Where the action is

By donald n.s. unger

Commercial real estate brokers know that glum doesn’t sell well. But they are also observers and analysts of one of the bedrock sectors of the American economy. If you want to know what’s going on "on the ground," the first thing to look at is real property.

In this issue, with the help of more than a dozen real estate professionals, we survey the commercial real estate sector in Central Massachusetts: manufacturing to warehousing, office space to retail space. We look at 10 of the most crucial markets in our area, including: Worcester, where the downtown is the focal point of a multi-pronged resuscitation effort; north to Fitchburg and Leominster, where a growing residential population is beginning to cause a ripple effect; down Route 9, where Shrewsbury’s booming retail sector yields to Westboro’s growing biotech facilities; east to Framingham and Natick, still solidly anchored by corporate headquarters; and south to Milford and Franklin, still redeveloping and finding their way.

Framingham

Some of the mills and factories that fueled Framingham’s growth in the 18th and 19th centuries remain, re-purposed for lighter duty. Today, the town - the state’s largest in terms of population – is more a magnet for brains than brawn.

In addition to being the corporate headquarters of the TJX Cos., Bose Corp., and Staples Inc., among others, retail thrives both on Route 9 and downtown, though both retail and warehouse space play a lesser role in the Framingham market. Framingham State College and Metrowest Medical Center constitute the local nodes of the region’s medical/educational complex, with the latter surrounded by a cluster of medical office space.

Frederic Crafts Jr. at Phoenix Commercial Real Estate LLC in Framingham says Framingham is in a transportation sweet spot: bracketed by two exits on the Mass Pike, which allow easy access to both the east and west sides of town; cradled between Route 495 and Route 93; and with Route 9 running straight through it.

A typical example of Framingham’s real estate activity is the sale, in October, of 82 Concord St. on Rt. 126, which fetched $820,000. The four-story, mixed-use building consisted of two retail storefronts, a second-floor office suite, and a martial arts studio on the 3rd and 4th floors. Phoenix’ Dave Tognacci represented the seller.

Earlier this year, on the rental side, Tognacci brokered a long-term, 15,000-square-feet lease in which Advocates Inc., which manages outpatient mental health and substance abuse clinics and provides psychiatric emergency services, moved its corporate offices to the Clarks Hill Corporate Center at One Clarks Hill in Framingham.

Office space in Framingham rents for an average of the mid-$20s per square foot, having bounced back somewhat in recent years after dipping. "The market has softened for office space," Crafts says. "Some of the freestanding buildings we have on the side streets are running around $10 or $12 per square foot, plus utilities."

Even some of the prime Class A space has taken hits. An example is the Meadows Building on Route 9, a Class-A office space building that rented for in the $30-$32 bracket about three years ago, which has fallen to around $16 to $17 per square foot.

Compared to northern Worcester County, the available warehouse space is rather paltry. Mostly consisting of smaller warehouse space of up to 10,000 to 20,000 square feet, it caters more to the smaller distributor than the large one, he says. In the near term, Crafts sees the market holding more or less steady, a bit on the soft side but holding. "I think it will probably continue the way it is," he says. "It’s not going to improve too much."

He doesn’t see this as a reflection of local conditions. "I think, overall, it’s a matter of national conditions," Crafts says.

Franklin

In fast-growing Franklin, clients are looking for "busy street retail" and it’s in short supply outside the center of town, notes Andrew Bissanti Jr. His father founded Bissanti Realty in Franklin in 1964; the younger Bissanti joined the family business in 1985.

The downtown is being redeveloped on both the residential and the retail sides, but Bissanti says that won’t yield new space for several more years. He describes the alternate retail centers outside the downtown as all pretty much built out at this point. While there’s a healthy supply of flex space and warehouse space, Franklin’s Class-A office space vacancy rate is at a remarkably low 5 percent, at an average cost of around $20 per square foot triple net.

Franklin’s transition from smokestack and water-wheel manufacturing to retail and office space is almost complete; as in other parts of Central Massachusetts, some of the old mill space has also gone through residential conversion. Some of the larger warehouses have also been leased out piecemeal to distribution companies, which benefit from the town’s proximity to Route 495.

Only one mill in town is still being used for manufacturing, Bissanti says, Clark-Cutler-McDermott Co., which produces acoustical insulation fabrics, vibration dampening systems, and auto fabrics.

More modern facilities in town, include a branch of data storage giant EMC, a Putnam Investments Data Center, a Garelick Farms Distribution Center and, Draka USA’s data cable manufacturing plant. Bissanti is currently working on selling a 26,000-square-foot warehouse in Franklin.

