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Biz parks looking to regain cachet: Once-hot office spots Keystone, Precedent face more competition, see occupancy slip

February 19, 2007

The new owners of Keystone at the Crossing and Precedent Office Park-two prominent, but aging, business parks on the city's north side-are undertaking major projects to stay competitive amid a rising glut of office space.

Both office complexes became popular corporate addresses after their development in the 1980s and enjoyed near-maximum occupancy throughout much of their history. But vacancy rates at the high-profile parks have begun to climb in recent years.

Indianapolis-based commercial real estate investment manager HDG Mansur, on behalf of a private investor, purchased the 1-million-square-foot Precedent, just northeast of Interstate 465 and Keystone Avenue, in November 2005 from Berwind Property Group for $143 million.

Philadelphia-based Berwind, in turn, bought five buildings at neighboring Keystone at the Crossing for $110 million from Teachers Insurance and Annuity Association, and a sixth building for $14 million from Massachusetts Mutual Life Insurance Co. Total square footage is 1.2 million.

Now the companies are spiffing things up in hopes of restoring occupancy rates to their historic highs.

At Keystone, the city's third-largest office park, Berwind last year began a $10 million renovation that included the addition of a 4,000-square-foot fitness center Keystone tenants can use for free.

At the Precedent, the area's fourthlargest office park, HDG Mansur hopes to embark within four months on its own renovation project-one that will add additional office space. HDG Mansur CEO Harold Garrison declined to provide more details about the project.

The investments help portray a rivalry not only between the two neighboring parks, but one that now includes several more high-end office complexes that have been built on the north side in the past decade-especially those along the North Meridian Corridor.

Another 600,000 square feet of office space has opened recently or will open soon along North Meridian, including 186,000 square feet at Indianapolis-based Duke Realty Group's Parkwood West complex at the northwest corner of Meridian and 96th streets, and 180,000 square feet from Sacramento-based Panattoni Development Co. at 111th and Pennsylvania streets.

Locally based Lauth Property Group has 135,000 square feet at Meridian Corporate Plaza Three. And Opus North Corp., known for developing industrial space, is making its first foray into the local office scene with a 106,000-square-foot park, dubbed Opus Landmark at Meridian, at 126th Street.

"Those new buildings are going after tenants at Keystone at the Crossing and the Precedent, and the other existing tenants in the Meridian corridor," said Jon Owens, a principal in the Indianapolis office of St. Louis-based Colliers Turley Martin Tucker. "The fact that the new owners of these more established business parks are trying to spruce up their respective buildings with amenities isn't surprising."

How the additional space will affect suburban occupancy rates remains to be seen. The rate at the end of 2006 stood at 83 percent, up from a recent low of 79 percent in 2003. In the meantime, the north suburban and Carmel market absorbed more than 300,000 square feet of inventory in the fourth quarter of 2006.

Improving occupancy

In the year since both HDG Mansur and Berwind have taken ownership, their respective complexes have shown improvement. The Precedent's occupancy rate has risen from 79 percent to 84 percent, while Keystone's has remained stable at 79 percent, according to executives from each company.

Keystone, however, is rebounding from a substantial setback early last year in which Cingular vacated 40,000 square feet and bolted to Duke's Nine Parkwood on East 96th Street.

While the occupancy rates of the two office parks are in line with the market's current average, they have yet to approach their historic highs. In 1999, Keystone was 98-percent full, while the Precedent was 93-percent occupied, according to IBJ statistics. Executives at both complexes think the renovations can help restore that prestige.

"Without a doubt, that, with our combined efforts in the area and the added dollars that we're putting in, I think it will allow us to compete quite nicely with other projects," HDG Mansur's Garrison said, "because it's such a great location."

Berwind bought the Precedent in 1998 for $95 million and turned a generous profit of nearly $50 million upon its sale. The decision to unload the property was partly investor-driven, because many of their objectives had been met, said Joe Neverauskas, director of Berwind's Midwest region. The investment management company has enough confidence in the submarket that it set its sights on nearby Keystone.

"We absolutely think it is the best park in the northern part of Indianapolis," he said. "When we complete the renovations, it should be very competitive."

Besides the fitness center, the updates include makeovers for all six lobbies that should be finished by the end of the year. The elevator common areas and rest rooms on three to five floors in each building will be refurbished every year until every floor is finished. The six buildings range in size from five to 18 stories.

A 50-seat conference center and a 15-seat executive conference room have been added as well.

Besides the refurbishments, both Berwind and HDG Mansur plan to heavily promote the area's extensive array of shops, eateries and other amenities that are mostly absent from the Meridian Street corridor.

More Precedent activity

Berwind and HDG are not the only ones who remain high on the area's potential. Locally based Precedent Cos., the original developer of the Precedent, retained 18 acres of undeveloped land in the park on which it has completed 75,000 square feet of a 190,000-square-foot building.

Locally based MJ Insurance Inc. is the anchor tenant and leases nearly 60 percent of the building, said Bill Sahm, Precedent's senior vice president of commercial development. Precedent is expected to sign additional tenants soon that will increase occupancy to 70 percent. Construction on the second phase will start later this year and will be finished in 2008. A five-story tower to connect the two additions will feature food service, meeting rooms and a conference center. The building will be the 20th on the Precedent property.

Sahm said he thinks his project can compete well with any project on Meridian.

"We think there's always going to be an attraction to Meridian because it's Meridian, not necessarily for the amenities that we have here," Sahm said. "And as land gets more and more expensive, and you have to go farther north on Meridian [to find land], it becomes less attractive to the larger users who need to attract employees as well as clients."

Construction on the first Keystone office building began in 1978, and the park was finished 10 years later. Harold Peterson, father of Mayor Bart Peterson, led development of the Precedent in 1985.
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