California-based Applied Materials reportedly has agreed to take 290,000 square feet of space with plans to open a manufacturing facility at the Sylvan Business Center in Danvers.

In a move that could provide a major shot in the arm for the Bay State, semiconductor giant Applied Materials is in late-stage negotiations to locate a new manufacturing facility in Danvers, industry sources told Banker & Tradesman last week. The firm reportedly is keying in on the former Osram Sylvania building that is currently undergoing a gut renovation.

“Every indication is that it’s going to go through,” one source said of the deal, adding that Applied has already committed to the 290,000-square-foot property. The source said a final lease could be inked as early as this week, maintaining that the two sides have only “cosmetic issues” to hammer out at this point. The developer is College Street Investments, which includes Boston real estate veteran Robert Burr and Gilbane Properties.

Headquartered in California, Applied does have an office in Hudson, but the Danvers operation would essentially represent new growth in the Massachusetts market. Sources estimated that the plant could generate as many as 500 jobs.

“It would be a tremendous boost for the area,” North Shore Chamber of Commerce spokesman Robert Bradford said last week. “It would further solidify the North Shore as an economic oasis.”

Bradford said he is unaware of the status of the negotiations, but did acknowledge that Applied officials have contacted his office seeking demographic information. The North Shore is already a Mecca for semiconductor companies, Bradford noted, especially those which focus on so-called ion beam implantation. Among the firms with a significant presence in the area are Gloucester-based Variant, Ibis and Axcelis.

If consummated, the Applied lease would dramatically buck the negative performance seen thus far in Massachusetts in 2001, especially in the suburban sector. The technology firms that led the region to a historic campaign in 2000, driving rental rates to new highs and plunging vacancies to record lows, have done the exact opposite this year.

According to Meredith & Grew, for example, net absorption for Greater Boston at the mid-year point was in the red by an astounding 7.8 million square feet, bringing the overall vacancy rate to 9.3 percent. The North Shore was hit particularly hard, with its 16 percent vacancy rate tops for the suburbs.

“It changed very quickly,” said Spaulding & Slye Colliers principal Tamie R. Thompson, a suburban specialist. “Demand is still way off.”

Thomas M. Lescalleet, a principal with the Codman Co., said prospective tenants are increasingly returning, but are far more deliberate in their space searches than they were in the midst of last year’s hyperactive cycle. “Right now, we’re educating tenants on what is out in the market,” said Lescalleet, although he added that there are very few large-scale companies seeking quarters at present.

For those that are active, Lescalleet said most firms will probably wait until the first quarter of 2002 to make a final commitment. Some companies are waiting to see whether rents will erode further, he said, while others still have excess space of their own to dispose of before moving elsewhere.

‘The Next Surge’
Thus far, none of the players involved in the Danvers deal appear willing to talk about the situation. Burr declined comment, as did broker Greg Klemmer, who is serving as leasing agent along with CB Richard Ellis/Whittier Partners. Calls to Applied officials were not returned by Banker & Tradesman’s press deadline.

Despite that, sources insist that the two sides are about to cement their deal. While some observers expressed surprise that Applied would take the space in the unsteady economic climate, one source familiar with the negotiations said the company prefers to make its larger real estate decisions during down periods. Pricing is better, the source explained, and management is better able to cope with setting up a facility when production has slowed. “The way they see it, now is the exact time they should be doing this,” said the source. “When the next surge comes along, they’ll be ready.”

The source did maintain that College Street will be close to achieving its asking rent, which earlier this year was being quoted in the mid-$20 per-square-foot range. The Applied pact would seem to be a coup for the developers, who acquired the property in June 2000 for $5.6 million. The property is being peddled as the Sylvan Business Center. Given the silence on both sides, it is unclear how much of the plant would be used as office vs. manufacturing space, but one source said it will likely be a mixture of both uses.

The deal would also seem to be a boost for other buildings in the area, both existing and those under construction. While many speculative projects that were circulating last year have been shelved, a few that made it out of the gate will likely breathe a sigh of relief if Applied commits to Danvers. Among the new buildings under construction is a 150,000-square-foot office building at 601 Edgewater Drive in the Edgewater Office Park in Wakefield, a few miles from the Danvers property.

The world’s largest maker of semiconductor production equipment, Applied Materials has 20,000 employees worldwide, with offices throughout the United States as well as in Israel, Europe, Japan and South Korea. The firm posted $9.6 billion in revenues last year.

While College Street probably will not lose sleep over Applied’s fiscal condition, the company has nonetheless struggled along with the rest of the industry. In third-quarter figures released last week, company officials said net income was off 95 percent compared to the third quarter of 2000, while overall sales fell 51 percent. Profit for the third quarter reached $41 million, but that was down 93 percent from the $604 million seen a year ago.

During a conference call last week, Applied chief executive officer Jim Morgan told analysts that the company is unsure when conditions will improve. Despite that, he also said the firm plans to spend $1.2 billion this year on research in preparation for the eventual rebound.