top industrial REITs, which represent more than 500 million square feet of office space. Its recent agreement to purchase $5 million in wireless broadband equipment from BreezeCOM, a manufacturer of broadband wireless equipment, emphasizes the companys business strategy of building its industrial park presence through its REIT ownership arrangement.
Our business strategy is to use fixed wireless in underserved markets. Broad-band wireless will grow ten-fold in five years and is a huge untapped market. The demand for broadband is so prevalent in business and residential sectors that high-speed Internet access is a natural, says Mike Harman, senior vice president of operations for PhatPipe.
And why not? A capital outlay of just $8,000 to $12,000 per building to light it up with Internet access and data makes PhatPipes business model very palatable, maintains Ankeny. The beauty of the model is that we dont choose single buildingswe aggregate buildings in a complex and share capacity in the infrastructure. We can spread the capacity of a T-1 across several companies and tailor technical solutions for each customer and build customized DSL services, Ankeny says. PhatPipe, he adds, operates in the 2.4 GHz range.
For BreezeCOM, its equipment deal with PhatPipe and the move into industrial properties by similar companies is an indication that the wireless networking segment for business is heating up.
Its a growing portion of our portfolio (industrial REITs), and the MDU is a captive market. One REIT lands you thousands of subscribers, and 70 percent of PhatPipes customers are business and business parks, which typically are clustered buildings. With those clusters, it makes sense to bring the demarcation points together using wireless technology, says Aaron Bennett, vice president of North American sales for BreezeCOM.
Small- to medium-sized businesses in industrial parks and campuses are expected to lead the way for wireless providers. Dun & Bradstreet reports there are 1.3 million such businesses in the U.S., and the demand for communications services will propel the U.S., market for multi-tenant broadband equipment to $2 billion in 2004, the Cahners study says.
Yet its the potential for impressive revenues from wireless services at industrial park properties thats driving much of the enthusiasm by wireless providers, manufacturers and REITs. Well get two to three times the take rate as other services because of the symbiotic relationship we have with the development owners and we can co-brand the services. We win because we have partners to introduce us into the properties, and they win with reasonably priced services, Harman says.
Even more uplifting for PhatPipe is the relationship with its REITs partners. Adds Harman: They have financial investments in PhatPipe and are equity owners, and the added value is theyve pledged their portfolios to us and were constantly working on new technology in their developments.
PhatPipes REITs ownership group includes AMB Property Corp.; Center-Point Properties Trust; East-Group Properties; First Industrial Realty Trust; and Glenborough Realty Trust Inc.
Relationships with real estate developers, REITs and others, including residential developers, are becoming crucial for service providers, and at the end of the day, could make or break a deal. Weve had to build relationships with developers to stay competitive, and in some cases, even provided underground construction at no extra cost as a competitive advantage. Today, the commercial business plan is better for us with developers, but we use the same principle we use with residential developers, says Bill McGinnis, president and CEO of CoServ, a Corinth, Texas-based multiple utilities service provider.
PhatPipe has targeted the Bay Area, Dallas, Denver and Chicago as its primary markets and will present proposals to its owners for wireless service in various industrial properties in those markets. We map markets and create proposals for clusters of buildings, number of tenants and the infrastructure costs and then convert them into financial proposals with an ROI (return on investment) of five years, Harman says.
Revenue splits for owners can reach 65 percent, he adds. They receive up to 65 percent of the revenue for service we provide to tenants. Industrial real estate requires only modest communications connections. With just a three-inch conduit connecting buildings, we can keep the cost down. Thats very valuable.
Keeping it simple is the key for manufacturers as well. Says Bennett: A pure wireless model with a microcell at an industrial campus is simple because theres no access needed, only small cell towers around the campus. It minimizes truck rolls and reduces the need for contractors and technicians. Its a high growth area for us.
BreezeCOM provides equipment for towers around a city or industrial property and works with ISPs to provide wireless concentration points to network microcells together at larger towers, some 150 feet high.
In the case of wireless networks at industrial parks, property owners and REITs are lining up for service. Concludes Bennett: REITs want this business in the buildings to maximize profits from their properties and capture added business from each suite in their buildings.
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