Atlantic Management has secured financing totaling $96.5 million for two industrial assets totaling approximately 500,000 square feet in Westborough, Mass., a suburb of Boston. With help from Newmark, the company secured a $70.5 million refinance loan for the property at 50 Otis St. and a $26 million construction loan for a custom construction project at 54 Otis St.
Located along Route 9 approximately 35 miles from Boston’s central business district, 50 and 54 Otis are near several major thoroughfares, including Interstate 495, Interstate 95, and the Massachusetts Turnpike. Atlantic acquired 50 Otis St. for $6.5 million in 2016. The building was one of several that housed AstraZeneca. With the help of architectural firm SMMA, Atlantic has transformed 50 Otis into an R&D and industrial destination that consists of a redesigned version of AstroZeneca’s original “cube” building as well as new construction for a total of approximately 406,400 square feet.
Amazon Robotics Innovation Hub leased 50 Otis in full, investing some $40 million to create 350,000 square feet of office space and R&D labs.
Additionally, Amazon has signed on to expand its footprint through a 100,000 square foot bespoke construction project at 54 Otis. Located on a nearby 11-acre site, the property will include 80,000 square feet of high-rise space, which will be used primarily for testing and support, and a 20,000 square foot office element.
Financing in a turbulent climate
Members of Newmark’s US Capital Markets Group and Debt and Structured Finance Group represented Atlantic Management in the transactions. The team included Robert Griffin, David Douvadjian Sr., Timothy O’Donnell, Brian Butler, David Douvadjian Jr. and Conor Reenstierna.
Newmark does not disclose transaction details. However, the fact that both properties are 100% leased to Amazon, which is no longer in a rental frenzy, may have influenced the lending community’s interest in providing the financing in a more expensive lending environment.
“For the first time in recent memory, market participants are indicating cap rates for institutional-grade industrial products are rising,” Chatham Financial noted in its second quarter lending report. “While demand remains high and the fundamentals of the space are still seen as unmatched, ever-increasing inflationary pressures have begun to alter perceptions of the value of investment-grade credit on long-term leases that cannot not be marked to market in the face of growth in the CPI and PPI indices.
In the second quarter, Chatham’s conclusion on market rates for industrial collateral secured fixed loans rose 120 basis points, with 10-year fixed rates for creditworthy rentals and desirable collateral hovering between 4.75 and 5.75%. Chatham’s conclusion on market spreads for variable rate loans secured on industrial collateral increased by 20 basis points, leaving spreads floating three to five years for creditworthy rentals and desirable collateral within a range of 1 .95% to 2.5%.
Regardless of the increase in the price of debt, lenders remain fond of industrialists. According to the Chatham report, “many core distribution markets are experiencing vacancy rates below 1%, and many lenders still have a positive view of industrial construction on a relative value basis.”