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Technology startups stake out new ground in Fairlie-Poplar

July 17,2015

From www.bizjournals.com

Enterprise tech is abandoning the suburbs for Midtown Atlanta, in search of cool.

As NCR Corp., Worldpay and Sage North America colonize Midtown’s office towers and parking lots, it’s having a ripple effect. With office rents scraping the $28 a square foot mark, startups and early stage companies are having to consider relocating to Midtown’s outer edges, and beyond. That forced migration is likely to benefit two neighboring submarkets — West Midtown and downtown’s Fairlie-Poplar.

The gritty West Midtown is getting gentrified. The area’s dilapidated warehouses and mills are being transformed into chic mixed-use developments that boast hip condos and chef-driven restaurants — amenities critical to supporting a commercial office node. West Midtown is home to a thriving community of digital agencies and tech startups, including animation studio Bento Box Entertainment, e-commerce startup Scoutmob, manufacturing tech startup SoftWear Automation and information security firm CodeGuard.

Georgia Tech is considering the possibility of turning 60 acres in West Midtown into a health care and biosciences innovation district, which would attract a wave of startups and corporate developments to the area.

West Midtown’s relatively inexpensive rents, inventory of creative office spaces and vibrant restaurant scene create an alluring siren song to Atlanta’s next-generation tech and creative companies.

“Office parks are often ugly and a lot of class A (office) space is rather sterile and overpriced,” said Rick Myers, co-founder of Strongbox West, a Westside coworking space, which recently relocated to a 50,000-square-foot, mid-century industrial building.

West Midtown has an “edginess” not found in corporate hubs such as Buckhead and Midtown, said KP Reddy, CEO of SoftWear Automation. Reddy recently witnessed a man getting arrested in West Midtown.

“It’s still transitional and the creative class likes a little bit of that,” Reddy said. “They don’t want it to be Disney World, and all cleaned up.”

Innovation districts require unique ingredients — proximity to a university that produces research and corporate spin-offs; a street grid that is somewhat walkable and bikeable; access to public transit.

SoftWear recently moved to West Midtown from the Advanced Technology Development Center (ATDC) at Georgia Tech. Reddy considered other areas for the relocation, but picked West Midtown for its proximity to Georgia Tech, mass transit and walkability. The company’s industrial nature — it has developed robotic sewing technologies to automate apparel manufacturing — required a warehouse-type building.

Strongbox may be emblematic of the Westside’s demand. Membership has quadrupled since the coworking hub moved to its new location on West Marietta Street in January. The development hosts 35 startups (including Tech Talent South, Partpic and Hux), about 75 solo or two-person companies, and artists and makers who mostly lease space month-to-month. Local startup Scoutmob, which pivoted from daily deals to curated e-commerce, will relocate to the space Aug. 1.

“I want to see companies grow and add jobs,” Myers said. “I don’t want to see them go into class A office space that is going to be a burden, or an albatross on the company’s books.”

While escalating rents are an issue in Midtown, so are inflexible lease terms. Fledgling companies, unsure of market traction, are loath to sign traditional five- to seven-year office leases.

“If you can get a three-year, or shorter, lease in Midtown, you’re lucky,” Strongbox co-founder and CEO Amy Hoover said. “You’re mostly looking at a (minimum) of five years. Many early stage startups can’t accurately forecast what their office needs will be in five months.”

Historically, lower land values have meant less expensive, or free, parking and a greater abundance of parking at office projects in West Midtown, said Scott DeMyer, vice president at Colliers Atlanta, a real estate services firm.

“At Biltmore (near Tech Square) you get two parking spots per 1,000 square feet of leased space,” DeMyer said. “At Carriage Works (in West Midtown) and Northyards (in downtown) you have three parking spaces per 1,000 square feet of leased space, and it’s free.”

Real estate developers are drawing up blueprints to meet the impending demand for creative office space in greater Midtown.

At Atlantic Station, Hines plans to build a 210,000-square-foot glass and timber building that would be designed to look distressed. In Old Fourth Ward, a 165,000-square-foot “terracotta stone and glass” office building is proposed. And in West Midtown, a $30 million mixed-use development hopes to lure tech companies.

It’s not just about cheap office space. West Midtown’s proximity to Georgia Tech puts it on the short list for tech companies that need to be close to the research and talent emerging from the school, Hoover said.

“A lot of Tech grads are familiar with the area and they know it well,” Hoover said. “When there are opportunities that can keep them on this side of town, I think they like to take advantage of them.”

Like in West Midtown, Downtown’s Fairlie-Poplar district is seeing a couple of entrepreneur-led redevelopments. The district — bookended by Woodruff and Centennial parks — is home to the expanding Georgia State University (GSU) and its 36,000-plus students.

Real estate private equity firm Lucror Resources is converting the historic Flatiron building into a 40,000-square-foot office development. Meanwhile, design geek and Scoutmob co-founder Michael Tavani is renovating a 20,000-square-foot 1920s building near Centennial Park into Switchyards Downtown Club, a business-to-consumer company building hub.

The Flatiron building, renamed FlatironCity, is seeing strong interest during the renovation phase. The ground-floor retail space is fully leased and commitments have been secured for a third of the office space, Lucror Managing Principal Arun Nijhawan said. “This is Atlanta’s historical business district, where people can bike, walk, sit in cafes,” Nijhawan said.

The Fairlie-Poplar district is in an economic opportunity zone, a designation that gives companies in the area a $3,500 tax credit per new employee for five years towards state tax and payroll tax. This significantly lowers the operating cost for growing businesses in the area.

GSU is playing a role in the transformation of downtown into an innovation district. An expansion of GSU is expected to increase the student population to 50,000. GSU provides a talent pipeline and is expanding its technology curriculum with digital media and big data programs.

Historically a commuter school, GSU is gradually turning into a traditional campus with student housing. About 18 percent of the student population at GSU is residential, and that percentage is expected to grow as more student housing is built in the area, Nijhawan said.

A thriving arts and culture scene in the Fairlie-Poplar district also helps attract startups and creative companies.

Well before Midtown became a tech hub, it was a haven for artists and hippies, said Scott Henderson, CEO of Sandbox Communities. The creation of what became the Woodruff Arts Center seeded the gentrification of the area that eventually led to it becoming a tech and creative-class business district, Henderson said.

Downtown has the “bones” to become a startup hub, Switchyards’ Tavani said. “It has the population density, an expanding Georgia State University, an inventory of historic office buildings, mass transit and restaurants,” he said. “But it’s a little less polished than Midtown and it’s cheaper.”

Tavani points to venture-backed CallRail, a phone call analytics startup that is relocating from Midtown’s MidCity Lofts to a downtown office tower. “This is a company that could have moved anywhere in Atlanta; they just raised money and they moved downtown,” he said.

For CallRail, which will take about 6,000 square feet in the Equitable Building, the move downtown was about cost and convenience.

“We looked at a number of options in terms of places we could go,” CEO Andy Powell said. “Downtown has the access to amenities the team wanted, we are close to transit, there are tons of things for us to do, places to eat. We were predisposed to give it a hard look.”

Another reason to move downtown was the lack of affordable office space in Midtown, Powell said, declining to say how much less expensive CallRail’s downtown office is.

Average class A and class B office lease rates in downtown are $21 per square foot, compared with $27 per square foot in Midtown, Colliers’ DeMyer said.

For Tavani, downtown’s affordability and charm made Switchyards possible. “It’s one of the few areas where I could successfully do Switchyards — attract people to it from all over town, afford a building that happened to be old and unique in an urban setting, and that I could renovate,” Tavani said.