On the leasing side, he’s filled about three-quarters of what used to be the American Felt Company Building, which has a total of about 90,000 square feet of space. Along with Thompson Press, now also converted to mixed-use, multi-tenanted space, American Felt was one of the larger, old- line businesses that anchored the town.

Bissanti brokered the deal in which the Franklin Furniture Co. building at 38 Main St. became the Franklin Performing Arts Center and, in August 2002, he brokered a deal for the building that subsequently became the new town hall. He describes the market in Franklin as steady over the last year or so and expects next year to start slow but then pick up speed. He ascribes these conditions more to national than local factors, to broader anxiety about both the economy and the political situation.

Marlboro

Buying and leasing opportunities abound in the I-495 West Corridor, says Paul Leone II, a vice president at Richards Barry Joyce & Partners LLC in Boston. Leone points to three main advantages of Marlboro and surrounding towns: a high quality workforce; easy transportation access; and plentiful commercial and residential amenities.

He cites the talent pool of well-educated and well-trained employees that cover a diverse spectrum of industry from life sciences to nanotechnology. Second is the geography/location. Natick, Framingham, Southboro, Westboro, Marlboro and Hopkinton are all ideally situated at key interchanges along the Mass Pike and or Route 9, assuring distributors easy access to all markets and allowing employers to draw on the employee base of several neighboring towns.

Lastly, he says, the economic and amenity benefits of relocating a business from Rt.128 of the inner suburbs to the I-495 include large inventory, significant in-place infrastructure, quality assets, well-recognized corporate neighbors, abundance of convenience amenities, and ample free parking.

In the Class-A office space category, RBJ was involved in the recent high-profile sale of Marlborough Corporate Center (377 Simarano Dr.), which RREEF sold to Spear Street Capital for $25.5 million or $162.80 per square foot.

On the industrial side there has also been significant activity.

"Given the state of the capital markets," Leone says, "the investment sales pulse has been very strong along the I-495 Corridor. We have seen strong sales activity with respect to high-bay industrial product."

On the leasing side, according to Leone, Marlboro, and the rest of the boros, are seeing a vacancy rate of in the low to mid 20 percent range. He cites a couple of recent local deals: a seven-year-plus extension and expansion by ATI Research at 62 Forest St. on 74,662 square feet, and an extension and expansion by 3Com Corp. on 168,315 square feet at The Campus in Marlboro.

Office rents in the boros range anywhere from $12 per square foot, on the extreme low end, to $20 per square foot on the high end, Leone says, depending on the size of the tenant, the amount of up-front transaction costs borne by the landlord, length of term, quality of the asset, and whether or not the deal is on a direct or sublease basis.

The area has seen an uptick in the last year or so, according to Leone. "Blocks of space that have long sat vacant have been leased," he notes. "Landmark assets have traded or will soon trade and the pulse is largely positive.

"We are optimistic," he concludes, "that next 12 months will continue to move; albeit slowly, in a positive direction."

Milford

A relatively thin supply of office R&D space in the southern stretch of I-495 "works to our advantage," according to Chris Knisley, managing director of acquisitions and a partner at The Koffler Group in Providence, of the region that includes Milford.

"There’s not that much product that we have to compete with in terms of leasing against," he says. "And there’s a good amount of tenant demand coming out of Northern Rhode Island and the [Route] 146 corridor between Worcester and Providence."

Historically, Knisley says, the 495 South office/R&D market has done pretty well, particularly compared to 495 North. There hasn’t been as much overbuilding or as much exposure to the sometimes volatile tech industries. The market has never flown as high, but has also never been brought quite as low.

As in other parts of the region, the mills that formed the core of the original industrial base are largely gone; Milford had a number of boot factories. In Hopedale, adjacent to Milford, separated from the town by an act of the state senate in 1886, a number of the mills have been repurposed as office, retail, or residential buildings.

In and around Milford, another source of land has been the depleted quarries, which once yielded a unique pink granite. Between exits 19 and 20 along Route 495, what was once quarry is now mostly big-box retail and hotels.

Koffler’s property holdings in Milford include the Birchwood Business Park at 25 Birch St., a 13-acre office/R&D park, consisting of three, two- to three-story buildings totaling 115,100 square feet, with additional land and permits to develop a fourth building totaling 46,800 square feet; and Metro West Professional & Medical Center at 321 Fortune Boulevard, consisting of 42,400-square-foot, two-story, office/medical office property located in the two-million-square-foot Granite Industrial & Business Park.

Knisley characterizes the office space in both as Class B+ with occupancy rates above 90 percent. Previously, Koffler owned a building in neighboring Franklin, a peer market of Milford’s part of the 495 South region.

