Matching Fledgling Firms With Cheap Office Space

When Lindsay Napor expanded her Manhattan-based development company earlier this year — moving out of free work space provided by an investor — she turned to the most logical place for the company’s new offices: New Jersey.

“We were planning on moving out of New York,” Ms. Napor said, “because to go from nothing to standard New York rents would have been a nonstarter for us.”

The company, called Ecological, which specializes in sustainable construction, had four employees, but planned to add 35 to 40 people in two years. “We were actually looking at space in Newark, because it was easy to get to for most people, and much cheaper,” she said.

Then, Ms. Napor heard an announcement during a Yankees game that changed the course of her business career. She learned that the city was soliciting fledgling companies for a new program that provided cheap office space in a business incubator.

Since June, Ms. Napor and other Ecological employees — now numbering a dozen — have worked out of two offices and 10 cubicles at 160 Varick Street at Vandam Street in SoHo.

Ecological pays about $4,000 a month in rent — or about one-quarter of what the company would have paid in Newark. “This has allowed us to focus on growing the business rather than on how to afford our rent,” she said, “enabling us to hire more people more quickly to get the business off the ground quicker.”

The 16,500-square-foot incubator, using one floor of the Varick Street building, serves 27 fledgling companies — 22 housed in the space and five companies with offices elsewhere that use its services, including a receptionist, meeting rooms and a mailing address. These companies are in a range of businesses, including information technology, communications, real estate development, fashion and film.

The incubator space is being provided at cost by Trinity Real Estate, and it is leased and managed by the Polytechnic Institute of New York University, the college’s school of technology. Polytechnic pays only maintenance and operations costs. It, in turn, covers its expenditures through the rents it charges the companies in the buildings.

Seth W. Pinsky, president of the New York City Economic Development Corporation, the city’s business development arm, said the economic recession had offered the perfect opportunity for the city to initiate the incubator, using $100,000 in seed money. Three more incubators in other sections of Manhattan, including one for the food industry and one for fashion, are to open soon, and a handful are in the planning stages in other boroughs.

Bruce Niswander, the director of New York University’s Office of Innovation Development, is in charge of running the incubator. He said a number of students from N.Y.U. and other universities work at companies there. They are paid by the university, and the companies are billed for the students’ hourly services.

“Small businesses typically have a difficult time hiring full-time people, so this arrangement eliminates that problem,” Mr. Niswander said. “It gives the businesses access to extreme talent that they otherwise wouldn’t have, and for the students, it’s a much-needed type of training and education outside the classroom.”

Mr. Niswander is not an unabashed advocate of incubators. Many, he said, fail to realize their goal of enabling companies to grow and thrive. “You can go to a lot of incubators, and if it’s not done properly — if it’s just real estate — the tenants have been there four, five, six years,” he said.

At 160 Varick, fledgling companies are allowed to lease space in blocks of no more than six months, and these leases are renewed only if the businesses meet agreed-upon targets.

Another key for a successful incubator is to choose companies ripe for growth, Mr. Niswander said. The Manhattan venture selected only 27 of more than 300 applicants. The goal is for those companies to move into the wider marketplace in 18 months.

“We pick companies specifically for their potential to add employees,” he said. “Adding employees means you quickly have more need for space than you’ve got room for here. If you get funded for that growth, then you’re on your way, and you really don’t need this environment.”

The incubator also offers training seminars for business owners, as well as networking opportunities with venture capital sources and potential clients to nudge companies along, said Micah Kotch, operations director with N.Y.U.’s Office of Innovation Development.

“We don’t want to be competing with commercial office space providers,” Mr. Kotch said. “Our mission is to help a company here find a market for their product.”

Some companies may end up modifying their product or service. For example, rather than initiating new development, Ecological now primarily serves as an outsourced sustainability department for the owners of real estate portfolios, Ms. Napor said. One client is the Hampshire Real Estate Companies, which owns and operates 259 properties.

“Using the knowledge we have in sustainability, we can help building owners as a strategy in their portfolio to increase the value of those assets,” she said.

Exploiting that niche, Ecological has landed $2 million from investors, which will help finance a future move, Ms. Napor said. Ecological is beginning negotiations with Trinity Real Estate about taking office space in one of its market-rate buildings.

Carl Weisbrod, Trinity’s president, said his company offered the three-year lease for the incubator after a lease fell through, but also in the hope of creating opportunities for New York City businesses.

“It’s not only in the interests of the city of New York, but clearly in the interests of real estate owners generally,” Mr. Weisbrod said. “We like to see businesses grow in the city and occupy more and more space.”

David Lombino, a spokesman for the city’s Economic Development Corporation, said the city hopes to end its participation eventually, after the incubator survives beyond its three-year lease at 160 Varick.

“Ideally, we would prove that the model is sustainable and wouldn’t need city involvement at a certain point,” he said.