Devise an Exit Strategy
For Older Tech Campuses
In the 1970s and 1980s, the explosive growth of technology in
the US touched off a construction frenzy of special-purpose,
high-tech buildings in campuses designed for single users.
Dubbed flex manufacturing space, these buildings provided
large floor plates to accommodate research and design, manufacturing and assembly, storage and distribution. Flex campuses
came with fully integrated and interconnected utility systems,
with office space typically arranged in what came to be known as
These campus headquarters were built at a time when it was
desirable and economically feasible for all of these functions to
be under one roof, or one location, to facilitate internal communication, maintain control and security of specialized processes
and promote internal efficiency.
By the early 2000s, however, demand for these sprawling high-tech campuses
declined. It became
more cost effective
to move manufacturing and assembly functions overseas and to
reduce transportation costs by locating near emerging global
markets. As high-tech companies downsized their operations in
the US, their campuses were left with significant excess space.
Therein lies the problem for property owners and tax assessors: What is the market value of these older high-tech campuses
that were built without an exit strategy as single-user, special-purpose properties?
An investigation into the market value of one of these campuses
must begin with an analysis of the property’s highest and best use.
There are only three scenarios for highest and best use of any
improved property, and they are (a) continuation of the existing
use; (b) conversion to an alternative use; or (c) demolition of the
improvements and redevelopment of the site. A single property
may also incorporate some combination of these alternatives. What
follows are key points to consider with each approach.
Continuation of existing use. This valuation scenario assumes the
owner would be selling or leasing excess space. There may be legal
prohibitions and physical limitations to this alternative, however.
Although communities embraced these campuses for the jobs they
brought to the local economy, zoning ordinances enacted to establish these projects often contain provisions insuring that the properties maintain their campus-like setting, including limitations on
ingress and egress, the percentage of accessory uses not directly
connected to the high-tech use, signage and parking ratios that are
inconsistent with a multi-use property.
Frequently, utilities, security systems and the physical configuration of the campus are interconnected, making it impossible to
convert the property to a multi-use or multi-tenant facility. In
some cases, it is not financially feasible for the owner of a high-tech campus to sell or lease excess space because the revenue
By David Canary and Cynthia Fraser
generated from a sale or leasing would not justify the expense
required to convert to a multi-use facility. These costs include tenant improvements, separate metering of utilities and leasing
costs. Thus, the excess space becomes functionally obsolete and it
is more cost effective to let it go dark.
Converting to an alternative use. An owner/user could consider
vacating the entire campus and selling it on the open market.
However, potential users for these types of properties are limited due to the property’s excessive size (typically 700,000 to two
million square feet), age and condition, large floor plates, outmoded technology and lack of demand due to globalization. A
As high-tech companies downsized
in the US, their campuses were left
with significant excess space.
campus property may sell if the price is low enough to justify a
significant expenditure in converting the campus to an alternative, multi-tenant use.
In 2007, for example, real estate developer Benaroya purchased Microchip Technology Inc.’s wafer manufacturing facility, a 700,000-square-foot, 10-building campus in Puyallup, WA,
for $30 million, far less than Microchip’s asking price of $93 million. Thereafter, Benaroya reportedly invested $45 million to
convert the facility into a multi-tenant, state-of-the-art business
and technology center. Today, a significant portion of Benaroya’s
renovated facility remains vacant. Thus, the financial feasibility
of converting a high-tech campus property to an alternative use
Demolish the improvements and redevelop the site. Because the previous two alternatives may not be legally permissible, physically
possible or financially feasible, a number of large high-tech campus
properties have been shuttered or demolished. Reported examples
are Motorola’s manufacturing plant in Mesa, AZ, and IBM’s
research park in Poughkeepsie, NY.
For these reasons, high-tech campuses have been described as
white elephants. Their current use is no longer in demand, and
they are not suitable for conversion to an alternative, or second-generation, use. The valuation and the assessment of these campuses must account for their inherent functional and economic
obsolescence, which directly affect their market value. ◆
David Canary ( email@example.com) is Of Counsel to Garvey Schubert Barer,
the Washington, Oregon and Idaho member of American Property Tax Counsel.
Cynthia Fraser ( firstname.lastname@example.org) is an owner at Garvey Schubert Barer.
They are based in Portland, OR. The views expressed here are the authors’ own.