Knisley tags location as the greatest draw of the Milford area, with Route 95 to the south, the Mass Pike to the north and Route 495 cutting right through. The biggest hurdle in terms of expansion on the office/R&D side would be finding appropriately zoned land, he says.

As with elsewhere in the region, "you have a fairly challenging permits and approvals process," he points out, "to the extent that you want to do anything other than what the land is currently zoned for." There’s room to build, he adds, but current rent levels in the market, for the most part, don’t support new construction.

Natick

In some ways, Natick is a victim of its own success, says Craig Johnston at R.W. Holmes Realty in Natick. The vacancy rate for Class-A office space is down around 7 percent and there are few commercial properties on the market for sale. He cites some recent transactions in which properties changed hands without ever being officially on the market. Just as corporate headhunters go out and actively seek talent, brokers went out and actively solicited property owners who hadn’t evinced any interest in selling.

Like neighboring Framingham _ the market is often referred to as the Framingham/Natick market — Natick benefits from its proximity to Route 495 and the Mass Pike and from the traffic that comes through on Route 9. The two towns also host several corporate headquarters of large companies. Natick hosts Cognex Corp., Boston Scientific Corp., and The Mathworks Inc., among others. This did something to buffer the market during the slump that followed the dot-com crash. Some research facilities contracted, but corporate headquarters tended to hold steady in terms of their space needs.

Last November, Garry Holmes, president of R.W. Holmes, which was founded in 1976 by his father, represented The Mathworks in that company’s purchase of Two and Three Apple Hill in Natick, now its headquarters. The seller, SSR Realty, was represented by Trammell Crow. Two Apple Hill is a three-story building totaling 128,842 square feet; Three Apple Hill is a four-story building with a total of 178,206 square feet. The deal was worth just under $50 million.

"Those buildings were never on the market," Johnston emphasizes; he worked on the deal with Garry Holmes. "Brokers procured the buyers and sellers; that’s how a lot of things are being sold."

The Framingham market is significantly larger than the Natick market. Johnston estimates it to have a total of 4.5 million square feet of office space, compared to only 1.7 million square feet in Natick. Currently Class-A office space in Natick is leasing in the low to mid-20s per square foot.

One advantage Natick has over Framingham, Johnston says, is that taxes have held relatively steady, while Framingham has seen a significant increase in the past few years.

Shrewsbury

Shrewsbury has turned around in the past few years, according to Jim Umphrey, vice president at Kelleher & Sadowsky in Worcester. Not that the market has gone from bad to good - particularly in retail, the market has been strong for some time - rather, the town tends now to look more toward the east and the 495 corridor than it does to the west, toward Worcester.

"Shrewsbury is a market that is more attached to the 495 market from a number of different perspectives," Umphrey says. "It’s very attractive from a retail point of view; Route 20 is very attractive for any kind of distribution company; and Route 9 [along with Route 20 in Auburn] is becoming the area’s Auto Mile."

He cites Kia, BMW, Lincoln-Mercury, and Mazda dealerships just for starters - with Lexus just over the line in Northboro.

Retail space in Shrewsbury is commanding a higher price than in Worcester, Umphrey says, citing a range of $18-$24 per square foot triple net, with the city, by way of comparison, coming in in the neighborhood of $14-$18 per square foot.

Incoming retailers pay for demographics and traffic he notes – "And Route 9 has fabulous demographics." Office space also plays a role in the local real estate mix, though not as prominently as it does in Framingham/Natick or the boros.

About a year ago, for example, Kelleher & Sadowsky leased 100,000 square feet to the University of Massachusetts Collaborative Services Facility for its regional headquarters, in the Maxtor Building at 333 South St.

Umphrey points to property along Route 20 as ideally situated for warehousing and distribution facilities, given its easy access to Route 9 and the Mass Pike. In terms of barriers to growth, Umphrey says there is reasonable availability for people in the market for buildings. Land is another matter entirely.

"There isn’t a lot of available land left in the whole corridor," he says, "and for what is available, the asking prices have been extremely high."

Westboro

Kevin Malloy says one of the things that will make Westboro and its companion "boro" towns outsource-resistance is the nexus of intellectual capital in the region – intellectual capital that has been on the move. Malloy, a senior vice president at Lincoln Property in Boston, says he sees this concentration most clearly in the biotech sector, and, as always, location is key.

Availability of high-quality commercial real estate, from Class-A office space to research labs to (mostly high tech) manufacturing facilities has been key to Westboro’s appeal. Tech companies like Bose and EMC Corp., which have deep local roots, have offices in town, as does Boston-based Fidelity Investments.

