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Agree Realty Corp. Message Board

  • caseyrunde caseyrunde Apr 7, 2011 1:29 AM Flag

    Bracing for a 447,000 sq. ft. vacancy

    Annarbor.com Apr 6, 2011 at 2:17 PM News that Borders now plans to relocate from its Ann Arbor headquarters can’t take anyone in Washtenaw County by surprise.It’s clearly been just a matter of time before the downsizing bookseller had to shed its expensive ties to one of the largest office buildings in the region. Every layoff over recent years has moved Borders to this point, as the headcount in headquarters fell to about 550 earlier this year — and indications point to ongoing cuts. Even the quiet listing last fall of the corporate headquarters by owner Agree Realty hinted that Borders wasn't the most stable tenant. This corporate headquarters, at 100 Phoenix Drive, is located on the edge of the city and just south of I-94. At 460,000 square feet, the property has been dramatically underutilized for years. Earlier this year, Borders sublet 13,000 square feet to Recellular — but it's also reportedly continuing smaller-scale layoffs, so I’m willing to assume that ratio remains true today. Now, with the chain in bankruptcy and shedding stores, the mission of the business is to “right size” itself. That’s likely to mean continued attention to staffing and facilities, as the entire operation is realigned into a business that — at least in theory — can operate profitably with a smaller retail footprint. So it simply wasn’t plausible that the company — allowed to open leases as part of bankruptcy — would hold onto its existing headquarters lease. But now, as Borders officials tell us that they’re considering options in Metro Detroit (which includes Ann Arbor, they stress) for their relocation, we all need to consider: Is this the end of Borders in Ann Arbor? Many will say that Borders has been divorcing itself from its Ann Arbor roots for years, with today’s news only signifying the final split after a long separation. The company is saying that Ann Arbor and Washtenaw County remain among its options as it plans to relocate, but the local vacancy rate is lower (at about 14 percent) and the average leasing rate is higher (by $2 to $4 per square foot) than many locations in Metro Detroit, according to a recent Signature Associates report.
    Meanwhile, some missing pieces of information remain: What will the final headquarters headcount look like? And what will that mean Borders will need for its corporate offices?
    If the company stays in Washtenaw County, there aren’t many options —especially if the headcount stays above 500. However, that could change if the headcount drops or having every employee in the same building isn’t critical after the reorganization. Meanwhile, the Maynard office has been empty since Borders left — and it’s still paying on the lease to Agree Realty, the landlord of the Phoenix Drive headquarters. We have to assume that the lease will be renegotiated, along with the downtown store, but today there is 48,000 square feet available — for the same $14.50 lease rate.All of these possibilities represent some of the largest floor plates — outside of new construction — listed today in the market. Another possibility that may not be worth ruling out: Remaining at 100 Phoenix Drive under renegotiated terms for a smaller space. Landlord Agree Realty isn’t commenting on the situation, but that option could be best for the community, the company and the local real estate market. The value of the building is diminishing, and Agree’s best move may be to turn it into a multi-tenant facility. Keeping the tenant for a while might be better than bracing for a 447,000-square-foot vacancy.
    But with many still questioning whether Borders can survive bankruptcy for any length of time, a landlord exploring a move with the company also has to reasonably ask: At what point does the risk of a deal with Borders outweigh the benefits? paula gardner www.annarbor.com

 
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