/dp1st/mark2nd

By

Staff Reporter

A new breed of tenant has been moving into downtown class-A office towers in recent months: the dot-coms.

“I feel like we’re on the cusp,” said Laurie McCartney, president and chief executive of eStyle Inc., an online retailer that moved to 865 S. Figueroa St. earlier this year. “Rents on the Westside were high, and I felt it had gotten a little stale. I thought it was great to be downtown and be the first mover in the space.”

At least a dozen new-media and tech-related firms have followed suit, including Rocket Radio Inc., allpets.com, ShowBIZ Data Inc., Wedding Channel, Zone Communications and Filmbazaar.com Inc.

Several are there because they received funding from Zone Ventures, the venture capital operation of the Los Angeles Community Development Bank. Recipients of the government money must locate within a designated empowerment zone that includes downtown, South Central and parts of the San Fernando Valley.

Zone Ventures was established last year, with Silicon Valley-based venture capital firm Draper Fisher Jurvetson hired to manage $25 million of its equity investment pool. The hope is that companies receiving money will generate millions for the bank and revitalize the economy within the zone.

Downtown traditionally has appealed to large corporations, law and accounting firms. But the building boom of the late ’80s, coupled with corporate mergers and the lure of the Westside, have combined to soften the downtown office market, where the vacancy rate is about 20 percent.

Enter companies like Rocket Radio, an Internet service that lets users listen to radio broadcasts from around the world. CEO Warren Schlichting said he probably wouldn’t have chosen downtown were it not for funding from Zone Ventures. (His first choice likely would have been Santa Monica.) “But now that we’re here, it’s been a good choice,” Schlichting said.

One obvious plus is the central location. Employees commute to the Rocket offices at the MCI tower from Redondo Beach, Hollywood, Burbank and Irvine. Many come by train.

“Our ability to get people from all over is a nice feature,” Schlichting said. “Even if Zone said you’re free to go, we probably would not (leave) because of the train. And we have nice offices for cheap.”

Then there’s the telecommunications infrastructure that has been developed in the past several years. Telecom firms have leased about 1.5 million square feet of space, much of it for switches and equipment for high-capacity networks.

“I really believe telecom has initiated this movement of companies,” said CB Richard Ellis broker Charlie Smith, who represents five dot-coms looking for space downtown.

That helped draw Filmbazaar, an Internet source of information on films.

“We moved for the pipe,” said Luke Bruckner, president and chief operating officer of the company, which has offices at 800 W. Sixth St. “The connectivity in downtown is the best connectivity on the West Coast.”

Another big allure: the rents, which run from $1.50 to $2 a square foot per month, compared with close to $3 in the most desirable buildings on the Westside. And the downtown space is ready now.

“There’s a nice inventory of existing available space, and when they need space, they need it instantly and they can take it on a shorter-term basis,” said Richard Schnell, senior vice president at the Seeley Co. brokerage.

Typically, start-ups sign short-term leases because they don’t want to be locked in if they experience a growth spurt. Most begin with around 5,000 square feet, but several have grown in a short time to four or five times that size. EStyle expects to expand from half a floor to an entire floor in the next few months.

“(These companies) have the idea they’ll be the next eToys and need 100,000 square feet,” Smith said. “So a lot see themselves outgrowing the space two to three years from now.”

Some remain skeptical about downtown becoming the next tech hotbed.

Matthew Miller, a principal at Cresa Partners and one of the most active brokers in the tech and new-media arena, said he doesn’t see it as a big trend.

“It’s not a coincidence Internet companies are clustered in expensive neighborhoods,” he said. “The Westside, broadly speaking, will continue to be the location of choice. It’s in part an issue of corporate culture, and downtown is more formal. (Internet employees) work late hours and weekends, and downtown is not a night and weekend environment.”

Bruckner concedes it “gets lonely here” on the weekends, when there’s no one on the streets. But he believes that will change as more Internet companies migrate to the district. Already the more laid-back culture of the start-ups is making its mark, as workers from Filmbazaar hang out at McCormick & Schmick’s seafood restaurant “without our ties, in our jeans and sneakers,” Bruckner said.

His and other start-ups also have infused a bit of Westside sensibility into their interior d & #233;cor. For example, eStyle’s office is open, with yellow, purple, green and blue walls, and exposed pipes. “It feels very funky and fun,” McCartney said.

Schnell believes that as tech firms move downtown, their brethren will feel more comfortable about doing likewise.

“The more this occurs, the more it will occur,” Schnell said. “My hope is they will become acclimated to the downtown scene and like it.”