CB Richard Ellis/Whittier Partners’ investment team is gearing up a marketing campaign to sell a four-building flex portfolio on behalf of the Archon Group, including this facility at 259 Cedar Hill St. in Marlborough.
It often pays to be flexible, and certainly that is the case these days with the commercial real estate industry. While office space and other sectors have been hit hard by the prolonged economic downturn, so-called “flex buildings” have been surprisingly resilient, attracting both investor and user interest.
“It’s a pretty healthy market and should continue to be,” said Gary J. Lemire, a principal with CB Richard Ellis/Whittier Partners in Boston. Flex properties are “supply constrained,” Lemire explained, with most of the construction in recent years focused on higher-end opportunities such as office buildings. According to Richards Barry Joyce & Partners, the suburban Boston flex inventory features 25.5 million square feet, whereas the industrial market has 56.1 million square feet and the office supply totals 90.3 million square feet.
“There’s no question that the flex market has been stronger than the office market,” said Scott R. Hughes, president of Hughes Properties. “It has been much steadier by far.” Hughes said there has been a bit of slippage in the Marlborough flex space, with rents falling from a peak of $7.75 per square foot through 2000 to instances now where deals can be had for under $7 per square foot on a triple-net basis.
The downturn in rents is partly attributed to a larger supply of flex space in the Marlborough and Southborough markets, said Hughes, but he maintained that area overall remains in balance and said rates should rebound along with the economy. In the meantime, pricing has held up even better in Franklin, where the Maggiore Cos. of Woburn is achieving rents in the $7.50 per-square-foot range at the Grove Street Business Center, a three-building complex that broke ground in May.
Already, Maggiore has signed two tenants for the initial property at 165 Grove St., a 90,000-square-foot building that opened this month. Existing tenants include Circuit City, which leased 8,200 square feet and Rent-A-Center, which scooped up nearly 21,000 square feet. A lease is out to a Fortune 500 company for signature that would bring occupancy near 50 percent, said Hughes, who is marketing the space with colleague Robert E. Newis.
‘The Right Product’
Hughes said he believes there are a variety of reasons why the Grove Street site has fared so well despite the region’s economic struggles. Along with certain efficiencies, such as 18-foot clear heights and customized loading docks, the space is subdividable as low as 6,900 square feet, which Hughes said appeals to a broader range of users. Maggiore’s reputation as a solid, responsive developer has also helped, according to Hughes, who added that flex space also appeals to a bread-and-butter audience of companies, suppliers and service vendors that in many cases represent the backbone of the economy.
“We feel we have the right product,” said Hughes. In most cases, firms seeking such space are in need of a requirement, he said, as opposed to office users who are in many cases trolling for bargain-basement opportunities.
Whatever the reason, Hughes reported that Grove Street has achieved a solid line of traffic since construction began. Activity has been so solid that Maggiore is pushing ahead with his second building, one that will feature 76,000 square feet of space. That will be followed by the third structure of about 55,000 square feet.
One real estate veteran impressed by Maggiore’s work is Peter Merrigan, a principal with Taurus New England Investments. The real estate investment and management firm has owned the 34 St. Martin Drive flex building in Marlborough since buying it in June 1993 for $10.3 million. Developed by Maggiore, the 203,000-square-foot building has remained 100 percent leased during Taurus’ stewardship. “It has been great,” said Merrigan. Maggiore “really knows how to build that product.”
It does appear Taurus will reap a solid return for its investment, with the RREEF Funds reportedly in the process of buying 34 St. Martin Drive at a price estimated between $12 million and $13 million. While Merrigan would not discuss the players involved or the pricing, he did acknowledge that the building is under agreement to an institutional owner after a marketing effort received seven serious bids.
“The flex market is still quite strong,” said Merrigan, whose firm does not own any similar properties locally.
Efforts to contact RREEF officials to discuss the Marlborough sale were unsuccessful, but sources insisted the real estate investment advisor is the entity that has committed to 34 St. Martin Drive.
In any event, Lemire is confident investors will continue to flock to flex, and CB/Whittier’s investment team is gearing up a marketing campaign to sell a four-building flex portfolio on behalf of the Archon Group. Included are 257 and 259 Cedar Hill St. in Marlborough and 25 and 45 South St. in Hopkinton. The assets will be offered both individually and as a package, said Lemire, estimating the total portfolio at 240,000 square feet.
“It should do well,” said Lemire, who cited the relative stability of the flex market and the quality of the buildings being offered for sale. CB/Whittier estimates the current flex market vacancy rate to be 10.8 percent, well below the 16.2 percent registered for suburban office space at the end of the third quarter.
Among those praising the Archon assets was Hughes, who actually helped assemble the land for both sites. Tambone Corp. developed the Hopkinton properties, while Charter Development constructed the buildings at Cedar Hill. “It was good product back then, and it’s good product now,” said Hughes.
