Luxury apartment tenants hit with bad connection

Buildings suffer in deals with dying telecom start-ups

May 26, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

The Redwood, a luxury apartment building in downtown Baltimore, offers tenants concierge service, a bird's-eye view of Camden Yards and, for the past month, free phone calls to anywhere in the world.

That last perk wasn't advertised - just a way for the building's owner, A&R Development Corp., to partly make amends as it struggles to fix the haphazard phone and Internet service in the year-old tower. Phone service had become so unreliable, the owner feared that it threatened residents' safety.

"I didn't mean to be a pioneer. I didn't do enough research on it. I should have anticipated the amount of bugs," said Anthony T. Rodgers, A&R's development manager and son of prominent Baltimore developer Theo C. Rodgers.

Thousands of apartment complexes around the country are struggling with faulty telecommunications service after entering into deals with providers that promised the latest in "smart buildings," fully wired for phone, cable and high-speed Internet use. Building owners and managers were convinced that such state-of-the-art service would entice renters, especially at the high-income end. They were further induced by revenue-sharing deals.

But with many of these telecom start-ups at death's door or already gone, there are no profits to be apportioned. And the service in many instances has been horrendous.

In Herndon, Va., one complex nearly staged a revolt, with tenants threatening to put their rent money in escrow if they couldn't get a new phone provider they trusted. At a California community, residents get high-speed Internet service on one side of the complex, but neighbors several doors away can't.

"The entire apartment industry has been hit hard. Everybody's got a horror story," said Thomas S. Bozzuto, whose company manages the Redwood and 40 other complexes in the Baltimore-Washington region.

For every high-profile telecommunications failure such as bankrupt Teligent Inc. of Vienna, Va., there are dozens of dying lesser-knowns that concentrated on the apartment and condominium market.

Recent Chapter 11 filings include Darwin Networks of Kentucky, ReFlex Communications of Seattle and OnSite Access Inc. of New York, which rewired the Empire State Building. CAIS Internet Inc. of Washington, D.C., exited the apartment market this spring after bleeding $265 million in 2000, quadruple its 1999 loss. Tut Systems, a Pleasanton, Calif., maker of equipment to link apartments and shopping centers online at high speed, lost $34 million in this year's first quarter - ninefold its loss for the comparable period a year earlier.

"At building conferences now, we're all singing the blues over this," said Scott Wiggins, an assistant vice president of United Dominion Realty Trust Inc. His company saw its own deal with CAIS collapse at complexes in Texas and its home base, Richmond, Va. The apartment operator abandoned plans to expand the high-speed Internet project to its Maryland properties, from Abingdon to Salisbury.

The real-estate industry maintains that it should be the gatekeeper to determine what companies serve their properties. Telecommunication lobbyists argue the opposite: that government should require open access to multiunit buildings, at a fair price, and that unfettered competition would solve some of the mess in which the property owners and managers now find themselves.

Last fall, the Federal Communications Commission disallowed owners of commercial buildings from interfering with competition among telecommunications providers. But the FCC hasn't decided whether to extend that rule to residential properties. Its eventual decision would affect the 90 million Americans who live in apartment buildings.

Connecticut, Texas and Massachusetts have passed state laws to require multiunit buildings to grant nondiscriminatory access to telephone companies.

"Our warnings about this issue have been a little truer than we had hoped," said John D. Windhausen Jr., president of the Association for Local Telecommunications Services, a trade group in Washington.

"When you had one phone company, the building owners had no choice. They let in the phone company for free. But when competition came along, the building owners said, `Whoa, we can play one company off another and make some money off of this,'" said Thomas Cohen, a Washington attorney who leads a lobby group funded by the telecommunication industry called the Smart Buildings Policy Project. Cohen, a for- mer counsel to the Senate Commerce Committee and the FCC, contends that greed motivated property owners to sell "exclusive rights" to their buildings or to enter partnerships with fledgling telecoms.

"They don't know what the telecom business is about," Cohen said. "They should stick to the real estate business."

Property managers concede that profit sharing was enticing but say they were also motivated by a fear that they would fall behind competitors if they did not offer the latest in communications technology being heralded by Wall Street and the news media.

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