In recent years, Dorothy herself might have been able to describe much of the office market along the western edge of Interstate 495 West: Obsolete buildings, widespread vacancies, ghost town corporate campuses – oh my!
But if the various potential owner/occupiers that have been touring some of the more prominent office campuses in the area are any indication, the wicked witch that is I-495 West could be close to having a house – er, renovated office building – dropped square on her head.
A wide variety of firms – from R&D types to back-office administrative users – are looking anew at the inherent value offered in and around the I-495 corridor. As Banker & Tradesman first reported, the TJX Cos. could be looking for a new headquarters. Single-cup coffeemaker manufacturer Keurig could be looking to expand into 500,000 square feet in the area. And Schneider Electric of North Andover has been talking about a build-to-suit project for 175,000 square feet.
And with properties along I-495 West currently trading at well below replacement costs, the time could be right for executives to make a move toward consolidating or expanding into one of the many empty buildings in the region, according to industry sources.
Finding Value
“Buildings that lease for relatively low rents compared to other parts of the cycle are attractive to tenants,” said Frank Petz, executive vice president for Richards Barry Joyce and Partners, which is marketing 327 acres of land offered for development by the Gutierrez Co. along the Marlborough/Northborough border. The property offers the potential for more than two million square feet of industrial development.
And the companies looking hard at campuses are especially looking for properties with existing infrastructure – features offered at the roughly 700,000-square-foot former Fidelity campus in Marlborough and a 300,000-square-foot data center vacated by EMC in Westborough.
At the 109-acre former Hewlett-Packard campus in Marlborough, potential suitors could value the land more than the buildings, saying existing buildings have marginal use. But the land is valuable for build-to-suit options because of its highway access, visibility and existing zoning opportunities that afford potential new owners opportunities to take the properties in various directions.
Still, custom building still carries substantial risk.
“The big questions really will be, do the suburban tenants typically leave themselves enough time for a build to suit?” offered James Elcock, executive vice president for Colliers International in Boston. “A lot of tenants don’t want to pioneer. For the past 15 years, a built-to-suit has been the exception, not the rule. People have built on spec, and those, along with buildings that become available, those are the ones with an opportunity to make impact plays on the marketplace. With existing product, there’s uncertainty about construction timing, and existing product is always less expensive than new product.”
But on the flip side, one can only ignore rock-bottom prices for so long, even if the properties currently sit largely unused.
David Ferris, a private investor, bought a 65,000-square-foot property at 352 Turnpike Road in Southborough for $3.75 million last month – after its prior owner paid $4.3 million in 2010. The property has 40,000 square feet available, according to Colliers International, but still represented a bargain. In August 2010, Ferris purchased the 76,000-square-foot 325 Donald Lynch Blvd. in Marlborough from Eastern Casualty Insurance Co. for just $2 million. Eastern bought the building for $6.6 million in January of 2009.
“We are seeing increased demand [for custom, build-to-suit properties], but there’s still a lot of second-generation space that could be leased without a build-to-suit, which has a much longer length of term and higher rental rates,” said Brian Morrissey, a vice president with Jones Lang LaSalle. “There are certain size ranges that offer opportunities that don’t need to be completely re-habbed. But you’d still need to invest a healthy amount of capital into it.”
