Telecom/Office Hybrids: Staying Flexible in an Uncertain Market
April 01, 2001

By Staff
Appeared in Real Estate Journal

For the owners and developers of telecom hotels, it's no longer a case of "if you build it, they will come." In 2001, an estimated 32 million square feet of space is available to the telecom industry, from large telephone switch and fiber companies to web-hosting companies and smaller dot com start-ups. By 2006, that figure is projected to rise above 100 million square feet. That staggering amount of supply, coupled with the industry's recent contraction, is making telecom hotel developers think twice.

Granted, some developers are forging ahead without changing direction. But others, particularly those backed by increasingly hesitant financiers and saddled with considerable empty space in multi-story facilities, are looking for flexibility by revamping vacant space for other types of uses.

Is it worth it to turn a telecom hotel into a telecom/office hybrid? That depends. Without a core facility that can be made attractive to today's office tenants who insist on conveniently-located, Class A space the answer may be no. And even owner/developers of these facilities will have to take a hard look at several engineering considerations to see if the equation works.

Parking can sometimes dictate a building's mixed use potential. Some codes have not yet classified telecom use and in most cases owners are able to obtain a variance and reduce the parking ratio, with one space required for every 7,000 square feet of building space. Offices, on the other hand, could require by code one space for every 1,000 square feet. And that can be a real deal buster--particularly in tight settings where there's little available surrounding land to build a parking facility and still allocate space for future telecom cooling equipment and generators.

Vertical transportation is another factor. One passenger elevator per 250,000 square feet could be adequate for telecom usage. But office users could require at least twice that, depending on travel time -and at a cost of $500,000 or more per elevator, developers may be unwilling to absorb the expense.

Telecom facilities are usually equipped with bare-bones heating, ventilating, air conditioning (HVAC) needs: Base building HVAC systems are confined to common core areas, corridors, lobbies, toilet rooms, with only space allocation for telecom A/C and/or generator equipment. For office tenants, however, the landlord will typically provide a central HVAC air system and chilled/condensed water connections for air handling systems on each floor; at the very least, an allowance will be provided for the tenant for dedicated air cooled equipment installed on their floor.

In terms of fire protection, telecom users are usually satisfied with standpipe/sprinkler systems with control valves on each floor, which they will then build out to their specific requirements. Office users expect fully sprinklered floors or at the very least a sprinkler loop. And where telecom tenants need secured exit doors with minimal security and will provide their own localized security system, office users require some type of central security system.

Electrical systems can be a tricky issue as well. Telecom tenants require more power than office users-on average 100 watts vs 14 watts per square foot. In order to meet power demands of telecom tenants, utility companies will often deliver medium voltage power (ie., 4,160V or 13.2kV) to reduce their installation costs. Typically, landlords will provide telecom tenants with points of connections in electrical switchgear located in the basement; the tenant is responsible to bring power up to their space and provide their own transformation/distribution equipment. In contrast, with office tenants the landlord is typically responsible for providing a low voltage power distribution system (ie., 208V or 480V) to their space or floor. If the utility does provide a medium voltage system to a mixed use facility then the landlord must pick up the tab for stepping down the service with transformers for the office tenants, which could be an added cost. Faced with this disparity in needs between office and telecom tenants, owners may have more difficulties in negotiations with the local utility and absorb higher costs to suit a mixed tenancy.

Telecom users have greater requirements for shaft space to route their current-and future-fiber conduits, electrical conduits, fuel oil and generator risers, cooling piping, etc. This, of course, takes away from the rentable square footage for office users, who do not have the same level of riser requirements.

Will the telecom industry eventually turn around? Undoubtedly. Can hybrid facilities be reasonable solutions in the meantime? Yes, if developers fully understand what's involved and work to strike the right balance between the needs of their mixed use facilities.