Broadband has a future in commercial real estate market

Real Estate Weekly, August 22, 2001 by PETER McLAUGHLIN

Broadband is the currency in today's commercial real estate market, just as electricity and telephone service were in the past. Tenants rely on it. Reliable broadband connectivity has become the essential component -- the backbone -- of commercial real estate transactions. Without it, tenants will look elsewhere. No longer is broadband service an amenity; it is a necessity.

One way to deliver the broadband service is through a fiber optic network. Other ways include wireless and digital subscriber lines, or DSL. Even satellites are being used. Backbone providers, known as "carriers' carriers," sell their infrastructure services wholesale to Internet and telecommunications providers, who in turn, sell their services to building owners and tenants.

The most important part of the infrastructure is "the last mile," -- the link between the fiber optic network and the tenant. A carrier's ability to supply this last mile of service is vitally important to building owners, developers, and tenants.

With a dwindling number of carrier companies, competition among the providers is fierce. Carriers must offer not only superior service, but prices that are attractive. Even with the current downturn in the economy, the need for telecommunications services will continue to grow as more tenants require immediate and broad connectivity with clients, customers, suppliers, and employees.

As owners and developers who make choices abut these services, here are some facts to consider

The Building Owners and Managers Association and the Urban Land Institute said in a recent report that broadband access connectivity is one of the top three features sought by tenants. But when tenants were polled, only one third said that they would be willing to pay extra for Internet access, and then, no more than $1 per SF over their rent.

Sales of broadband equipment and services to multi-tenant buildings are expected to rise from $370 million in 2000 to $4.8 billion by 2004, according to a Cahners In-Stat report.

While growth drives the telecommunications industry, reliability and tailored service options will keep customers satisfied. Backbone providers should have the capacity to supply building owners with high-speed capacity not just for today but far into the future.

With the expected demand, what should building owners and managers look for in a fiber-optic carrier? While each owner will have to make choices that best fit his or her circumstances, here are some questions to consider:

Is the carrier truly neutral?

The carrier should give access to numerous providers and should not be competing with its customers for end users. Freedom of choice should be a primary concern.

Does the carrier offer a broad reach with economies of scale that can be passed on to tenants?

The carrier should have access to nationwide networks. By developing partnerships with these networks, the carrier will lower its costs and can, in turn, lower prices for the buyers.

Does the carrier supply multi-tenanted office buildings? This is important because it helps owners extend their reach into buildings with a diverse tenant population.

What is the state of the technology offered by the carrier? All new, legacy-free fiber optic networks are not subject to installation or repair delays common to legacy networks converted from other uses. Look for "self-healing" features, such as SONET rings architectures that route traffic away from the faults that may occur.

Are "lit," as well as "dark," fiber options available?

Some carriers offer lit fiber, which is ready for tenants' use. Building owners will have to pay to have dark fiber energized, and can save money by purchasing lit services.

Does the carrier connect to all available carrier hotels?

There are 20 carrier hotels -- connecting points between carriers and the providers -- in New York City alone. The more hotels a carrier is connected to, the more connectivity will be available to tenants. The result will be more choice for the tenants.

Is it important to have diverse points of entry into an owner's buildings? A second point of entry for broadband service is like having a fire escape in case the main exit is blocked. Tenants may be reluctant to move into a building whose fiber-optic carrier uses only one point-of-entry.

Will the carrier be around tomorrow? An important question to consider, give the recent demise of so many dot.com companies. Make sure the carrier is financially stable and committed to the needs of owners now and in the future.

According to the Department of Energy, there are some 31,000 skyscrapers, 26,000 medium-size building, and 61,000 small buildings in the U.S. and most tenant occupying these buildings will soon require highspeed broadband access. At the same time, only 3% of these buildings are currently equipped with a fiber optic cable.

There is this final thought to consider: The competition in the carrier market is good for both owners and tenants. It forces them to ask questions.