2011-07-14_DSC_0668

The LA Dodgers might be the best thing that has ever happened to Boston’s startup ecosystem. When Frank McCourt, a Boston real estate developer, bought the beleaguered baseball team from Fox Entertainment in 2004, he inadvertently changed the landscape for Boston tech companies.

To muster up the cash to make the purchase, the man that the Boston Globe has described as “volatile, impatient, and brash,” sold 24 acres of parking lots located on Seaport, a boomerang of land jutting out into Boston Harbor with panoramic views of the downtown skyline and Logan Airport.

For a while, that looked like not a great move.

Seven years later, McCourt left the Dodgers more than half a billion dollars in debt while the city started converting his old parking lots into a $3 billion “Innovation District” with office buildings, retail space, condos, and restaurants. According to the city, the Innovation District has since added 5,000 jobs in four years, and 200 companies have set up shop in the neighborhood. Many of them are startups and tech companies, including LogMeIn, Monster.com, DataXu, and the MassChallenge mega-accelerator. Venture firms are also taking a look: Polaris Partners moved in, and Battery Ventures is heading there too.

View from the Innovation District boardwalk. Photo by Hamish McKenzie.

View from the Innovation District boardwalk. Photo by Hamish McKenzie.

The Innovation District arrived at an important time in the evolution of Boston’s startup ecosystem, just as startup activity in the city was escalating and space to rent was becoming increasingly scarce in other parts of town.

The area’s tech epicenter used to be on the Route 128 beltway that rings the city, where pioneering companies such as Digital Equipment, BBN Technologies, and Computervision etsablished their headquarters. The tech cluster, which predated Silicon Valley, attracted venture capitalists to the area, and many firms remain there.

The 128 still serves as home to many enterprise-focused companies – largely staffed by people already living in the ’burbs – but Boston’s hottest startups pay it no heed. Today, most entrepreneurs coming out of Harvard, MIT, Boston University, or the city’s incubators, don’t bother making the 20-minute drive to even consider office space on the 128, even though it would save them some money.

Instead, all the action is concentrated downtown and in Cambridge, a phenomenon that is starting to cultivate a new cluster effect. Young people, many of whom don’t own the private transport necessary to make the schlep out to the 128, want to live in the city, where there are more bars and restaurants, more civic amenities, and more of their peers. It’s essentially the same effect you see in the Bay Area, where tech workers want to live in San Francisco, even if that means taking a bus to suburban Silicon Valley every day.

The concentration of people and resources in a tighter space means more meetings, more chance encounters, and more creative cross-pollination. In short, Boston’s new tech landscape is much more conducive to good business and innovation.

Cambridge’s Kendall Square, where MIT is based, is particularly frothy right now. Sean Dalton, a general partner at Highland Capital, says office space in the area is so hard to come by that he wouldn’t be surprised if Kendall Square were at 99 percent occupancy. Companies such as Microsoft, Amazon, Google, and Akamai have established, and continue to grow, large presences in the area to have access to the engineering talent coming out of MIT, while startups and the likes of Cambridge Innovation Center and Dogpatch Labs fill many of the other spaces. Startup staffers and entrepreneurs gravitate towards the nearby Voltage coffee in the same way in which their San Francisco counterparts congregate at SoMa’s Creamery.

The venture firms have followed the talent, too. Highland Capital moved into the area a year and a half ago, and Charles River Ventures, Atlas Ventures, Bessemer Venture Partners, and Matrix Partners are just up the street.

Much of the clamor for space at Kendall Square has happened only in recent years, says Dalton, who has been in Boston since 1996. “As recently as 2009, the only reason you would come to Kendall Square was to come to an a event at MIT,” he says, “and you definitely wanted to be careful to take the right turn out of the university.”

As the squeeze goes on in Cambridge, downtown Boston is also seeing a surge in startup activity. Since the financial crisis, office space has become affordable in the Financial District, where Boston’s public transit network is at its most dense, making it an appealing option for the carless hordes of Startupland. Runkeeper, ByteLight, and Brand Networks call this area home, and PayPal gives free space to some startups in its nearby offices. Further south, in the area that borders Chinatown and Downtown Crossing, you can find textbooks startup Boundless, hardware accelerator Bolt, and digital shop One Mighty Roar.

Elsewhere in the city and in Cambridge, new tech nodes such as Alewife, Allston, and Dorchester are also catching the startup bug. A consequence of the increasing centralization of Boston’s tech scene, however, is that the rents never stop going up.

ICA

Institute of Contemporary Art. Image via Wikipedia.

The advent of the Innovation District did offer some rent relief for startups that wanted to find a home in the city. In the development’s earliest days, office space was much more affordable than elsewhere in Boston (excluding the 128), which helped catalyze activity on the waterfront property. Now where there were scruffy parking lots there are modern skyscrapers, elegantly restored red-brick warehouses, and the Institute of Contemporary Art, which resembles an iMac perched on the harbor. A waterfront boardwalk wraps around it all, giving striking views of the city and a mini marina that reaches out the beginnings of the open ocean.

The Innovation District, however, has proven so pleasant a place to be that now everyone wants a piece of it. Law firms are moving in, prices are going up, and luxury apartments will follow. In fact, MassChallenge, which was one of the first and most significant arrivals, is being priced out of its current lease of the 14th floor of the swish One Marina Park Drive, which looks more like a Hong Kong shopping mall than a home for early-stage companies. The good news for MassChallenge, which houses 128 startups, is that it has just been given 25,000 square feet of free space for five years in the nearby Boston Design Center.

Boston’s hottest property might now risk becoming a victim of its own success, and ultimately unfriendly to startups. But it’s a hell of a step up from a giant parking lot. Boston has the LA Dodgers to thank for that.

Lead image via InnovationDistrict.org.