Busy signal: one ripple from the great dot.com bust of 2001 was an end to the boom in "telecom hotels"—buildings wired for the industry. Now the trend is starting to come back - Telecom

South Florida CEO, July, 2003 by J.P. Faber

Back in 1996, before there was a Network Access Point (NAP) of the Americas, and before the go-go Internet boom had started to peak, David Garfinkle saw the writing on the wall. As president of Investment Equity Associates (IEA), he decided to purchase and transform the New World Tower on Biscayne Boulevard in downtown Miami.

"It was right after the Telecom Act [of 1996], and we thought there was going to be a lot of activity in the industry," says Garfinkle. "We took a standard office building, and put in the necessary infrastructure to use it as a telecom hub."

IEA created a model quickly followed by other developers: take a building and retrofit it with fiber optic cable, additional power capacities, structural reinforcements, massive air conditioners and backup generators to keep all the equipment running in the event of disaster. In the case of the New World Tower, there were 10,000 gallons of generator fuel stored on premises, enough to last a couple of weeks during a power outage.

At the peak of the telecom/IT boom, the building was 100 percent leased. As of a year ago, that figure had fallen well below 80 percent. Now it's coming back. In the last year, says Garfinkle, firms including Dominion Telecom, Next Communications, IDS Telecom, Western Wireless International and R&D Networks have become new tenants, cutting the vacancy rate in half. Within six months, he expects to not only fill his New World Tower, but an additional telecom-friendly building two blocks away that is connected via fiber optic cable. "If all the deals that we have in the hopper right now came through, I couldn't accommodate all of them," he says.

A similar increase in activity is being reported at other telecom facilities, in particular the NAP of the Americas--the mother of all South Florida telecom hubs--located a few blocks to the north in downtown Miami. In April, the NAP announced 18 new clients; since then it has signed on another 12, says Sandra Gonzalez-Levy, senior vice president at Terremark Worldwide, the company which owns and operates the telecom/IT hub. All told, the NAP now has more than 100 clients, including AT&T, Sprint, Quest, Telecom Italia, Intel and VeriSign.

The reasons why IEA, Terremark and others ate experiencing new demand from telecom and Internet companies are multiple. First, while the industry took a major hit in 2001, it didn't disappear; the worst damage came from over-capacity for a projected demand that never materialized. Companies like Global Crossing went bankrupt because there wasn't enough data to fill their broadband "pipes." In South Florida, buildings such as Swerdlow Group's speculative Lightspeed at Beacon Tradeport couldn't find enough telecom and IT tenants. That complex, now called Dolphin Commerce Center, has since landed a more traditional mix.

"I don't think there's a complete recovery yet, but I'm very optimistic," says Tony Santos of Miami law firm Concepcion, Rojas and Santos, who specializes in the telecom industry. "There has been a significant shakeout in the last two years, and those who remain standing have captured what is a slight increase in the market for co-location facilities." As Gonzalez-Levy points out, the economy is also doing better, "and there is a growing need for these services, which are being outsourced."

Garfinkle says bis buildings ate doing better, in part, because they offer a mix of office suites and "cabinet space" for gear, so that companies can place administrative offices and technology in one place. "The buildings that are the most successful are the ones that use the multi-purpose model," he says.

More than anything, both Santos and Garfinkle see a steady growth in real demand, without all the hype. "When [the IT boom] first started, money was flung into these companies from Wall Street, and they all wanted to deploy. Everyone wanted 3,000 square feet, then everyone wanted 300,000 feet," says Garfinkle. "Then they wanted 300 feet, just to be in a co-location [space] with others. Now we're getting back to companies that need 3,000 square feet ... People are coming in with rational growth plans, good ideas and backing. After all, the traffic over the internet is still increasing."