1060 Millbury St., Worcester
All of a sudden, Greater Boston’s industrial real estate market is becoming user-friendly.
No longer coveted for office conversion due to that market’s lingering struggles, empty industrial buildings are increasingly finding the greatest interest among buyers from companies who want to occupy the space themselves, according to investment sales brokers familiar with the market. Although there is also a growing stream of institutional capital chasing such product, users are often willing to pay more for a building, say observers, particularly in the current financial environment.
“When they compare (buying) at today’s interest rates with leasing, it’s a lot easier to justify,” said CB Richard Ellis/Whittier Partners principal Gary J. Lemire, who said smaller industrial properties are particularly ripe for such an approach.
“With the office market having gone to hell in a handbasket, that play isn’t there anymore,” Lemire said of the common pre-crash practice of tearing down older industrial structures in favor of glitzy office or telecommunications space. Trammell Crow Co. Vice President Christopher A. Phaneuf concurred that users are now a significant presence in the industrial sales market.
“If it makes more sense for them to buy and leverage it with some very attractive debt, they are more willing to do it,” said Phaneuf, adding that the typical user/buyer is comfortable with the area the property is located in, and generally tends to have a fixed space need accommodated by the building they obtain.
Recent user purchases include Security Lock’s acquisition of 25 Dartmouth St. in Westwood, a 78,000-square-foot industrial building that had been owned by Boston Properties. The building fetched $6.9 million, or a solid $88 per square foot. In Canton, Pastene Products paid $2.8 million, or just over $60 per square foot, for 330 Turnpike St. Also in Canton, Newman Assoc. purchased 80 Hudson Road for its own use, paying $67 per square foot for that 48,000-square-foot building.
Even with the robust climate for users, the industrial market is attracting interest from other parties as well. Along with ground-up construction in certain markets such as Taunton, there are redevelopment plays in others, including 445 Simarano Drive in Marlborough. In that just-completed deal, Nordic Properties of Burlington paid $5.1 million for the 175,000-square-foot industrial property, which had been used during the past 15 years as a bakery and freezer operation for a Dunkin’ Donuts supplier. Citing both a solid location and good physical characteristics, Nordic President Ogden Hunnewell said following the sale that the company will upgrade the building but seek industrial users for tenancy. CB Richard Ellis/Whittier Partners is serving as leasing agent for the property after broker Austin Smith negotiated the sale to Nordic.
Meanwhile, institutional money from pension funds and other sources is also focusing attention on industrial properties, largely fueled by the desire for safe harbor investments. Trammell Crow has a pair of properties it is currently marketing that are expected to appeal to the institutional market, those being 9 Forge Park in Franklin and 1060 Millbury St. in Worcester. According to Trammell Crow Co. principal James McCaffrey, 9 Forge Park benefits from a steady industrial market where the vacancy rate has held in the 10 percent range, and from being fully leased to a strong tenant base, with little rollover slated at the 250,000-square-foot building during the next three years.
Nine Forge Park has clear heights up to 26 feet, but even that size pales in comparison to the Worcester property, a former steel foundry that has clear heights up to 42 feet. Owned by Liberty Properties of Boston, the hulking 600,000-square-foot building was converted several years ago into a multi-tenanted property. It features rail service on both sides, and is also fully leased. “It’s a good, solid building,” said Phaneuf, one possessing all the elements needed to attract institutional money.
The biggest challenge for brokers with selling industrial buildings at present is finding the opportunities, said Phaneuf, partly due to the region’s limited history as a warehouse/distribution hub. The lack of affordable land has played another role, as has the aforementioned trend of tearing down industrial buildings to make way for the so-called higher and better use. “If you have a good, functional industrial building … it’s in demand,” Phaneuf said of the institutional mindset.
Still, according to Lemire, institutional activity for Bay State industrial buildings pales in comparison to other capital sources. In one study of 2002 industrial property sales in Massachusetts that exceeded $500,000, only 5.1 percent of the $228 million spent was from institutional players. That compares to 27.6 percent, or $63 million, from users, while Lemire said the bulk of the interest came from private capital, with $153.2 million acquired by that market, or 67.2 percent of the total.
