The Southbridge Innovation Center is updating its on-site power plant to offer discounted utility costs to prospective industrial tenants. The $6 million cogeneration plant operated by Trane Commercial Systems is expected to come online in early fall.

A new cogeneration plant will soon open on the campus of the Southbridge Innovation Center, providing a source of inexpensive energy that could aid the developer’s recruitment of industrial tenants.

The $6 million project will replace a conventional power plant that serves the 150-acre property, a former American Optical Co. factory that closed in the 1980s. Wellesley-based Franklin Realty Advisors has spent over a decade updating 1.2-million-square-foot complex, which contains a hotel and conference center leased by the U.S. Department of Defense and a dozen factory buildings occupied by offices, industrial users and Quinsigamond Community College classrooms.

Franklin Realty Advisors Managing Partner Chip Norton Jr. said the new 1.1-megawatt cogeneration plant, operated by Trane Commercial Systems under a six-year contract, will supply over 70 percent of the complex’s electricity and 90 percent of its heating and cooling needs. The strategy is to pass the savings onto industrial tenants that have large energy requirements.

“Over time as we continue to grow, we expect our primarily electric costs will be below market,” Norton said. “If they are a major utility user, we can provide below-market utilities at a fixed rate and we’ll be more competitive.”

Norton is best known for his firm’s Mercantile Center project, a redevelopment at the former Worcester Galleria mall. He became involved with the Southbridge property in the early 1990s, acting as a consultant to the previous owners before buying out their ownership share in 2006.

The U.S. Department of Defense in 2000 leased part of the complex for a 350,000-square-foot executive management training center which opened in 2002. The facility was touted as an economic savior in Southbridge, where the local economy relied heavily on the American Optical workforce which crested at 6,000 employees. The hotel also serves as the primary amenity center for the Innovation Center.

But filling the vast raw spaces in the dozen former factory buildings – originally built from the 1880s through 1953 along the Quinebaug River – has been a slow process.

About 40 percent of the complex is leased, Norton said, even with rents that are lower than Worcester and other central Massachusetts communities. Asking rents for the industrial space range from $5 to $6 per square foot on a triple-net basis, while the office space is marketed in the high teens to the low $20s, he said.

The largest tenants are electronic packaging manufacturer Schott North America, which occupies approximately 50,000 square feet, and Metalogic, which leased 47,000 square feet in February. Metalogic is scheduled to move in next month, consolidating its space from two locations in Dudley.

Franklin Realty Advisors wants to add housing to its 1.2-million-square-foot Southbridge Innovation Center, including apartments at the 200,000-square-foot 25 Case St. building.

A $6M Investment in Future Efficiency

A conventional gas-fired plant supplied electricity and heat for the American Optical factory, and provided some of the infrastructure serving the new cogeneration system. Steam generated as a byproduct of the electric production is recycled for use in the complex’s heating and cooling system.

The energy savings can be built into the terms of future tenants’ leases, Norton said. Tenants are responsible for their utility costs.

MassDevelopment and Middlesex Savings Bank jointly financed the $6 million, five-year loan for the cogeneration plant.

“It does take a bit of vision and a good eye to be able to take some of these larger older industrial complexes and make them efficient for today’s users,” said Blain Marchand, senior vice president of commercial lending at Middlesex Savings Bank. “Developers are trying to make a project as profitable as possible, so they have to look at ancillary revenue streams to make them competitive.”

The project also is counting on a $1.1 million rebate from gas supplier National Grid upon completion. The rebate is part of the Combined Heat and Power incentive program administered by utilities through the Mass Save collaborative.

And cogeneration qualifies for renewable energy credits that can be sold by the developer on the open market, Marchand noted.

“The grant was a major incentive to make this work,” he said. “The energy credits are just like the icing on the cake.”

Steve Adams

A master plan for the property would incorporate its first housing component, slated for two vacant buildings at 5-15 and 25 Case St. totaling over 270,000 square feet. Southbridge officials last year approved apartment uses for two buildings, and Franklin Realty Advisors is planning 48 factory-loft style units for the first phase.

The financing package will require low-income and historic tax credits to narrow the gap between development costs and anticipated rents in the Southbridge area, which Norton estimated at $1.50 per square foot. The property is seeking inclusion on the National Register of Historic Places, a requirement for seeking historic tax credits.