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Marlborough Property Tests Mixed-Use Strategy

BANKER & TRADESMAN – With office vacancies topping 47 percent in 2012, Marlborough was the poster child for outer suburbs in freefall. The departure of Fidelity Investments was the single biggest blow, as the mutual fund giant put its Marlborough offices on the market and moved 1,100 jobs out of state. But Marlborough, with the largest commercial real estate market on Route 495, has been quick to stabilize. Corporate relocations by Boston Scientific, TJX Cos. and Quest Diagnostics are moving thousands of employees to local office parks this spring.

The former HP campus in Marlborough is being repositioned as a "live-work-play" development including a Hilton Garden Inn, AvalonBay apartment complex and retail stores.

Marlborough Mayor Arthur Vigeant estimates the city has at least 4,000 more jobs than it did in early 2012. TJX Cos. has moved more than 1,950 employees to the former Fidelity buildings. “It’s just been a win-win all the way around,” Vigeant said.

A case study of whether Marlborough can sustain the momentum could unfold at 200 Forest St., where Framingham-based developer Atlantic Management is repositioning the massive complex formerly known as Forest Park. Renamed Marlborough Hills, it contains 750,000 square feet in two tech assembly buildings dating back to the 1960s and 1980s.

Joseph Zink, CEO of Atlantic Management, says the single-use office park has become an anachronism. So make way for a Hilton Garden Inn, an AvalonBay apartment complex and 30,000 square feet of retail buildings surrounding the original structures.

“With it being 110 acres, we knew we had a lot of options,” Zink said. “The more we drilled down and analyzed the site and met with the city, we came to an agreement that it had to be a kind of live-work-play environment.”

Self-Contained In The Suburbs

In an age of urban revival, suburban office parks are facing the choice of reinventing themselves as mini-cities or face obsolescence. In Burlington, a 300,000-square-foot retail development and a 200-unit apartment complex are being built at Nordblom Cos.’ Northwest Park. Last month, Newton-based National Development proposed a 170-room hotel, three restaurants and two new office buildings at New England Executive Park in Burlington.

The first Quest Diagnostics employees began moving into the former HP facility in Marlborough this month. Atlantic Management CEO Joseph Zink (pictured) said the 750,000-square-foot campus needed to be revitalized, so construction of a Hilton Garden Inn and AvalonBay apartments are under way on the 110-acre site.

In a suburban neighborhood where the nearest stores and restaurants are a mile away, Atlantic Management’s Zink is counting on the hotel, apartments and retail to be the primary draw for office and lab tenants. “If you can stop here and grab food from the retail, pick up your dry cleaning, and do all those things onsite rather than making three stops, it makes your life a lot easier,” he said.

The city council approved a new mixed-use zoning district for the park in late 2012. Quest Diagnostics signed on as the first office and lab tenant last year, and employees started occupying the 204,000-square-foot space earlier this month. Since 2011, Atlantic Management and its partners are spending over $200 million redeveloping the property.

Atlantic is talking with tech companies and other users about the remaining 500,000 square feet in the two existing buildings. It also has approvals to build up to 250,000 square feet of additional lab and office space on the site. General Electric is considering leasing up to 150,000 square feet at Marlborough Hills in a consolidation move, according to real estate sources.

Asking rents are in the low $15 range, not including tenant improvements, with office rents slightly lower, Zink said.

Philip DeSimone, a managing director at JLL, said the site was difficult to redevelop because of the size of the buildings. In previous generations, the structures were used for component assembly by RCA Corp. and Hewlett-Packard.

“It was scary for a lot of investors to go in there and figure out, ‘What are we going to do with this?’ Joe’s done a good job and took the risk and it’s paying off,” DeSimone said.

Comparable Quality

After topping out at 47 percent at the end of 2012, office vacancy rates in Marlborough were down to 40.6 percent at the end of the first quarter, according to Cassidy Turley research. Direct weighted average rents were $18.23 per square foot, virtually unchanged from the previous year.

Kevin Hanna, a principal and executive managing director at Cassidy Turley, said the 495 submarket continues to be stabilized by relocation and expansion of corporate users from Metrowest.

“It’s a very resilient market,” Hanna said. “Before TJX came along, it looked like the sky was falling. But there are a lot of major companies in the market and one of them always seems to step up. People like TJX and Boston Scientific are recognizing the cost of real estate is far less in Marlborough, and the quality is comparable to what you would see farther east.”

Demand from companies moving further west in search of cheaper space has been partly offset by tenants that value a downtown location, said JLL’s DeSimone.

“It’s going to continue to be a decent lab market because the buildings work, but a lot of the companies still want to be close to Cambridge and MIT and they’re willing to pay for it,” he said.

This article originally appeared here.