Westchester County”™s stagnant commercial office market has been given a measure of good cheer at year”™s end by one of the county”™s largest employers. PepsiCo Inc. will renew and expand its bottling division”™s lease in Somers, ending worry among public officials and business leaders that the former Pepsi Bottling Group would follow the public-money trail to Connecticut when its 10-year lease expires on Jan. 1.
A source familiar with negotiations said PepsiCo officials in Purchase have agreed to a five-year lease at One Pepsi Way in Somers, headquarters of Pepsi Beverages Co. That corporate division was formed this year after PepsiCo”™s $7.8-billion acquisition of its two largest U.S. bottlers. The bottler will expand its 1,100-employee operations from the 360,000-square-foot space it now leases in Somers to the entire 540,000-square-foot building, the source said.
General Motors Corp., the only other tenant of Manhattan-based landlord Murray Hill Properties at One Pepsi Way, largely vacated its 180,000-square-foot space after its bankruptcy filing in 2009. The GM lease expires in March 2011.
The impending lease deal follows a roughly 2½-year effort by county, state and elected federal officials and Norman Sturner, co-founder and CEO of Murray Hill Properties, to keep the Pepsi bottler in northern Westchester and counter Connecticut officials”™ reported offer of roughly $30 million in incentives to lure the company to Danbury.
PepsiCo and the landlord still were negotiating a company option to extend the Somers lease, the source said. Terms of a financial incentive package from the state Empire State Development Corp. also must be hammered out before the deal can be completed, according to well-informed sources.
Vacancy rate above 17 percent
A spokeswoman at Pepsi Beverages Co. said the company had no comment on the deal.
The Somers deal if completed keeps more than one-half million square feet from being added to the glut of vacant office space in Westchester at the start of 2011. CB Richard Ellis ”“ the only brokerage firm that has yet released its fourth-quarter office market report ”“ said approximately 5.5 million square feet of class-A and class-B office space was available for leasing at the end of this quarter. That is 17.68 percent of the total office space in the county.
The year was marked by relatively small lease deals that averaged 6,416 square feet, according to CB Richard Ellis. At the end of 2010, an additional 220,000 square feet was available in the office market compared with the start of the year, the brokerage firm reported.
The countywide availability rate was 17.4 percent at the end of 2009, according to the CBRE report. The availability rate was 16.33 percent at the end of 2008 and 15.52 percent at the end of 2007 and the start of the office market slump.
Looking at the Westchester market in 2011, “My sense is that it”™s going to be pretty much business as usual,” said John D. Goodkind, managing principal at Newmark Knight Frank in Greenwich, Conn. That view is shared by many brokers here. “I don”™t see anything tremendously negative and I don”™t see anything tremendously positive. I think it”™s going to be status quo,” Goodkind said.
Connecticut in late 2009 did succeed in persuading another major Westchester employer and office tenant, Starwood Hotels and Resorts Worldwide Inc., to relocate its headquarters and 800-employee operations to Stamford”™s new Harbor Point development with approximately $90 million in incentives. The company”™s move from White Plains, scheduled for January 2012, will put nearly 324,000 square feet of space on the market.
In the town of New Castle, Readers Digest Association this month completed its move from its 70-year-old headquarters outside Chappaqua to downtown White Plains, vacating approximately 200,000 square feet of space.
County still lacks a ”˜lead horse”™
What industry will fill those vacant offices? That oft-raised question was put to a panel of commercial brokers at a recent event sponsored by the Westchester Putnam Association of Realtors”™ Commercial Investment Division.
“That is the question,” said broker William V. Cuddy Jr., executive vice president at the Stamford office of CB Richard Ellis. “There isn”™t an apparent lead horse.”
Cuddy said overregulation and high property taxes and utility costs are obstacles to companies locating in Westchester and New York state. “Maybe the first thing that we”™re going to see, the first market mover, is a change from our leaders in Albany, from our leaders her in Westchester County, changing regulations,” Cuddy said.
Broker Glenn Walsh, senior director at Cushman & Wakefield Inc. in Rye Brook, said the biotechnology and pharmaceutical industry “seems to have some momentum” in the county market. Walsh noted Westchester has plenty of available office and laboratory space formerly occupied by biotech companies. That includes the 43-acre Ardsley Park Science and Technology Center in the town of Greenburgh, where a new owner of OSI Pharmaceuticals Inc., which paid $27 million for the property in 2009, in June abandoned plans to relocate the Long Island-based company”™s U.S. operations.
“The focus on biotech is the logical one,” said Cuddy. “How much it can be leveraged up to create a real (biotech) community is the challenge.”
Covering mortgage debts
An analysis from Investcap Advisors L.L.C. shows that more than 12 percent of collateralized mortgage-backed securities loans are either in default or delinquent by more than 90 days (see accompanying table). With owners of vacated office space pressed to cover their mortgage debts, Cuddy said he expects more distressed sales and foreclosures in 2011. Those sales already were on the rise at the end of this year.
Cuddy”™s firm recently was named exclusive leasing agent for 104 Corporate Park Drive in Harrison, a 118,000-square-foot building whose former owner recently turned over the property to a Virginia-based lender. The building was vacated this year by Malcolm Pirnie Inc. when the environmental services company downsized and relocated to downtown White Plains.
In a sale handled by a special servicer for lenders, Celestial Capital Group L.L.C., a Manhattan investor in underperforming properties, this month acquired 222 Bloomingdale Road in White Plains. The approximately 140,000-square-foot building was purchased in 2007 by its defaulting owner, an affiliate of Behringer Harvard Holdings in Dallas.
“To have a holistic view of it, distress is also opportunity” in real estate markets, said Cuddy. In Westchester, “We”™ll see more inventory come on line” in distressed sales. “There are some very experienced, well-capitalized players ”“ investors and developers” looking for those opportunities, he said.
Westchester”™s distressed-sales market in 2011 “could be a chartbuster,” he said.
