Tech Incubator Plan Shrinks--and Moves
A team of high-powered Orange County executives has scrapped plans to develop a massive high-tech incubator in Irvine, instead signing a deal to launch a less risky version of the venture this fall in Aliso Viejo, developers said Monday.
The shift comes four months after it was disclosed that Buy.com founder Scott Blum and former top officials of Koll Development had agreed to buy 40 acres of prime real estate in Irvine for more than $50 million and develop it into a hub of Internet activity in Southern California.
Blum and other executives at the new company, eDevelopments.com, have remained publicly silent on their venture. But developers said the company would be taking up four floors of leased space in Aliso Viejo--a move aimed at launching the plan quicker and reducing its risks amid a wildly volatile dot-com industry.
By leasing instead of buying, “they don’t have the huge capital investment, and their risk relative to real estate has gone down,” said Al Beaudette, a former senior managing partner at CB Richard Ellis in Orange County.
Sources close to eDevelopments said that the company did have the financing in place to buy the Irvine land along the San Diego Freeway owned by Parker Hannifin, the aerospace concern. But the deal stalled partly because Parker Hannifin did not agree to vacate the entire property for three years, which was apparently longer than eDevelopments was willing to wait. Parker Hannifin officials could not be reached Monday.
The company’s retreat from Irvine is a boon for Aliso Viejo, which has been quietly drawing high-tech companies and figures to get more if eDevelopments is successful in nurturing start-ups.
The lease signed by eDevelopments will put it in 114,000 square feet of a new building in the Summit Office Campus, said Lee Redmond, a principal at Parker Properties, the developer of that commercial park. The lease agreement includes an option for eDevelopments to expand within Summit by up to 320,000 square feet over the five years of the lease.
Summit, which opened a couple of years ago, has just completed its second phase and now has eight clustered buildings, about half the number expected to be built on the 70-acre site over the next few years. One of its earliest high-tech tenants is Buy.com, the online superstore that was founded and remains largely owned by Blum.
By moving farther south into a building already available, eDevelopments will shave about five months from its earlier projected start-up date. Moreover, eDevelopments was looking at redeveloping a large piece of land that would have been much more costly and risky.
“You’re safer leasing for a while than buying a whole complex,” said George Economos, a senior vice president at Capital Commercial Real Estate in Newport Beach.
That seems even more so these days, as investor enthusiasm for unprofitable Internet businesses has waned and many stocks of the so-called new economy have plunged.
Earlier this year, when word first leaked of eDevelopments’ plans in Irvine, Internet stocks were soaring. Blum himself briefly became a member of Orange County’s billionaire club on Buy.com’s first day of public trading in early February, when his 62.1 million shares were valued at more than $1.8 billion.
Since then, Wall Street has soured on many electronic-commerce ventures, including Buy.com shares, which fell to as low as $4.50 from a high of $30.25. Blum’s holdings in the company are now worth about $415 million.
Landlords, in turn, have grown more cautious about leasing space to technology tenants. Parker Properties uses an accountant who assesses the viability of start-ups and talks extensively with the company’s financial backers.
In eDevelopments’ case, Redmond said, Parker took about a month to evaluate the company, which had to guarantee 60 months in lease payments as well as provide upfront a more definitive letter of credit for rent covering the first 18 months. But Redmond expressed confidence in eDevelopments’ ability to meet its obligations, saying he thought the firm would ultimately help attract more tenants to the Aliso Viejo site.
Although Redmond would not comment, real estate analysts estimated the value of eDevelopments’ lease at about $2.40 per square foot, or $3.2 million per year, including utilities. That compares with a countywide average of slightly above $2 a square foot for office space.
EDevelopments is by far the most ambitious of the dozen companies in Blum’s ThinkTank portfolio. Most of the others are niche dot-coms, from an online clothing catalog to a Web-based network for medical supplies.
Even in its scaled-down version, eDevelopments is starting off with more space than the Southland’s best-known Internet incubator, Idealab, when it began in 1996 and moved into 10,000-square-foot offices a year later. Idealab currently occupies more than 160,000 square feet that it leases in several locations in Pasadena. Among its notable start-ups are online retailer EToys and Web search engine GoTo.com.
When eDevelopments opens in October, the company hopes to take on as many as 30 companies in various stages of development, according to knowledgeable sources. Besides Blum, eDevelopments’ principals include James Watson and Keith Ross, two top former executives of Koll’s Western division, and Scott Johnstone, a former executive at CB Richard Ellis in Newport Beach.
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Times staff writer Robin Fields contributed to this story.
