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April 27, 2012

By Joe Clements
Boxborough — During its 15-year run as a real estate investment vehicle traversing eastern Massachusetts, Fairlane Properties has embarked on its share of risky routes, buying challenged properties in immediate need of leasing, management or physical TLC to overcome vacancies or harsh economies.  But according to founder Michael S. Grill, Fairlane’s $18.3 million purchase of two flex/office properties in the heart of the fundamentally weak Interstate 495 West corridor actually reflects a shift towards stability.
“We’ve changed our stripes a little bit,” Grill relays this week after closing on 155 and 159 Swanson Road.  “Our investors are asking for cash flow instead of leasing risk.”  Eastdil Secured negotiated the deal on behalf of seller New Boston Fund, while Middlesex Savings Bank provided Fairlane with $13.2 million in financing.

In an office submarket where vacancies remain around 20 percent, Grill accedes that “Interstate 495 was not on my wish list” when presented the opportunity by Eastdil investment sales specialists Brian Barnett and Peter Joseph.  The wariness was soon placated, however, when Fairlane was able to drill down and see the assets as far stronger than the surrounding landscape, explains Grill.

In terms of desired cash flow, the two buildings just acquired are rented on separate long-term deals to a pair of thriving firms formed by Massachusetts Institute of Technology professors.  SynQor occupies the 102,600-sf 155 Swanson Rd., whereas Setra Systems is in a similar footprint at 159 Swanson Rd., with each structure offering a mix of office, manufacturing and research space.  The pair of two-story brick buildings were constructed by well-known developer Winstanley Enterprises.  “It’s a gorgeous campus,” adds Grill, whose firm has retained Paul Sullivan of Lincoln Property Co. to serve as property manager of the 26-acre park.

Asserting that many lenders have taken to “red-lining Interstate 495,” Grill was especially pleased by the response from Middlesex Savings Bank.  Loan officer Michael P. Hart even toured the surrounding area to see why Grill has a rosier outlook of the region overall despite the deleterious data.  The TJX Cos. have just taken over 750,000 sf in Marlborough left by the departure of Fidelity Investments, for example, and Grill notes certain pockets have outperformed the market overall, including the Boxborough/Littleton corridor that features the likes of Cisco Systems.  Indeed, that technology giant’s East Coast headquarters is just one half-mile from 155 and 159 Swanson Rd.  “Mike (Hart) really took the time to understand the marketplace and our opinion of the building and the leasing situation in the area,” says Grill.  “If you cut through some of the layers, it’s not as scary as the 20 percent (vacancy) might lead you to believe.”

Even with the skeptical view of some financers towards I-495, there was competition for the Swanson Road loan, “but Middlesex was able to put together the best package for us.”  Grill also credits Middlesex Savings banking officer Douglas A. Rosenau for “helping Mike sell the deal to the loan committee.”

In finalizing the acquisition that The Real Reporter initially unveiled in January, Fairlane follows up on similar cash-flowing acquisitions in Woburn and Westwood.  As the opportunities present themselves and conditions shift for the better, Fairlane will again head down the value-add highway, relays Grill, but for the time being, the emphasis remains on income and in-place tenancy.  “If anyone has something like that, we’d be interested,” he says.

Calls to Eastdil to discuss the sale were not returned.  Fairlane technically acquired the buildings in two separate transactions, paying $9.06 million for 155 Swanson Rd. and $9.25 million for 159 Swanson Rd.  New Boston Fund had paid an aggregate of $19.7 million for the assets.

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