Commercial Real Estate and Headquarters and Relocation and St. Vincent and Real estate deals and Real Estate & Retail

St. Vincent taking over Thomson HQ

April 30, 2007

It's a real estate transaction that mirrors Indiana's evolving economy.

A shrunken Thomson, the former manufacturer of RCA televisions, is vacating a landmark office building at its Carmel headquarters to make way for St. Vincent Health, the parent company of a growing chain of Indiana hospitals.

Indianapolis-based St. Vincent will sublet nearly all of the 247,000 square feet at Thomson's main building to consolidate 600 administrative staff members who are now scattered among several northwest-side offices.

St. Vincent's name will now grace the critically acclaimed--and popularly panned--building at 10330 N. Meridian St. Internationally noted architect Michael Graves, an Indianapolis native, designed the variegated green structure with yellow entryway.

France-based Thomson opened the building in 1994, employing 2,000 workers to design and oversee its U.S. factories. Those plants, however, were gradually closed and the work was moved to Mexico and China.

Thomson's headquarters staff was slashed along the way. Its 650 remaining Carmel workers are now being consolidated in a second building on Thomson's Carmel campus, also designed by Graves.

As Thomson and other manufacturers have retrenched, health care providers such as St. Vincent have grown rapidly.

Since the mid-1990s, St. Vincent Health has built up a network of 17 Indiana hospitals through a series of acquisitions. Annual billings by St. Vincent, including its flagship hospital on West 86th Street, have quadrupled during that time to $2 billion.

With 11,500 employees, the not-for-profit chain is now Indiana's eighth-largest employer, just ahead of General Motors Corp., which once dominated the state. St. Vincent Health is a subsidiary of St. Louis-based Ascension Health, the nation's largest operator of Catholic hospitals.

The lease deal, which local brokers said was for a bargain price of less than $13 per square foot, keeps a huge block of vacant space off the north-side market at a time several new office buildings are under construction there.

"If that [building] had come on the market, it could have been fairly devastating to have such a large block of space at such a cost-effective price," said Sam Smith, CEO of Resource Commercial Real Estate in Indianapolis.

The vacancy rate in the North-Carmel market edged up to 14.3 percent during the first quarter, compared with 13.9 percent during the same quarter last year, according to a report from the local office of St. Louis-based Colliers Turley Martin Tucker.

But St. Vincent's departure from several office buildings on Indianapolis' northwest side throws a wrench into that office submarket, which is already weak.

Vacancy rates on the northwest side have come down in the last year, but still stand at 18.9 percent, higher than the citywide average.

The St. Vincent-Thomson handover is expected to take place July 1. Thomson's lease expires in 2012 with StarPoint LLC, the California investment group that owns the building.

The building Thomson workers are moving into is at 101 W. 103rd St. It will serve as Thomson's global headquarters for its entertainment and media businesses.

Thomson has reinvented itself over the last three years, selling off its consumer electronics manufacturing businesses, and instead focusing on selling products and services to movie, television, telecommunications and Internet companies.

During that time, its work force in Carmel has shrunk by half.

"The future looks extremely bright for the businesses that we're in," said Thomson spokesman Richard Knoph. He added, "The reason for the move is for business cost-efficiencies and teamwork."

Likewise, St. Vincent officials said their operations will benefit from having their employees in one area. Right now, they are spread out in eight locations. For in-person meetings, employees have to schedule in an extra 20 or 30 minutes to drive from one office to another.

"For us to do business, they have to commute back and forth between the corporate office and their own office," said Kevin Speer, chief strategy officer at St. Vincent Health. "You want to avoid that car time."

The new building will allow St. Vincent to offer various amenities, such as a fitness center, a cafeteria, a concierge service and expansive campus grounds. Speer hopes those attributes make for a better environment for its employees.

Speer, as well as CEO Vince Caponi and about 20 other employees, will remain at St. Vincent Health's current corporate office, on Harcourt Road near the St. Vincent Stress Center.

St. Vincent will not fill much of the first floor of the four-story Thomson building, so it is considering setting up physician offices or another clinical use for that space. Thomson and a few small subtenants already in the building will still occupy about 10 percent of the building's space.

St. Vincent had been looking for a location in which to consolidate its administrative staff for more than three years, Speer said. But a deal didn't begin to come together until late last year when Thomson's listing agent, Jim Fasone, approached an old acquaintance, Sue Ann Gilroy, to pitch the property.

Gilroy, former Indiana secretary of state, is now head of the St. Vincent Foundation. She passed Fasone, a partner at Indianapolis-based Summit Realty Group, on to St. Vincent's real estate personnel. Three months later, the deal was struck.

"It came quick," said Bruce Gordon, vice president of Indianapolis-based Bremner-Duke Healthcare Real Estate, who represented St. Vincent in the deal. "The Thomson building was the right option."

Gordon declined to give details of the transaction, as did Speer and Knoph. But Smith, of Resource Commercial Real Estate, said Thomson had offered some space in the building to one of his clients for $12.75 per square foot.

The price of subleases can often go for less than half the full rent being paid by the original tenant, Smith said. Companies subleasing space can demand lower prices because such space is provided "as is," and because the company can't be sure it will be able to strike a deal with the landlord when the sublease expires.

Under regular leases, office space for buildings in the area costs around $20 per square foot.

Speer said he expects the new office to cost about as much--and possibly a little less--than St. Vincent now pays for the 160,000 square feet it uses for its administrative staff.

St. Vincent is now asking $9 per square foot for nearly 90,000 square feet of space it will vacate near the Pyramids office park and in Park 100, both on the northwest side. Colliers Turley Martin Tucker is listing those properties for St. Vincent.

"For the northwest side, it's not a nail in the coffin," Smith said. "But it's maybe one step forward, three steps back."

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