From the east, Westboro has seen an influx from biotech companies like Cambridge-based Genzyme Corp. pushing west to satisfy their increasing need for more affordable research and manufacturing space. From the west, the biotech cluster around the UMass Medical School and companies like Advanced Cell Technologies is beginning to gain strength.

In a straight line between the two, on Route 9, Westboro has been the beneficiary of these trends; easy access to Route 495 and the Mass Pike have also helped. In terms of available space, previous waves of expansion outward from Boston and Cambridge have already saturated other markets, according to Malloy.

"The Framingham/Natick area is very tight," he says, "very healthy. That’s creating pressure for companies looking to expand and there are opportunities in the boros."

Genzyme recently moved to consolidate several area facilities by leasing some 85,000 square feet in Westboro. Pushing eastward, an extension of the University of Massachusetts Medical School, called Commonwealth Medicine, operates a branch, which has collaborative programs with state and local agencies on health-care initiatives.

Malloy estimates the Class-A office vacancy rate in Framingham/Natick at around 10 percent, compared to near the mid-20s for the boros. If the real estate market in and around Boston has been what Alan Greenspan characterized as "frothy" for a few years now, Malloy feels that things have settled down, becoming both a bit more stable and a bit more predictable, in the last year or so, a trend that he welcomes and expects to see continue in the coming year as well.

Worcester

Jim Glickman says he would rather deal with the problems that come with success than those that follow on the heels of failure. Bringing full service back to the airport and increasing the number of trains - but Glickman has no qualms about choosing growth.

Glickman, the principal at Glickman Real Estate, a Worcester-based brokerage and property management company, says he sees a number of positive trends in the city which, he believes, have benefited, and will continue to benefit, the commercial real estate market.

At the top of the list, he cites the influx of people, both to the city itself and to the Blackstone Valley. Improved transportation infrastructure, both commuter-train service and the new Mass Pike exit has also been good for business. The demand which has been driven by these factors has helped increase local property values.

In the medium term, looking more at changes being contemplated for Worcester’s downtown, Glickman is enthusiastic about CitySquare, a planned $500-million, mixed-use redevelopment of the former Worcester Common Outlets mall.

"The more people they can get to live downtown," he says, "the better chance they have of reviving the area. We need more quality projects to entice people with resources to move downtown."

The impact of the Massachusetts College of Pharmacy and Health Sciences, he says, has been small but important, a step in the right direction. And he characterizes the fight to improve the downtown as being as much about perception as it is about physical changes.

The Tornadoes, a minor-league baseball team that came to the city this year are the kinds of perception things people can kind of grab onto, and be proud of where they live," Glickman says.

One obstacle to growth he sees is the city’s commercial tax rate. For 15 or 20 years, the commercial payers have borne a higher percentage of the tax load.

Still, he doesn’t see this as an insurmountable problem, pointing out that while real estate taxes are higher rents are lower, which keeps the total cost of commercial real estate in the city, particularly Class-A office space, competitive with the surrounding area.

Manufacturing, on the other hand, is leaving the Northeast for reasons tied more to the national and international economy rather than local factors: cost of labor, cost of space, cost of utilities, for example.

There are exceptions, according to Umphrey. He cites the cost concerns that limit the shipping of bulk amounts of corrugated material to a 200- to 300-mile radius. Further than that, he says, and you can’t compete with the more local manufacturer, because the cost of transportation becomes so high. "You can’t produce boxes in Massachusetts, he says, "and then ship them to Ohio."

Rand-Whitney, headed by New England Patriot’s owner Robert Kraft, is a local example of this phenomenon, with facilities on Agrand Street and Grove Street in Worcester. Umphrey says the company has been expanding, both in terms of dollars and in terms of square feet, both buying and leasing additional facilities within the city limits.

One way that the city cannot as easily compete with the surrounding area, Glickman points out, is in land use. "Worcester just doesn’t have the land to do any of these big developments," he says.

Some of the old mill buildings and factories have been successfully converted to residential units. Glickman points to the old Shepherd Envelope Building, off Shrewsbury Street, for example, now the Biscuit Lofts. On Fremont Street, the former Farber Manufacturing building, which served as the temporary home of the main library during the downtown facility’s renovation, has been converted to condos.

Over the last five years or so, Glickman has developed and his company now manages a similar building at 85 Prescott St. At about 100,000 square feet, the building houses seven or eight businesses, some of them medical, some office space, and WPI’s Academy of Math and Science.

Donald N.S. Unger is a contributing writer. He can be reached at donunger@hotmail.com