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Dot-Com War Stories--Lessons in Creative Dealmaking

Last week's Dispatch, "How Strong Is Your Dot Com?" (Sep 13), generated a slew of interesting responses, three of which I've excerpted below.

From Tim Rolston at Colliers International (Oakland, CA): "I just represented the landlord in a lease to Pets.com for its distribution center... Pets.com had $50 million in VC funding. The VCs were Amazon.com, Bowman Capital and Hummer Winblad Venture Partners. (It's always important to have quality VCs because they provide a lot more than just money.) Pets.com has a proven management team (CEO Julie Wainwright has a good resume and IPO experience). We have a large letter of credit through the first two years and a two-month security deposit..."

From Jay Beadle at Scribcor (Chicago): "We have been using the clients' contracts. One new firm has contracts with major corporations such as Ford and with Procter & Gamble. We show the landlords the contracts on a confidential basis and they are more willing to risk a little construction capital with the lease."

From Greg Weaver Cornish & Carey Commercial (Emeryville, CA): "Landlords are interested in having 'dot com's' in their project if they put up substantial security. For example, Reel.com two years ago was in their incubation stage and subleased 8,400 sq. ft. They were required to take the space 'as is' and put up four months of rent as a security deposit. During this sublease they were purchased by Hollywood Entertainment also known as Hollywood Video. (Pike Note: Sales price $100 million in late 1998. This is not a typo. Yikes.)

"The landlord all of a sudden had a national credit tenant that wanted to expand to 20,000 sq. ft. I represented both Reel.com and the landlord on the original sublease and their expansions. The above landlord could not accommodate Reel so they leased 20,000 sq.ft. from Ellis Partners at the EmeryTech project. Ellis required a guarantee from Hollywood Entertainment...

"In addition to security, the issue of rapid growth and employee count has become a problem. As with Reel.com they moved into 8,400 sq. ft. with about 20 employees and within twelve months they had 90 employees. Obviously that created parking problems and required the landlord to increase their janitor/maintenance service. Due to this, landlords are proposing a maximum employee count into their lease agreement."

--Peter