STEPHEN MURPHY
Property will work
The dream is dead for iPark.
Three years after acquiring a sprawling Raytheon research facility in Waltham to reposition it as a Mecca for high-tech companies, the joint partnership is being foreclosed upon, with an auction slated for Feb. 10. The 1.2 million-square-foot complex had been purchased in early 2000 for $38.5 million by Saracen Properties of Newton and Texas-based Highgate Holdings.
Saracen principal Kurt “Ted” Saraceno declined to comment on the matter when contacted last week, but lender UBS Warburg has retained the Saperstein Co. to conduct the auction. The foreclosure is just the latest fallout for real estate developers from a series of events that decimated the telecommunications industry after the market bottomed out in mid-2000.
“It was bound to happen,” one industry source maintained last week, adding, “it’s also a sign of things to come.”
As with many competing properties, iPark experienced initial success in leasing up space, including a blockbuster deal with Global Crossing for 400,000 square feet. When Wall Street abandoned the telecommunications sector in 2000, however, lofty expansion plans were put on hold across the country and properties like iPark were left in the dust. The project has had some success leasing to traditional tenants since, including a recent 50,000-square-foot pact with engineering giant Simpson Gumpertz & Hager, but volume and rents have not been nearly enough to justify the hefty acquisition price.
“The market just didn’t respond,” said Insignia/ESG principal Stephen Murphy, leasing agent for the complex. Murphy declined comment beyond that, but did express optimism that the property will eventually work as a multi-tenanted commercial facility, either for high-tech firms or traditional business operations. That notion was seconded by Cushman & Wakefield Managing Director Mark Winters, who said he believes iPark was a victim of unforeseen circumstances, including the collapse of technology financing.
“They looked like geniuses two years ago,” Winters said of the partnership. While the pricing may have been overly aggressive, Winters said the property does have solid real estate fundamentals that the owners correctly identified, and said he believes a buyer could succeed peddling it as inexpensive office or research space.
“There’s not a lot of opportunities like it inside Route 128,” said Winters. “It could be a slow lease-up, but if somebody buys that right, they will do well with it.” Winters estimated that iPark could fetch per-square-foot rents in the low to mid-teens. While it is unclear what rents iPark was anticipating, telecommunications space at the height of the frenzy was leasing into the $40- and even $50 per-square-foot range, leading developers to churn out an estimated 77 million square feet of telecommunications space nationwide.
Telecom Frenzy
Highgate Holdings, based in Texas, became as caught up in the telecom frenzy as any firm nationally, at one point bidding $64 million to buy a warehouse in Jersey City, N.J., and pursuing other marginal real estate elsewhere in the country. The group teamed with Saracen due to the firm’s local expertise, and appeared to have made the right choice in the Waltham project prior to the market’s sudden demise.
Locally, telecom projects in such communities as Everett, Natick and Somerville have struggled to get past the drawing boards since the crash, while investors such as Boston-based Cathartes Investments and Cabot, Cabot & Forbes have worked to reposition their buildings for other uses. In the case of CC&F, the firm has launched a highly publicized effort to convert its Allston telecom project into a life sciences facility, to date with only limited success.
In Watertown, meanwhile, one telecom developer near the iPark site has attempted to take advantage of the multifamily market, but to date met with resistance from the local community. Winters said iPark’s new ownership might experience similar roadblocks if they pursue multifamily for a portion of the 46-acre parcel.
One industry observer predicted that UBS Warburg may see potential enough in the iPark asset to buy the note back itself. UBS officials did not return phone calls regarding the situation by Banker & Tradesman’s press deadline. According to one source, bidders for the note will have to put down a $2 million deposit prior to the event.
Although the telecommunications arena has shrunk considerably in recent months, brokers say there remains a level of demand that will enable certain properties to succeed. One benefit at iPark is an 80,000-square-foot data center that is still being built out despite Global Crossing’s struggles. And in Needham, the developers who abandoned a telecom project in Natick have acquired the former Level 3 Communications facility. As first reported in Banker & Tradesman last month, Tech Commons LLC paid an estimated $15 million for the three-story, 230,000-square-foot complex, a fraction of what it cost to build the state-of-the-art structure.
“It has a great location and there’s a lot of value in that building,” said Winters of the Needham property. “I think they will get some very good activity there.”
