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Tuesday, November 21, 2006

Common Questions On Real Estate And Startups

from Venture Realty Group





Richard Abbitt is CEO and President of Venture Realty Group, a firm that serves the Southern California startup market.

I'm an entrepreneur, and I'm looking for office space for my new startup. What are my options, and how should I go about finding my first office?

A: Typically, start up companies are in need of enhanced flexibility, so we often search for good subleasing options that will provide a shorter term lease and lower rental rate, with the purpose of providing a lower initial cost option as these spaces often come furnished and have lower security deposit requirements. The shorter term often is an advantage since successful companies will quickly out grow first office locations and won't be put in the position of having to sublet the space themselves. Obviously, there are many factors to consider such as location, expansion possibilities, image, etc.

What are the different kinds of office space, and what does Class A/B/C mean?

A: I think a more relevant question is the difference between conventional office space and creative or flex space. Many start up companies look to distance themselves somewhat from an office environment that is more typical of a law firm or insurance company. We find that many of our clients look for space that have open floor plans, operable windows, high ceilings (that are often exposed) and other structural elements that provide for greater interaction within the company. This is somewhat driven by the local supply of space with "creative" space more common on the Westside than in other areas of the City. Unfortunately, due to greater demand this space can also attract a premium rent at times.

How do I figure out how much square foot office space I need, and are there any benchmarks for different kind of technology companies?

A: Due to the inherent "boot strapping" nature of a start up, many companies opt to be as efficient as possible when it comes to the amount of office space necessary to house employees, but a very quick rule of thumb is a ratio of 4-5/1,000 square feet of space leased. When a company goes much beyond this ratio it creates serious issues pertaining to the quality of the work environment. Obviously, companies that plan to be successful need to look around the corner and plan for future growth so there are trade offs.

What's the difference between leasing and buying, and as a technology company what's better?

A: Since many start ups are venture backed, we rarely see these clients looking for a building to buy. The investment that is received from a venture investor is earmarked for growing the company, not for investing in real estate, so the funds are usually targeted at hiring staff, developing the product, etc. The purchase of a building is much more prevalent for a more mature later stage tech company that is able to forecast its future space needs and is looking to contain future real estate expenses. So the ultimate answer is really dependent upon the actual needs of the individual company, not the industry in which it based.

Richard Abbitt is CEO and President of Venture Realty Group, a full service brokerage firm that serves the startup community in Southern California. You can contact Richard at www.venturerealtygroup.com. (Venture Realty Group is a sponsor of socalTECH.com).


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