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Cambridge zoning requirements for dedicated startup space: Reality or illusion?

Cambridge, Ma., 1/13/06: MIT buildings in the Kendall Square area, MIT puts Technology Square in a portfolio of buildings on the market for an estimated $500 million. ( David L Ryan/Globe staff photo ) -- Library Tag 01142006 Business

NOTE: This article has been updated to clarify Mr. Simha’s stance that Kendall Square landowners currently offer prices that startups cannot afford.

The Exchange is part of an ongoing series on The Hive tackling the questions facing Boston’s entrepreneurs, investors, and innovators. This week, we ask participants to discuss the City of Cambridge’s effort to help Kendall Square remain a hotspot for innovation.

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Below O. Robert Simha, former planning officer for MIT, argues that while many Kendall Square landowners currently offer prices that startups cannot afford, the current proposal will only make a modest impact to the long-term health of Cambridge’s innovative community.

For more opinions, read the rest of The Exchange. Have your own opinion, or an idea for another topic? Email Hive@Boston.

The current enthusiasm by the Cambridge City Council for dedicated incubator and startup space, to be provided by new commercial development, has been fueled by the success of the Cambridge Innovation Center and several other incubator services. However, the five percent set aside that has been proposed for the Kendall and Central Square rezoning and the recent commitment by MIT in exchange for an up zoning will make only a modest contribution to the maintenance of the long term health of the innovation environment in Cambridge.

The five percent incubator requirement will produce only 50,000 square feet for every million square feet of new development. At the moment, the five principal landowners in the Kendall Square area already have most of their development agreements locked up without producing any new incubator space at prices startups can afford. MIT may very well be able to satisfy its commitment by it’s “repurposing” of existing building space. Until Cambridge provides more new development sites, there is little likelihood that much low rent innovation space that caters to the needs of startups will be available at all in the Kendall ecosystem.

Pressure on the major land owners, many of which are REIT’s with annual profit distribution requirements, will force them to seek high net returns from high credit rated firms like Novartis, Pfizer, Sanofi, Microsoft, Google, and other similar companies seeking to locate in Kendall. This will continue to drive the rental costs upward until startups, those lucky enough to have found a foothold in the area, will be forced out of Cambridge. On the other hand, another retrenchment in the two or three hot industries now concentrating in the area could result in a new leasehold abandonment event. How many people remember how Akami, just a decade ago, paid $15 million in lease cancellation penalties to get out of leases in Technology Square as they retrenched?

Innovation starts in academic and research space at MIT and other institutions. That’s where the faculty, assisted by low cost graduate student labor, realize the ideas which become new startups and with luck, new healthy companies.

Cambridge has been, since the end of WWII, the low cost entry port for incubator space. Faculty and students, utilizing existing building space, with low rent, low overhead, and modest credit requirements, have made an easy transition from lab or dorm to startup companies, all within walking distance of the MIT campus. When start up space needs expanded and the rents rose, the companies migrated to lower cost real estate in other communities.

Some of this is to be expected but in some cases low cost property ideal for incubators is being held off the market in the hopes for a bigger score with another national or international client who will pay top dollar because they want to be in startup center. Their hopes may turn out to be an illusion.

O. Robert Simha is a former planning officer for MIT. Weigh in on The Exchange: Let us know what you think of proposed zoning changes in Kendall Square at hive@boston.com or on Twitter at @HiveBoston.

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