Internet firms begin to drive urban redevelopment

Jeff Florida of Cybercon.com installs a server at its new offices at 210 North Tucker Boulevard in downtown St. Louis.
(Laurie Skrivan/P-D)

By Peter Shinkle
Of The Post-Dispatch

High-technology companies have fueled the construction of costly glass-and-steel towers in the suburbs, but the Internet economy is quickly becoming a powerful force in urban redevelopment.

St. Louis, like many urban areas, abounds in low-priced, unused office buildings, many with the high ceilings and reinforced floors sought by Internet companies. Investors are rushing to cash in on those buildings, turning them into housing for the machines that make the Web work.

Clayton real estate developer Jerome Glick and his partners recently sold two downtown buildings for $56 million, just several years after buying them for $5.8 million and upgrading them for use by telecommunications and Internet companies.

There are plans to renovate at least four other St. Louis buildings into "telecom hotels," a snazzy marketing phrase for buildings that house telecommunications and computer companies.

Glick warned that the competition is likely to be fierce. "They're all going to be killing each other," he said. He said being ahead of the crowd was key.

"Jerome Glick did it right," said Jim Mosby, a broker at commercial real estate firm Colliers Turley Martin Tucker.

In this development game, cities have the trump card over suburbs. In addition to low-cost buildings, cities often already have in place the fiber-optic cables necessary to provide the buildings with high-speed links to the Internet.

It is a climate ripe for speculators who know a useful building when they see one.

One of Glick's partners, his nephew Robert Guller, said that when they bought an 18-story building at 210 North Tucker Boulevard for $750,000 three years ago, it was 95 percent vacant, an unwanted building tainted by asbestos that the federal government had abandoned.

"For our purposes, ugly was beautiful," he said. It sold for $27 million in June.

Glick said he and his partners made "a great deal of improvements" after buying a building at 900 Walnut Street for $5 million from a bankrupt steel company, Valley Industries Inc., in 1995. The brick building, completed in 1923, was partially vacant when the partners acquired it. It sold for $29 million.

The partners spent about $1.4 million to buy generators designed to serve as backups in case the electric company's grid failed, Guller said. Floors were reinforced to support heavy equipment, electrical wiring was improved, and fiber-optic connections were established with various telecommunications companies, he said.

At 210 North Tucker, the partners removed asbestos. They also won a city tax abatement in 1998, so for the next 10 years the building will be taxed as though it were worth a mere $559,100, a fact that would be likely to appeal to a buyer.

One tenant at 210 North Tucker is Cybercon.com, whose office links more than 500 computer servers to the Internet. It maintains servers for some of the biggest names in Internet communications, such as Digital Island, a company that helps run streaming media sites for the Yahoo! Web site.

Since launching its Web server business in 1994, Cybercon has occupied two other locations in suburban areas, only to find that they were too small and too far away from fiber-optic connections, said Joshua Chen, the company's president and chief technical officer.

At one previous location, the company had to wait eight months for Southwestern Bell to install a fiber-optic cable for high-speed Internet connections, he said.

"The most important thing to us is that there are a lot of fibers here," he said. "We found this building has fiber from all the major carriers, like AT&T, Southwestern Bell and WorldCom, so it's easier for us to increase our connection," he said.

AT&T, which has offices in the building, provides Cybercon's most powerful Internet link, a fiber-optic connection known as an OC-12. It provides up to 622 million bits of data per second, more than 400 times the top speed of a cable modem.

Businesses such as AT&T, WorldCom and Cybercon -- with a healthy stable of Internet clients --make real estate investors' eyes widen.

Yet as more competitors enter the telecom hotel business, they may find it difficult to attract tenants, Glick warned.

"How many AT&Ts are there?" he said.

But that doesn't concern Mosby, the Colliers Turley broker, who is helping a California company transform the former Boatmen's Trust building at 305 North Broadway into a telecom hotel.

"I think the telecom boom is still there," he said. "If you do your homework, you buy the right building, and you buy it smart, I think there are still plenty of tenants left in the telecom market."

Fowler Flanagan Technology Partners of Larkspur, Calif., bought the building for an undisclosed sum in June from American Milling L.P., a grain distribution business in Cahokia that has invested in downtown St. Louis real estate. Fowler Flanagan is refurbishing the 270,000-square-foot building, and tenants should be moving in by the first quarter of 2001, Mosby said.

Glick's predictions also do not daunt Angie Stanton, an associate at commercial real estate firm CB Richard Ellis. She represents investors who bought the former Switzer Candy factory at 1600 North Broadway in July.

"There's definitely going to be demand out there for the space," she said.

Stanton declined to identify the developers behind the project. But property records show that InSite St. Louis LLC of Chicago owns the building, which contains 220,000 square feet of space.

Meanwhile, some longtime property owners are moving to turn their buildings into telecom hotels.

The old Globe-Democrat building, at 710 North Tucker, now houses mostly telecom tenants, said Rick Ross, building manager for the Globe Building Co. In addition, the building that now houses the City Museum, at 701 North 15th Street, is expected to be sold so that a telecom hotel can occupy the floors above the museum.

Guller and Glick say they are still looking for properties to develop as telecom hotels, though they will do so separately.

Glick, 66, said he hopes to take some time off to participate in digs at Mayan archaeological sites in Central America, a study he and his wife, Judy, have pursued for 10 years.

"I thought I was going to study it for a year, and I got hooked," Glick said.

E-mail: pshinkle@postnet.com\Phone: 314-862-2180