Staples” $6.3 billion merger with Office Depot is still stuck at the gate amid media accounts about whether regulators would give approval.
If the deal is consummated, it could mean that Office Depot will take flight from its 625,000-square-foot headquarters in Boca Raton, leaving another empty office campus in its wake.
The retailer still has about eight years left on its 15-year lease for its shiny aircraft carrier-sized campus at 6600 N. Military Trail, but commercial real estate experts are already factoring in the likelihood that all or part of that space may be back on the market as early as next year. Staples CEO Ron Sargent has said that the merged firms would be based in Staples” hometown of Framingham, Massachusetts, but it may still have some presence in South Florida.
That ambiguity leaves the eventual fate of Office Depot’s mega facility dangling precariously over the Boca Raton office, which is facing a nearly 20 percent vacancy rate. And to add insult to real estate market injury, Office Depot’s former 541,693-square-foot campus a few miles away in Delray Beach remains vacant nearly seven years after the retailer sold it.
The three-building campus on Congress Avenue, just south of Linton Boulevard, was taken back by the lender in 2010 after an affiliate of Dallas-based Lincoln Property Trust defaulted on a $60 million mortgage. Office Depot sold it to Lincoln in 2007 for $80 million, just as the sun was setting on the last real estate bubble. It then moved into the custom-designed facility in Boca Raton, which it leases. Delray Beach’s compact 1.4 million-square-foot office market has been staring down the barrel of a 50 percent office vacancy rate ever since.
After so many years of watching the weeds grow and the shrubs wither on the 42-acre campus, local brokers and property owners have become somewhat immune to the three massive mid-rises that haunt that city’s office market like the ghost of corporations past. “We always take it out of play when we are talking to folks about the local market,” quips one real estate insider.
But the burden – and perhaps the unrealized blessing – of an empty 42-acre site in eastern Palm Beach County that’s primed for redevelopment has not escaped city leaders” attention.
The city recently launched a new task force to study the upside of redeveloping the former Office Depot campus as well as how to best reposition the entire Congress Avenue corridor into a vibrant, job-generating economic strip. Those recommendations, expected to be made to the city commission later this year, will be a comprehensive analysis of the types of development and commerce the city should strive for along Congress Avenue and the economic development tools the city needs to put in place to make it happen, according to Joan Goodrich, the city’s economic development director.
As Delray Beach takes action to address its Office Depot real estate legacy, the future of the retailer’s Boca Raton real estate is less clear. This five-story super-structure, designed in a sweeping cascade of three interconnected buildings flanking Military Trail, is a special-purpose complex that features 125,000-square-foot floor plates, a 1,000-seat auditorium, a customer briefing center, training and conference rooms, an executive suite, a cafeteria, an employee store, a dry cleaners, a bank and credit union, a fitness center and a broadcast center.
Despite being designed with multiple entrances, two main lobbies and central building cores (which considered the eventuality that it could wind up being a multi-tenant facility someday), the task of subdividing the space efficiently would be challenging. Finding larger users would be the most logical and expedient way to backfill the space.
“Anytime you have a big building with big blocks of space, even if it is designed well, it is going to be challenging,” says Keith O’Donnell, a principal with Avison Young in Boca Raton. O’Donnell was part of the brokerage and development team that leased the custom-built facility to Office Depot. O’Donnell says the unique nature of the campus could be a tantalizing lure to snare another high-profile corporate user for the city. “When you are looking to attract a major employer or occupier, a facility like this is an international opportunity.”
On the surface, with so much lease term left, a sublet scenario seems the obvious exit route for Office Depot, should it opt to vacate all or part of its Boca Raton facility. But not having direct control of its real estate through its own a lease with a landlord might be just too risky for many large corporations to bite at a sublet.
“Subleases can get a little complicated for larger users of 50,000 square feet or above,” says Caroline Fleischer, a tenant representation broker at Cushman & Wakefield. “A sublease is a Band-Aid. It has a short span and a lot of risk that comes with it.” ?
Freelance writer Darcie Lunsford is a former real estate editor of the South Florida Business Journal. She is the senior VP for leasing at Butters Group and is avoiding a conflict of interest in her column by not covering her own deals.