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Cash-Rich Companies Opt To Buy, Rather Than Lease Offices TJX Cos.

Posted by Anne on January 20, 2013
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Most of us don’t want to be treated like the fiefdom of imperious overlords, otherwise known as landlords, or bosses. We tell ourselves we’d work for ourselves if we could.

Well, we’re not the only ones with dreams of such freedom. It turns out several large, local corporations have the same aspirations. Firms like TJX Cos., Athenahealth and MathWorks have all decided to become their own bosses by making deals to purchase large chunks of real estate to occupy instead of leasing that space.

In 2012, CRE users that bought their own space to occupy helped drive a 22 percent increase in overall office sales in the Greater Boston market over the previous year, with owner-occupiers accounting for 2.4 million square feet of total sales transactions, according to Cushman & Wakefield.

In 2011, owner-occupied office sales volume in Greater Boston was piddling in comparison, totaling only 300,000 square feet from three transactions.

Just what has been driving this uptick in owner occupied property? It’s a combination of things. First, good credit users like a TJX Cos. or an Athenahealth can get upwards of 70 percent loan coverage for deals on which they also have about a 4 percent interest rate. Then there’s all the cash companies have reportedly been hoarding during the recession for fear of making binding decisions in a time of great uncertainty. And if a building is vacant, then the price is likely discounted by millions of dollars.

“With the current interest rate environment we’re in, companies can reduce their occupancy costs and still own property,” said Michael Frisoli, executive vice president with Cushman & Wakefield. “There are a lot of tenants taking advantage of it.”

Price Is Right

Right now, a landlord could take a 100,000-square-foot suburban office building with decent credit tenants and solid occupancy rates and sell it for, say, $17 million. However, that landlord could sell an identical property in the same location that happens to be vacant for about $6 or $7 million, said Garry Holmes, president of R.W. Holmes commercial brokerage in Wayland.

“That’s creating a great opportunity for the owner occupants,” Holmes told Banker & Tradesman. “As for investors … our markets are improving, but there’s still an awful lot of vacancy across the suburbs. But for owner occupants, the price is just right.”

For larger users, a lot of the decision just comes down to controlling their own destiny, according to Holmes. When firms are in a fast-growth mode, it’s very difficult to sign a 10-year lease because executives can’t predict the firm’s needs that far in the future, he said. If smaller companies do lock-in leases, then they can be stuck with various across multiple properties.

“It makes a lot more sense for them to own than getting trapped in various units,” Holmes said.

It’s not hard to find examples of the owner-occupier trend. MathWorks is putting together a deal with Boston Scientific to purchase the 500,000-square-foot Natick headquarters the science technology firm plans to vacate when it moves to Marlborough in 2014. MathWorks, a software development firm, is now based in offices along Route 9 on the Apple Hill area of Natick.

Athenahealth is another owner-occupier to-be. The cloud-based electronic health records provider has signed a purchase and sale agreement with Harvard University to acquire the Watertown Arsenal on the Charles, a, 29-acre, 11-building office complex on the Charles River.

And of course, in the first headline-grabbing owner-occupier activity of 2012, the TJX Cos. purchased 700,000 square feet of offices formerly occupied by Fidelity at 300 and 400 Puritan Way in Marlborough to occupy.

“It’s certainly a vote of confidence in the market because it’s a less liquid, less flexible thing as opposed to leasing space,” offered Duncan Gratton, principal with Cassidy Turley FHO. “When you buy a building you are spending your own money and are probably going to invest additional capital into the property. Of course, you can always do a sale-leaseback to get out of it later if you want to.”

By James Cronin, Banker & Tradesman Staff Writer

Email: jcronin@thewarrengroup.com

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