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HOW SOME DOT-COMS SURVIVED TO TELL THE TALE

By Debra Hazel

PlainVanillaShell.com: one of the survivors of the dot-com shakeout.

As the dust settles from the dot-com shakeout, real estate service companies are telling how they incorporated the Internet into their operations — and survived.

Of the 23 Internet-based service companies profiled in the August 2000 SCT Industry Guide to the Web, at least five (CapitalEngine, MortgageSelector, Redbricks, I-scraper and Pangia) have gone out of business entirely, and others might have, too: Several did not return phone calls to update their status.

Some have merged; others have reconfigured. But among those that survived in one form or another, luck had nothing to do with it: Among other things, they proceeded slowly with expenditures and expansion.

“We weren’t throwing wads of money at it,” was the way Gary Craig, president of ProjectEdge, Liverpool, N.Y., put it. A wholly owned affiliate of developer Edgewater Cos., ProjectEdge developed a Web-based project management service for its own properties, then decided to sell it to others.

“Our goal was not to create next month’s IPO,” Craig added. “We were trained to build a solution, not a product. A product came out of it.”

Many dot-coms, particularly outside the real estate arena, spent fortunes on marketing; the telecast of the 2000 Super Bowl was filled with expensive commercials for companies that later foundered.

Promotion is expensive enough, so it’s important to make it count.

“Marketing is a huge expense, but ours was targeted,” said Beth Stewart, CEO and co-chairwoman of StoreTrax, the Bethesda, Md., listing service founded by real estate professionals. To that end, StoreTrax formed strategic partnerships with seven retail REITs (New Plan Excel Realty Trust, Federal Realty Investment Trust, First Washington Management, Konover Property Trust, IRT Property Co., Weingarten Realty and Developers Diversified Realty).

Having a niche and a long-term plan also was important, several successful dot-com executives said.

“We’ve had a strategic vision that hasn’t changed since 1997,” said Brian Hayashi, CEO of Denver-based Mallfinder.com. Originally a manager of shopping center and developer Web sites, the company has in the last year added services focusing on leasing, tourism and sponsorships.

For many companies, being a part of a larger corporation was helpful (See related story, Site selection). In many cases, success has gone to those that used the Web as an extension of their existing activities, rather than as an end in itself.

“[The Web] is not the gold mine everyone thought it would be, and if it was the only card you could play, it was harder,” said Lynda Gutierrez, content editor of PlainVanillaShell.com, a product of Trade Dimensions/National Research Bureau, the Wilton, Conn.-based provider of retailer and shopping center directories. “We have 30 years of experience with data; we’re just offering another way of accessing and processing it.”

Another dot-com survivor with years of retail real estate experience is Howard Makler, chairman of Excess Space Disposition, Huntington Beach, Calif. Makler’s Web site has just undergone a major redesign.

“A number of people decided it’s the flavor of the month,” he said of some dot-com sites.

Following the rules outlined above gave these dot-coms credibility, and, despite the closure of the capital spigot, has helped them raise funds, both from venture capitalists and other sources.

“We’ve been extremely diligent and judicious,” noted Jerry Goldstein, vice president of marketing for FacilityPro, Marietta, Ga., which has used funding to expand its services and improve its facilities.

Another company that has expanded its services is New York City-based The Realm, a B2B hub for commercial real estate formed by real estate technology providers Argus Financial Software, B.J. Murray, Newstar Solutions and CTI Ltd. Its new products include RealmCash, an electronic rent collection and bill-payment service; RealmBudget, a property management budgeting tool; and Realmx, a service that links various operating systems.

That diversity of services, coupled with a large list of customers that includes most of the large REITs, is what helped The Realm get through the shakeout.

“Others were sort of monoproducts; they didn’t have a strong customer base,” said Greg Spevok, The Realm’s vice president of marketing. “On top of that, our products are necessary; you have to have systems to manage the company, do general accounting and financial work.”

In fact, Spevok says his company is so diverse, it shouldn’t be characterized as a dot-com at all. For one thing, his staff are primarily real estate veterans, not Internet gurus.

“Our companies have been established for decades; all of our senior executives are people drawn from the real estate industry,” he said. The same applies to StoreTrax, said Stewart.

For some companies, surviving the turmoil of the past few years has required a high degree of flexibility, even to the point of reinventing themselves. CapitalThinking, New York City, which had been a matchmaker between lenders and borrowers, shut down its transaction business in September 2000, and today is a software provider, with clients that include JP Morgan, PNC Bank, Cohen Financial and GE Capital. Clients can either utilize the software hosted by CapitalThinking or purchase their own package.

While other firms outsourced the development of their software, CapitalThinking kept its in-house, allowing the company to adapt to changing needs and evaluate its own business more quickly. Early this summer, the company completed its acquisition of legal document firm Tikon, adding additional services to its roster.

Mergers and/or acquisitions have helped several dot-coms succeed: Listing services PropertyFirst and LoopNet merged in July and, operating under the LoopNet name, the combined company relaunched its site in September.

At press time, FacilityPro was to acquire Purchasing First, a procurement solutions company in October. Market Insite Group, Sausalito, Calif., a retail database provider formerly known as Location-Net acquired The Green Group, a Troy, Mich.-based consultancy in May.

“Our whole concept with that merger was to blend the old and new worlds,” said Kathy Huber, co-founder and CEO of Market Insite Group. “Location-Net was technology-based; we now have the ability to deliver our services over the Web or in a report format.”

The name was changed to reflect what the company does: provide insight into markets by adding context to basic data, Huber said.

The future probably holds more consolidation, but some companies are cautious.

“We’ve been approached with many opportunities, but we’re trying to remain focused on our mission,” said Spevok. “There may be some good acquisition opportunities, but you may risk losing your focus.”

Mallfinder’s Hayashi also plans to avoid acquisitions.

“If you have too many masters, you’re not as effective,” he said.

For most of the real estate companies involved with the Internet, it is the service, not the Web, that is the key.

“The Web site is nothing more than a tool for our company,” Makler said, “Not the backbone.”

 

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