Plans to construct the five-building InWood Office Park on the Reading/Woburn border have been scrapped in favor of marketing the 57-acre parcel for apartment or condominium use. The decision underscores the weakness of the suburban office market at present.

InWood Office Park is out.
Despite a lengthy effort by Texas developer Edward Callan, plans to construct a five-building office complex fronting Interstate 93 on the Reading/Woburn line have finally succumbed to the dour suburban office climate, with the new ownership group now peddling the 57-acre parcel as a multifamily opportunity.

“The property lends itself to a residential play,” NAI Hunneman Commercial Co. Senior Vice President Mark W. Hall said last week. “That’s a very good use for it.”

Hall and colleague David Ross are marketing the site on behalf of Saticoy InWood LLC, an offshoot of Texas-based PNL Cos. After foreclosing on Callan last year, Saticoy InWood acquired the parcel in January for $10.5 million, and has subsequently retained Hunneman to find a buyer. According to Hall, interest heretofore has been almost exclusively from multifamily developers, underscoring just how deep concerns are about the suburban office outlook.

“That market is gone and is probably gone for the next six to eight years,” said Hall. In a Banker & Tradesman article last June, PNL President David M. Porter expressed hope that InWood could still work as an office destination, particularly since Callan had managed to install the park’s infrastructure while working through the final permitting. The continued deterioration of the office sector in the months since has apparently quashed that enthusiasm, however, although Hall said the roads and power network in place will enhance the site for residential developers.

“There has been a substantial amount of money put into the property,” Hall said. While declining to identify any suitors, Hall said the parcel has been well received by several national apartment developers. InWood could yield between 400 and 500 housing units, he estimated, but cautioned that the final number will depend on negotiations with the communities involved. As an office park, InWood was approved for 850,000 square feet of development.

The plurality of local governments when permitting the site cost Callan valuable time. Despite that, Hall said he believes Reading, Woburn and abutting Wilmington will be more amenable to a residential use, maintaining that vehicular traffic and other impacts would be less than those anticipated from an office complex.

“It’s really a downsizing,” Hall said of the repositioning approach. Efforts to contact Woburn officials were unsuccessful, while Reading Town Manager Peter Hechenbleikner said he has heard rumblings about the pending use change. Hechenbleikner said he believes Woburn Mayor John Curran has been briefed by InWood’s representatives, but added that Reading has not been formally contacted.

“We would want to understand a little bit more about it,” Hechenbleikner said, particularly since Reading would be impacted by access to the parcel.

From a marketing standpoint, industry observers sided with PNL on its strategy of pursuing other uses for the property. “There’s just way too much office space,” said Spaulding & Slye Colliers broker Tamie Thompson. “It’s very hard to justify new construction.”

‘Collapsed’ Market

Thompson said there has been a slight increase of leasing activity in the first few months of 2003, with sizeable deals done recently in such Route 128 North communities as Lexington, Wakefield and Bedford. Regardless, Thompson said there has not been enough volume to offset the available supply, including both sublease and direct space. Recently, for example, high-tech concern Devine filed for bankruptcy protection, leaving in limbo the future of more than 100,000 square feet that the firm leases at One Wayside Road in Burlington.

“It’s still a soft market,” said Thompson. “Vacancies and availabilities are both really high.”

The demise of InWood ends an aggressive effort by Callan to secure the property and then get it permitted. When Callan began the process in the late 1990s, suburban Boston was in the midst of an unprecedented leasing boom that led developers to clamor for sites along both I-93 and Route 128. That growth led to the MetroNorth Corporate Center being built across from InWood along I-93.

The MetroNorth venture by National Development lured several top tenants to the I-93/Route128 interchange in Woburn, but by the time Callan was ready to proceed, most of the market’s momentum had evaporated. Indeed, financial struggles for such MetroNorth tenants as Genuity have opened up competing sublease space that further darkened InWood’s prospects. One block of excess Genuity space at 3 Van De Graaff Drive in Burlington is 285,000 square feet.

According to Richards Barry Joyce & Partners’ just-released first-quarter 2003 forecast, the Route 128 North market in which InWood is located currently has 14 space opportunities of 50,000 square feet or more, while 400,000 square feet of sublease was added to the supply in the fourth quarter alone.

As of year-end 2002, the vacancy rate for Route 128 North was 21.3 percent, a full 3 percent above the third-quarter rate and up from 16.9 percent at year-end 2001. Per-square-foot rents have fallen into the mid- to high teens for sublease space and the mid-$20 range for Class A deals, well below that needed to support new construction.

Ironically, about the only local office buildings underway in recent months was at the Edgewater Office Park in Wakefield, where Hobbs Brook Management has developed – and leased a good part of – twin 160,000-square-foot office buildings. Callan made his mark in the Bay State during the early 1980s when he launched Edgewater at the site of a former amusement park. In the end, one of the final pieces of that 132-acre complex worked against InWood as Callan and PNL tried to keep the project alive.

Porter did not return a phone call to discuss the current plan, while Callan, reportedly now living on the West Coast, was also unavailable for comment. But in a Banker & Tradesman article last June, when PNL first moved to take over the parcel, Callan lamented how quickly the suburban office sector had turned south. “The market collapsed on us,” Callan said at the time. “I never thought it could change that fast.”