Boston Scientific has some properties on market

Natick, Watertown sites for sale as firm seeks efficiencies

Boston Scientific's Natick headquarters. Boston Scientific shares were down 50 percent for 2008. (Associated Press/file 2006)

Boston Scientific Corp., once a key growth engine in the suburbs west of Boston, is shrinking its footprint.

The medical device giant is trying to sell or sublet several buildings in Natick and Watertown totaling about 600,000 square feet, a major retrenchment for a marquee Massachusetts corporation. Boston Scientific is one of several firms along the Route 9 corridor in Framingham and Natick that had grown steadily over the years. Others include Staples Inc., TJX Cos., Bose Corp., and MathWorks Inc.

"This is the first time that any of those major players have given up space," said Christopher P. Tosti, a partner with commercial brokerage firm CB Richard Ellis. "They have always marched forward."

According to several Boston commercial real estate brokers, Boston Scientific is trying to sell two key properties in Massachusetts - a 316,000-square-foot warehouse it once planned to convert to office space, located on Superior Drive in Natick near its current headquarters, and the company's former headquarters in Watertown, a 200,000- to 250,000-square-foot complex once used as a mill. The company is also vacating as much as 90,000 square feet of leased office space at Cochituate Place in Natick, the brokers said.

Boston Scientific spokesman Paul Donovan declined to comment, but the company appears to be shedding space for two reasons. First, it added roughly 500,000 square feet of office space in Marlborough in 2006, making some of its older real estate holdings redundant. Then, last year, Boston Scientific was forced to cut costs to cope with flagging sales of drug-coated stents used to prop open arteries and implantable defibrillators used to regulate heart rates, its two major markets; heavy debt from its $27 billion acquisition of Guidant Corp. in 2006; and Food and Drug Administration restrictions on its ability to launch products. As part of its cost-cutting, the company has reduced its worldwide workforce 8 percent, or 2,300 jobs, including scores of jobs in Massachusetts.

Boston Scientific has since made progress in streamlining operations, reducing its debt, and persuading the FDA to lift new product restrictions. In addition, its two major markets appear to have stabilized, said Rick Wise, an analyst with Boston investment banker Leerink Swann & Co.

"2008 was a year of substantial progress for Boston Scientific," Wise said.

But Wise said the company is likely to be extremely careful about hiring, given the global recession and other remaining challenges, including fluctuating foreign currencies, increased competition from other stent makers, and lower profit margins from one of Boston Scientific's newer lines of stents. In a Dec. 1 research report, Wise estimated Boston Scientific would likely report $8.1 billion in revenue in 2009, about the same as 2008, after adjusting for currency changes.

Boston Scientific shares closed at $7.74 on Dec. 31, up 35 cents, but down 50 percent for the year and down 68 percent over the last three years.

The reduction in the company's Massachusetts presence comes two years after it received millions of dollars in state and local tax incentives for an expansion of roughly 500,000 square feet in Marlborough. Under terms of the agreement, Marlborough and the state agreed to give Boston Scientific a discount of up to 50 percent on its property taxes for 20 years, plus a state investment tax credit of 5 percent on its investment. In return, Boston Scientific promised to add at least 331 jobs in Marlborough, including 200 by June 2008 and 300 by 2009. Under the program rules, the company is also required to increase its overall employment statewide.

As of June, Boston Scientific said it already saved $2.3 million in state income taxes, plus nearly $526,000 in local property taxes. Since the tax subsidies were approved in June 2006, however, Boston Scientific said it actually eliminated 162 jobs in Marlborough as of June 30, 2008. The company now says it has roughly 2,000 employees statewide, down from the 2,300 it reported in mid-2006. The state board that oversees the tax incentives, the Economic Assistance Coordinating Council, will likely review whether Boston Scientific, along with other companies, are in compliance with the requirements for the tax incentives next spring, said Kofi Jones, a Patrick administration spokeswoman.

It's hard to predict how much Boston Scientific will get for the Watertown and Natick buildings, which it has quietly been trying to sell for months.

According to Watertown property records, Boston Scientific controls several brick buildings around the intersection of Pleasant and Bridge streets. Combined, the buildings are assessed at $13 million. The company came close to selling the complex several times over the last year, but the deals fell through for various reasons, according to brokers. The Natick warehouse, which Boston Scientific has owned for more than a decade and was once used by S&H Green Stamps, is assessed at $9.5 million, according to town records. In addition, Boston Scientific originally tried to sublet as much as 90,000 additional square feet of office space in Natick, but has since reduced the figure to as little as 44,000 square feet as its existing leases gradually expired.

Commercial real estate brokers say Boston's real estate market has not been hit as hard as some other markets, but it's not an ideal time to sell or sublet real estate.

"There's been a lack of demand," said Kevin Hanna, executive director of Cushman & Wakefield Inc., a commercial real estate brokerage firm in Boston. "A lot of companies are continuing to rightsize."

Todd Wallack can be reached at twallack@globe.com.