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3:01 a.m., Jun. 24, 2009 LAST MODIFIED: 10:36 a.m., Jun. 24, 2009 |
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UM's Pfizer space concerns landlordsUniversity may not renew leases in Ann ArborBy Daniel Duggan and Ryan Beene
Crain's Detroit Business | ||
The University of Michigan's purchase of the former Pfizer Inc. campus in Ann Arbor might mean new research companies in the region someday, but for now it means big worries for UM's biggest landlords. With UM leasing 1.1 million square feet of office, laboratory and medical space in and around the city, local landlords worry the university won't need as much space once it owns the 2 million square feet in the vacant Pfizer campus. “They would be crazy not to move into some of that space,” said Chris Grant, a vice president with Ann Arbor-based First Martin Corp. “But they've been pretty close-mouthed, so nobody really knows what they'll do with that space.” First Martin, founded by UM Athletic Director Bill Martin, is the university's largest landlord with 260,000 square feet under lease, according to figures provided by UM in February. The second-largest university landlord is Oxford Cos. with 241,000 square feet leased to UM, followed by Domino's Farms, with 230,000 square feet. The three landlords account for three-quarters of the university's leased space in Ann Arbor and the surrounding townships. Grant remains optimistic about the upcoming move, pointing out the Pfizer campus has been unused since the New York-based pharmaceutical company moved out in January 2007. He noted the university plans to use the space to grow or recruit new biotechnology companies and other businesses. “They might bring new business to the area, and we'll all be able to lease out the available space,” Grant said. The university is set to close on its purchase of the Pfizer site Tuesday. Long-term process “In its broadest conception, it is a research campus that will redefine, I think, the way the University of Michigan does research over the next several decades,” said Stephen Forrest, vice president of research at UM. But the Pfizer campus is unlikely to be filled in the short term. “Anything that happens in the next decade will probably be a part of a long-running story,” Forrest said. He emphasized the complexity of planning new research, the implications of moving current university operations to Pfizer, and planning work with private companies to fill the Pfizer campus. “But we don't want it to lie fallow either, we want to move quickly, so although the process has been deliberate, it hasn't been absent,” Forrest said. Dr. James Woolliscroft, dean of the university's medical school, said the bulk of the campus is likely to house new interdisciplinary research groups, private companies partnering with the university and UM spinoffs. Launching a business incubator on the campus is also a goal of the university, Woolliscroft said. In the past, UM faculty members seeking to commercialize intellectual property have struggled. “Very frequently they were put in a position where they had to take their startups elsewhere,” Woolliscroft said. Evaluating leases Timing is critical. Many UM leases are expiring soon. According to the university, 43 of its 117 third-party leases in Ann Arbor and the surrounding townships come due in 2009, with another 23 expiring in 2010. Any university operations now in leased space that move to the Pfizer campus will follow a plan being negotiated, and moves will be gradual as leases come due, said Kelly Cunningham, UM director of public affairs. The first options to move would likely be space occupied by billing, telemarketing or other operations that don't involve consumers visiting the office space. Woolliscroft said UM has no plans to move patient care operations currently in leased buildings to the Pfizer campus, because the campus has no patient care capabilities. UM leases more than 280,000 square feet of clinical space for UM Hospitals and Health Centers, or more than 25 percent of the university's total lease portfolio. John Petz, director of government and community relations at Ann Arbor Township-based Domino's Farm Corp., said the Pfizer acquisition is a concern. But he also said the university hasn't approached the landlord about terminating leases or moving out, so he will wait and see. “We're looking forward to working with them and suiting their needs,” he said of the university. Likewise, Oxford president Jeff Hauptman said he is keeping a close eye on the university's moves with Pfizer space. But he said the locations of real estate the university needs for medical and other consumer-oriented uses needs to be easy for people to find. “Pfizer isn't the kind of place where you can drive in and out,” Hauptman said. “(The university) will still need space around the area where people can drive right in and find what they need.” Taxes at issue The university also will need to weigh what it already has spent on existing leased space versus its tax savings, said Neal Warling, president and CEO of Bluestone Realty Advisors, an Ann Arbor-based real estate consulting firm. Space the university uses for medical clinics at Domino's Farms, for example, would be an unlikely candidate to move to the Pfizer campus, he said. “In a space like that, where they've invested a lot of money to move there, I think they'll look at what they spent and decide to let that space live out its useful life before moving on,” he said. But for strictly office uses, Warling said, UM isn't paying property tax on its Pfizer space. When UM leases space from a landlord, taxes are paid. Taxes on Ann Arbor real estate vary widely based on the type of space and how long the landlord has owned the property, and can range from $2.75 to $5 per square foot. Those tax implications aren't lost on the city's leadership. When the university's purchase agreement was announced in December, Ann Arbor Mayor John Hieftje expressed concern about lost revenue when the Pfizer property transfers from city tax rolls to UM. The Pfizer campus has about $193 million in taxable value — or roughly 5 percent of Ann Arbor's taxable property — though much of the property received abatements. The city collected about $4 million in property tax revenue from the Pfizer campus in its 2009 fiscal year out of about $12.5 million collected by all taxing bodies in Washtenaw County. While UM's gradual occupation of the Pfizer campus is being heralded as a significant opportunity to drive research and economic activity in the future, the short term has landlords worried. Still, being concerned is nothing new in real estate, said Grant, who has been in real estate since 1974. The idea of a major tenant finding a new real estate option is just part of business. “We've been in this for a long time, and this is just part of the ups and downs,” he said. 
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