Frustrated firm buys building
Atlanta Business Chronicle - by Matt Gove and Brian Moran Staff Writers
Bijan Khosravi was fed up.
After looking at 30 different buildings trying to lease space for his company, the CEO of Atlanta start-up Movaz Networks Inc. couldn't believe the amounts Atlanta landlords expected for security deposits.
"The landlords in Atlanta don't know how to deal with start-ups," Khosravi said. "They don't even know how to spell start-up."
So, Movaz took an unusual step for an 8-month-old company -- it bought a building. And a nice one, at that.
Movaz has bought a three-story, 60,000-square-foot building at Technology Park in Norcross from Scientific-Atlanta Inc. (NYSE: SFA). Movaz, which has 180 employees and expects to hit 300 by year end, also purchased an adjacent 5 acres of land for future development of a similar-sized building, Khosravi said.
Khosravi declined to give a purchase price, but industry experts estimate the total was in the $7 million to $9 million range. John Drew and Brian Terrell of The Staubach Co. assisted Movaz in evaluating the facility.
While landlords and technology companies have come a long way during the Internet boom of the past few years, the Movaz situation shows that both sides still have much to learn about each other's businesses.
"Are the landlords and tenants still far apart? That would be my argument," said Peter Webster, a technology-focused broker with The Staubach Co.
Grant Grimes, vice president of development for Winter Properties, said the gap seems to be narrowing.
"The brokerage community has done a good job to educate [tech companies] that even General Motors" has to cross the credit hurdle before they lease space, Grimes said.
Big plans
But don't tell that to Khosravi, who thinks Movaz will quickly become one of the big-three industry giants for optical networking equipment.
Movaz is developing hardware that will increase the speed and capacity of the Internet by close to 400 times, Khosravi said. More than 100 companies are going after the same opportunity to compete with the likes of Lucent Technologies Inc. (NYSE: LU) and Cisco Systems Inc. (Nasdaq: CSCO).
Movaz raised $30 million in venture capital last year and is set to raise at least that much in the next six months, Khosravi said.
While Movaz may be flush with cash, what it doesn't have is a track record.
Leasing office space is surprisingly similar to leasing residential real estate in that landlords base much of their decision on the tenant's credit history. Most young technology firms have little or no history for landlords to inspect.
Broker John Flack of Carter & Associates said landlords have been burnt a few times and now it's fairly common for them to ask an incoming start-up to provide a cash deposit or line of credit to cover all of its "up-front" costs, such as tenant improvements, commissions and legal costs. A landlord also might ask for six or 12 months rent in the deposit.
"[Landlords] are trying to protect their up-front costs and potential downtime" if a tenant fails, said Jeff Shaw of PC Associates, which handles leasing for Piedmont Center in Buckhead.
But Khosravi sees it differently. He thinks that landlords should have a better feel for start-ups, balancing the credit risk of dealing with an early-stage company with the potentially huge upside if a start-up takes off.
That's how Silicon Valley landlords treated him when he was with California-based Siara Systems. Siara was a high-flying networking firm that eventually merged into Redback Networks (Nasdaq: RBAK) in November 1999 for $4.3 billion.
"In Silicon Valley, [landlords] weren't asking for a letter of credit. They were asking who your venture capital [backers]" were and to review the business plan, Khosravi said. "Then they wanted shares."
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