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WisBusiness: Network222 - Madison's downtown tech haven
11/11/2004

By Brian E. Clark

MADISON - The recently opened Overture Center – which cost a whopping $205 million – has gotten buckets of publicity in recent months for the big boost it has given the capital city's cultural scene.

But just a block or so away, another – albeit less costly project at $12 million – has turned the dowdy former home of Alliant Energy at 222 West Washington into a high-tech center that may be unique in the Midwest.

Both are part of a downtown Madison building boom that has pumped well over a quarter of a billion dollars into the local economy and could attract more tech firms into the center of the capital city.

While the other construction projects have focused on the arts and condominiums, the Fiore Cos. – which renamed the building "Network222" – exploited the structure's beefy telecommunications infrastructure to attract companies like Sonic Foundry, Norlight Communications and the Neuron Farm.

Boosters say that by eventually clustering 40 or more high-tech firms in one building, Fiore has the potential of creating a small version of San Francisco's Media Gulch or Manhattan's Silicon Alley.

Fiore has garnered well-earned praise for its efforts, which include putting in a full-service tech business incubator on the first floor – dubbed the Urban Technology Center – that helps start-ups with subsidized rents.

Five years ago, however, things didn't look so bright for the building, which was in danger of having its 10 stories converted into low-rent Class B or C office space.

That was one of the options for developer Bill Kunkler, executive vice president with Fiore.

He was, to put it mildly, more than a little disappointed when Alliant officials announced they would leave the company's long-time headquarters just a stone's throw from the Capitol and State Street.

Negotiations to keep Alliant downtown failed and the company moved in 2002 to its new headquarters in the American Family campus on Madison's east side.

"They'd made up their minds," said Kunkler of Alliant, which occupied the entire building with more than 800 employees. "At least they let us know early on so we could plan."

But that would have all but wasted the 31-year-old building's rich telecommunications infrastructure, which – thanks to its OC192 fiber – has equivalent of more than 7,000 T1 lines, plus the hardware to back them up.

Kunkler described that robust fiber as an "historical accident," a holdover from an Alliant joint venture with Norlight Communications.

"That infrastructure is worth tens of millions of dollars," explained Kunkler, who said his company paid $8 million for the building in 1995.

"We just had to recognize its value and then figure out who would want to be in an office building like this."

Nor did it hurt that Network222 is part of MG&E's underground redundant power grid, a failsafe system designed to keep the lights on at the Capitol – even during emergencies.

After meeting with focus groups in 1999 and 2000, Kunkler decided to market the building as a digital technology center for "creative geeks."

"We figured people would want to work here to use the infrastructure and that they would also would want to be downtown, close to State Street and be in a building where they could network with other like-minded people doing similar things.

"At the time, high-tech companies especially were thinking about how to attract the best and brightest and keep them.

"Network222 has location and a real urban vitality with interaction of arts and technology and financial companies," he said.

With the economy now soft, Kunkler said keeping talent may not be the concern it was five years ago.

"Over the next decade, however, it will again be a No. 1 concern to make Gen X and Gen Y employees happy and for companies to maximize their investment in people," he said. "Being downtown is a major draw."

Because Kunkler had 200,000 feet of space "in one fell swoop," to rent – the equivalent of several suburban office buildings – that gave him the opportunity to create a "dynamic" incubator space - the Urban Technology Center - where start-ups could get their feet on the ground.

There are five start-ups working out of the UTC now, Kunkler said. They can get in for $500 a month for furnished office space, T1 and phone service and all of Network's amenities, plus the chance to rub shoulders with employees of successful firms.

Kunkler said he had to do a ‘gut check,' when the dot-com crash occurred and the Nasdaq Composite lost 78 percent of its value from March 2000 to October 2002.

But Fiore stuck to its guns, investing $12 million after Alliant moved out to reclad the exterior of the building, gut the enterior and create a three-story lobby trimmed in natural cherry.

According to county records, the assessed value of the building was $16.5 million in April, up more than $10 million from last year.

Rents range from $19 to $24 a square foot, which Kunkler said is comparable with the suburban market and a price leader downtown.

"We never doubted our vision," he said. "But it has been slower and harder to get the building reabsorbed.

"We have faith in downtown Madison, and the fundamentals of the tech sector aren't in doubt," he said. "Ultimately, the shakeout of the dot-coms was a good thing."

Kunkler said the building is now one-third occupied and two-thirds leased. In the not-too-distant future, he hopes to have a high-tech restaurant and a coffee house on the ground floor.

Kunkler described Sonic Foundry, the streaming media company that moved into Network222 a year ago as the building's "flagship" tenant and a high-tech icon in Madison.

Ken Minor, Sonic's chief financial officer, said his company's young staff of 30 wanted to be downtown.

"We moved for a number of reasons, but the location of Network222 makes it easier to recruit and retain top-notch people," he said.

"The telecommunications infrastructure also was a factor and we are very happy being here," he added.

Others in the building include Frazier Technology Ventures, a Seattle-based fund that bankrolls start-ups; and UW-Madison's Advanced Distributive Learning Lab, which left the University Research Park in September.

Peter Zaballos, Frazier's vice president, said his office needed to be downtown because it is the company's upper Midwest hub.

"The location is great for us," he said. "We also needed a building with modern telecommunications because we do a lot of video conferencing. We also liked it because it has a tech focus and has attracted a lot of leading-edge business people.

"There is a lot of energy here, like the research park on the west side of town," he said. "And Fiore is a great landlord. They have paid a lot of attention to deal and when something needs to be done, they get to it quickly."

To date, Network222 has more than two dozen tenants, including Velocity Systems - which produces rich media (streaming audio and video combined with high-quality power point slides and photos).

Mike Underwood, Velocity System's president, could be a poster boy for Network222's incubator.

After 15 months, his company – which now has five employees – was the first start-up to move to "real" offices, a suit on the fourth floor next to Frazier.

"Being here has surpassed my expectations," said Underwood, whose company has a partnership with Sonic Foundry. Velocity was on Madison's west side before moving downtown.

"The building is great, the location is perfect and I couldn't be happier," he said. "The tech incubator had an incredible menu of amenities for a start-up and helped us get off the ground."

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