Source: GRID
by Joe Gose
June 1, 2001
Get ready to add telco hotel developers to the dot.com real estate casualty list, right under service providers. Then watch the biggest distressed-property acquisition frenzy since the Resolution Trust Corp.’s heyday in the 1990s, when opportunists snatched up stellar properties at bargain prices.
According to Herb Hauser, president and chief executive officer of Barnes Wentworth Inc. of New York, a technology engineering company, out of 60 million square feet of telco hotels nationwide, some 20 million square feet hangs in limbo – either partially rehabbed, occupied by telecom firms hanging on by their fingernails or built out but empty. The industry consensus is that owners of that 20 million square feet have only enough funding to last a few more months, unless telecom firms start ordering new space soon. With most such firms watching their stock prices tank while shouldering massive debt, that doesn’t seem likely.
The crippled properties have awakened the instincts of opportunists. “We’re going to be in a vulture-fund type of mentality,” says Tom Mulroy, chief executive officer of T-Rex Capital in New York, which owns some 6 million square feet of telco hotel space nationwide. “When their lifelines run out, that’s the time to swoop in.”
Many industry observers believe that day is imminent, but the scene was set during the dot.com craze. High-tech start-ups fueled by highly flammable venture capital set off an explosion of equipment buying and infrastructure build-out among telecom companies of all sizes – after all, somebody had to support the dizzying array of services and content provided by a gazillion consumer-driven Web sites.
Telecom firms uploaded $655 million in debt to pay for that growth, according to telecom equipment supplier Nortel Networks of Brampton, Ontario. That, in turn, drove torrid telco hotel development to house switches and servers. The dot.com crash halted the capital flow to telecoms, yet some telco developers failed to heed the death knell and kept building.
T-Rex isn’t the only stable telco hotel owner with predatory intentions…