WHEN BOB NEWTON WAS shopping for office space, landlords tried to woo him with all sorts of extras. But he had something practical in mind. "We needed a lot of furniture," recalls Newton, former president of Star Technologies Inc. "And it's difficult to arrange financing for that kind of fixed asset."
Newton wound up with $500,000 worth of office furniture. Northland Development Co. of Minneapolis, which owns an office park, bought the furniture and is being repaid at a low interest rate as part of each rent check. "It was quire a risk on our part," says James Stuebner, Northland's president.
Developers in the growing number of cities with too much office space feel that they must take risks to win tenants. Some are so hungry that they are becoming financiers for small companies, which can be desirable tenants if they grow fast.
To lure them, some developers are going beyond routine remodeling and rent abatement, which are fairly common sweeteners. Agreements can now require developers to buy specialized equipment for their tenants or even to take equity in lieu of some rent. "A developer will do just about anything he needs to do, within reason, to get the deal," says Sid Peters, of the National Association of Industrial and Office Parks.
Many developers want to take equity but aren't equipped to evaluate the risk. As a result, some observers say that builders will soon start working with venture capitalists, who can analyze their investment. "Some developers feel that when they see a good opportunity, they may get a higher return through stock than through rent," says Stephen Finn, a real estate lawyer in San Francisco. "But generally, they lack the expertise to do it."
These new deals, all done merely to fill offices, could eventually spell trouble for developers that lack financial savvy. In a buyer's market for office space, says one builder, "it's a sign of desperation on the part of the developers."