A 'defining event' for the industry, or 'sheer lunacy'? The reaction to real estate firms investing in technology startups has managed to touch both extremes, depending on how you interpret the term 'incubator'.
The praise came from Wall Street analyst Deutsche Bank Alex Brown over the magnificently-termed Project Constellation, launched by some of the cream of global real estate players. The motivation is to 'form, incubate and sponsor real estate-related Internet, e-commerce and broad band enterprises.'
DBAB sees the project as an indicator of the way real estate investment trusts are transforming into real estate technology companies. As the analysts dismiss any prospect that the industry can survive by bricks-and-mortar alone, this is a crucial change.
The consortium includes blue-chip names such as Simon Property, Trammell Crow, CB Richard Ellis, Jones Lang LaSalle and Morgan Stanley, linking top landlords, service companies and equity investors. They have committed 135m dollars of capital so far but this is likely to be mere seed capital.
According to JLL's chief innovation officer Mark Rose, Constellation will 'incubate' the technology required to run online real estate services rather than having to start web sites and writing software from scratch. The partners are not new to these waters, as they already have investments in more than 20 real estate IT companies.
A similar path is being trodden by Insignia, with equally heavyweight partners such as Apollo and Witkoff. As well as sinking more than 20m dollars into these initiatives, Insignia has put 15m dollars into its own 'incubation' program through investment in internet-related businesses such as Onsiteaccess, Propertyfirst, Homestore and Mycontracts. Again, the philosophy is to invest in skills that could feed directly into web portals like EdificeRex and RexSpeed.
'I spent nine years creating a traditional fulfilment infrastructure and the last two years developing an e-business version.' says chief executive Andrew Farkas.
Doubts remain among some observers whether real estate investors are equipped to plot a path through this minefield, particularly since the NASDAQ crash wiped billions off the value of many dotcoms. Farkas merely points out that he designed database systems before building Insignia into a global chain. 'I think I know enough about the way technology companies work to be able to judge which are the good ones,' he says.
Criticism may be more valid where letting space and investing in technology becomes blurred and the definition of incubation changes. When dotcoms began reproducing like rabbits a year or so ago, landlords faced a tough choice. Newcomers are normally discriminated against until they build a track record. Bank guarantees or hefty advance rent charges are the norm. But one of these beginners might be another Cisco, rising from backroom workshop to one of the world's biggest occcupiers within years, which can tempt landlords to soften their stance.
Some began to swap space for equity - usually in the form of stock warrants. They were sacrificing jam today for potential caviar tomorrow - or 'incubating' according to the pseudo-scientific jargon coined in Silicon Valley, Manhattan and London.
'Sheer lunacy,' is the preferred language of Gary Kusin, chief executive of HQ Global Workspaces. 'Real estate companies are by their nature trained not to take risks,' he says. That is reserved for venture capitalists and even the best of those accept that six out of 10 investments will make losses. Only one in 10 will make a return of five times the outlay.
Succumbing to the prospect of extraordinary returns 'will almost certainly result in disaster - perhaps sooner than later,' says Kusin. HQ won't let dotcoms near its global chain of serviced offices until at least the second round of venture capital is successfully raised.
Others appear less worried about the potential downside. The Rudin family blasted into headlines a few years ago by filling a long-empty office block in Manhattan's Broad Street with dotcoms. Despite the NASDAQ crash, the company is now repeating the exercise at another building in Wall Street.
Rudin argues that it makes stringent checks on the management and financial backing involved in each business before agreeing to take warrants. As a private company, it can take that bet, but investors in listed firms might agree with Kusin that this can be a risk too far.
A handful of entrepreneurs willing to test these waters began to emerge in the UK as dotcoms grew to dominate demand for office space last year. Business Investment Group has half a dozen serviced office centres ranging from London to Bristol and a stable of around the same number of incubation projects. Stakes range from a couple of per cent to majority holdings but BEG claims never to have had a failure. Possibly this is because it has turned down 10 times as many potential tenants
Other firms such as Rugby Estates have considered dipping in the same pool - but only tentatively. The biggest player, Regus, is as suspicious as its great rival HQ, while Resolution Properties, which made a great play of specialising in new economy ventures, has quietly backed away from the idea swapping space for shares.
The potential for growth when real estate equiies are performing so badly has been too much for a handful of the market's well-known entrepreneurs to ignore, but they are careful not to link this with lettings. CLS is the most high profile direct investor in technology companies as it seeks a better rating than the real estate sector.
Others have looked for a more indirect link. Richard Balfour-Lynn, chairman of MWB, has a long track record of going out on a limb to back new trends in real estate, and he sees great potential for crossover between MWB's serviced offices and business opportunities coming out of dotcoms. But he is channelling through venture capitalists by taking a 20 per cent stake in Illuminator, the technology fund.
Another thrusting entrepreneur, Jamie Ritblat, managing director of Delancey, paid 800,000 pounds in cash and shares for 50 per cent of Spacetorent, an online 'vortal' providing services to landlords and tenants, and is planning more purchases to strengthen the site.
A flotation or demerger was planned for the summer. Whether it goes ahead - and at what price - will provide a new benchmark for the way the market views prospects for incubation in the UK.
'It is still too early to tell whether anybody is making the right decisions or facing big losses,' says one City analyst. 'No-one is floating dotcoms nowadays. When they start again, the successes and failures will be obvious.'