Tenants for the interstate
Photo/Courtesy
Commercial real estate firm Campanelli recently renovated the Strawberry Hill Corporate Center in Acton to attract new tenants. The common area is shown here.
Campanelli recently bought 300 Friberg Parkway in Westborough. A view from the Route 9 building, which is slated for renovation, is shown here.
It wasn’t that long ago that the real estate market along Interstate 495 was all but written off as dead, with seemingly far too many empty office buildings to fill and little interest on anyone’s part to sink money into them.
The Great Recession certainly took its toll, but the blows came raining down after that, with, for example, Fidelity Investments putting its Marlborough campus on the market in 2011 as it moved 1,100 workers to other locations.
But three years later, the entire region is well on its way to recovery, with a real estate rebound starting to take hold up and down the I-495 corridor. And real estate investors who couldn’t be found a few years ago along I-495 are now back with a vengeance, scooping up office and industrial buildings, from Chelmsford down to Foxborough.
Some of the sales are being driven by bargain hunting, with prices soaring on the Route 128 corridor, forcing real estate companies and investors to go west to find a deal.
But buyers are also motivated by the desire to get in now so they can capture higher prices – and rents – down the line, not a sentiment many shared about the I-495 market back during the dark days of 2009, real estate executives say.
“It’s a good time to buy real estate out there,” said Philip DeSimone, a managing director for commercial real estate broker Jones Lang LaSalle (JLL), in Boston. “Rents are picking up along 128 and in Natick and Framingham and that wave just keeps coming out to 495.”
Demand for office and industrial properties along I-495 has increased steadily throughout 2014, with 20 significant sales of office and industrial properties along the corridor so far this year, commercial broker Colliers International reported in its suburban market overview.
The largest number of deals — 12 — took place in the I-495 west market (the Natick-Marlborough-Westborough stretch), with towns such as Chelmsford and Acton accounting for another 10 in the I-495 north market. Meanwhile, the southern end of I-495, from Milford down to the Rhode Island border, saw two deals, one in Foxborough, the other in Milford
Boston-based Tritower Financial Group spent nearly $40 million in June to acquire 300 Apollo Drive, a 293,000-square-foot office building in Chelmsford. Two Acton office addresses also changed hands, 289 Great Road, which has 85,000 square feet, and the 13,000-square-foot building at 30 Nagog Pond Road.
There were several sizeable deals as well in the I-495 west market, with W.P. Carey & Co. spending $47 million to acquire 9 Technology Drive, a 250,000-square-foot office complex in Westborough.
Curo Enterprises of Boston bought 118 and 120 Turnpike Road, a pair of office buildings in Southborough, totaling 163,685 square feet, for $16 million in the spring, following it up a few weeks later with a $12 million deal for 130 Lizotte Drive, a 96,000-square-foot office building in Marlborough.
Novaya Real Estate Ventures snapped up 313 Boston Post Road, a 110,000-square-foot building on Route 20 in Marlborough, for $9 million.
Along I-495’s southern tier, Cambridge Capital Advisors picked up 36-38 Mechanic St., a 24,600-square-foot professional building in Foxborough, for $1.8 million.
The rising number of sales along I-495, in turn, points to a growing appetite on the part of investors for property along the corridor, with rising prices starting to roll west from Boston and the Route 128 beltway.
Many of the buyers are privately-held investment funds whose managers are looking for commercial upside and potential for rising rents, noted JLL’s DeSimone.
The sellers tend to be insurance companies and other institutional players who bought several years ago and now see a window to cash out at, he said.
“There is upside with some of these properties,” DeSimone said. “It’s a good time to get out and it’s also a good time to get in.”
Bargain hunting
Commercial real estate along 495 is hardly cheap. One of the biggest sales along the corridor took place in the I-495 north market over the summer when a pair of local real estate executives and a San Francisco investment firm shelled out more than $100 million to buy Lowell’s giant Cross Point Towers complex.
Deals the size of Cross Point are unusual along I-495. The towers last sold for $110 million in 1998, while the former owners, Insight Partners, purchased the property at auction in 1994 for just $525,000, the Lowell Sun reported at the time. Similarly-priced sales transpired in Marlborough in 2012 when TJX Cos. of Framingham bought the former Fidelity campus on Puritan Way for about $72 million, and in 2011 when the Campus at Marlborough was sold for $103 million.
But by and large, the I-495 corridor is a bargain compared with the soaring prices that sellers of office and lab buildings are commanding along the Route 128 corridor, which encircles Boston and Cambridge, the economic engines of New England.
And after taking its share of lumps during the recession, the Route 128 corridor is roaring back. The amount of empty office and lab space is shrinking, pushing up rents and even encouraging some developers to launch new projects: The first phase of a massive redevelopment of the old Polaroid campus into a multiuse development of office and retail space — including a supermarket — is poised to open in Waltham, while Burlington is in the middle of a $500 million renovation and expansion of Northwest Park into new offices, restaurants, shops and a Wegmans supermarket.
Top-shelf office and research buildings along Route 128 are now fetching $250 to $350 a square foot, notes Doug Jacoby, vice president for investment sales at Colliers International. That compares to less than $200 a square foot in the first year or two after the recession, he said.
By contrast, investors can still buy top quality, Class A office properties along I-495 for $100 to $120 a square foot — less than half the going rate on Route 128.
For example, Curo Enterprises bought 130 Lizotte Drive at Marlborough’s Lake Williams Corporate Center for $122 a square foot, according to Colliers, while Curo’s deal for 118 and 120 Turnpike Road in Southborough amounted to $98.
“There is definitely a lot more interest in 495 than there has been in previous years,” Jacoby said. “As prices are being driven up on 128, they are looking for opportunities out on 495.”
Brightening outlook
Of course, if investors were simply looking for bargains, they could have snapped them up along I-495 at even steeper discounts in the years before 2014.
But it’s not just the bargain prices that are drawing real estate investors. They’re also being lured by signs that the market along the I-495 corridor is on the upswing.
The amount of vacant space along I-495 has dipped below 20 percent for the first time in years as companies hire workers and gobble up empty office space to make room for them, Colliers reports.
The I-495 west market has led the way in the leasing of empty offices, as 546,000 square feet of space has come off the market through the first nine months of 2014, followed by the I-495 north market at 412,360. Meanwhile, 495 south absorbed 70,874 square feet, Colliers said.
Warehouse, industrial space see stronger prospects
Warehouse and industrial buildings, especially along I-495 south, are also seeing increased demand, said Sean Lynch, vice president of the suburban leasing team at JLL.
“The vacancy rate is certainly dropping and the asking rate is up,” he said.
Investors are seeing an opportunity to buy into the market now and benefit from rising rents. And if the building is not fully leased, there can be additional upside opportunity.
That was Braintree-based Campanelli’s game plan when it picked up 300 Friberg Parkway, a vacant, 78,455-square-foot office building, in June for $2.25 million. The commercial real estate firm is planning a revamp and potential expansion of the building.
Campanelli also renovated and repositioned two buildings in Chelmsford at 220 and 222 Mill Road, and at 289 Great Road in Acton’s Strawberry Hill Corporate Center. The company is now seeing increased interest in the buildings from potential tenants, said Danielle Simbliaris, marketing manager for Campanelli.
Campanelli was able to do all renovations itself through an in-house construction company, Simbliaris said.
“There is a lot of opportunity on the I-495 corridor to employ a value-add strategy — which is when a company purchases a property in a promising market at a relatively low price, and then renovates and repositions that property to attract new tenants,” she said. n
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