Wareham sees highs and lows of commercial property market Wareham sees highs …
Posted By Admin on February 27, 2011
There was a time in commercial real estate when having a national retail chain, like Borders Bookstore, as a tenant was considered a safe investment.
Not so anymore.
That message was delivered loud and clear Feb. 16 when the Michigan-based chain announced it will close 200 bookstores as part of a restructuring and Chapter 11 filing, including the companys 25,000-square-foot Wareham store.
Events like this, when established retail chains fail, have an impact on the commercial property market, keeping it too uncertain to attract much interest from investors, even as they are buying up safer properties, according to Robert S. Conrad, president of The Conrad Group Inc. in Quincy.
Conrad, a commercial property specialist, agrees with other area brokers that the commercial market is beginning to pick up in 2011, but that retail sectors are lagging behind.
Some of that is because retail tenants bring more risk than other market sectors.
In the retail sector, prices are down, rents are down, cap rates on investment properties are way up, Conrad said. Cap rates have gone up because these investors realize that while you may have 100 percent occupancy, you might also have a retail business going out of business and vacating.
A full week before Borders announcement, Conrad used the chain as an example.
Two years ago, youd never think that (Borders would go out of business), but these days you have to consider it, he said.
Some of those thoughts are likely going through the minds of property owners for the 200 stores that will close by April, including Borders in Boston and Hyannis.
But in Wareham, owners W/S Development are focused on filling the soon-to-be-vacant space and confident they can do so, according to David W. Fleming, director of corporate marketing and company spokesman.
We knew Borders was struggling financially and that they were considering filing bankruptcy, said Fleming. The filing wasnt a surprise, but we were disappointed to see that the Wareham Crossing Borders was on the store closing list.
Retail developments like Wareham Crossing dont rely on a few key anchor stores in the same way a traditional mall might, Fleming said, so the impact of losing one is not the same.
Maybe in the past retail developers have relied on retail to drive the destination. But weve found that offering a variety of uses creates more of an experience and brings people to the shopping center multiple times a week, Fleming said.
There is a limited number of retailers nationally who will fit into a 25,000-square-foot space, but were confident well find a suitable replacement, he added.
Wareham may have ended up as an example of the shakier side of the commercial real estate market, but it also has a foot in the market sector that area brokers are most bullish about medical growth.
The town is one of at least three municipalities in Southeastern Massachusetts to have a medical office building in the planning stages.
The projects, according to William M. Whelan, president of New Bedford real estate services company Whelan Associates LLC., are happening as physicians look to move from individual offices into service-rich shared spaces.
Hospitals are building medical office buildings today to give doctors a place to practice and to allow the doctors to invest in making the hospital valuable, said Whelan. Every single doctor Ive seen do that, their business has taken off.
Medical tenants are generally also more secure tenants, according to Conrad.
Thats why medical is so desirable, because their credit is so good, he said. Its not easy for a 50,000 square-foot medical practice to relocate every five years. They cant do it. They typically look for 10 to 20 year term with options to renew beyond that, so they dont have to relocate.
In Wareham, the medical office building is a $13.9 million project of Southcoast Hospitals Group that is under construction by AD Makepeace about a mile south of Wareham Crossing on Route 28.
When it opens by early May, the 67,000-square-foot space, to be called Southcoast Primary Care at Rosebrook, will house seven Southcoast physicians and three nurse practitioners along with radiology and lab services by Wareham Surgical Associates, according to the hospital group.
Other area hospitals pursuing similar projects include Jordan, which is still in the planning stages according to Whelan, and Saint Annes, who expects to open its $12.5 million project in Fall River in July or August.
While retail may not be as secure as medical in todays market, Fleming pointed to W/S Developments success in reopening the Linens n Things store, which closed in 2008, as support for his optimism about filling the Borders space.
The store reopened in May 2010 as a TJ Maxx.
At more than 24,000 square feet, Linens n Things Wareham site was comparable to Borders in size, said Fleming, adding that not only did W/S Development reopen the space, it also found tenants for six additional Linen n Things stores that closed in other W/S developments.
We were able to retenant all (seven) of those and in only one instance did we break the space into two, he said.
Beth Perdue is the editor of the New England Business Bulletin. To read about these business topics and more, see the New England Business Bulletin on news stands March 1. Or, go to www.nebulletin.com today. To subscribe to The Bulletin, e-mail Leslie Poulin at lpoulin@s-t.com.
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