WATERTOWN, MA—Cresset is risking $25 million that office tenants are becoming sick and tired of paying sky-high rents for space in Downtown Boston and Kendall Square in Cambridge.

The Boston-based commercial real estate investment and development company reports it has begun construction on the gut rehab of 65 Grove St. in Watertown. The cost of the program, according to Cresset president Ed Nardi, will be approximately $25 million.

Cresset purchased the 118,000-square-foot building from GE Ionics in 2014 and is now undertaking a major renovation of the vacant property originally built in 1945 into a Class A office and R&D facility.

Nardi says that the renovation of the building is being done on a speculative basis, although leasing agent CBRE/New England is in discussions with a number of tenants.

He says given the proximity of Cambridge from the building he hopes to take advantage of the strength of the Kendall Square market, where conditions are tight and rents are high. He also notes that asking rents that are now at $90-a-square-foot for some properties in Kendall Square have some prospective tenants “on their backs in shock.”

Once renovations are completed in the second quarter of 2016, Cresset will be looking to secure rents in the mid $30s-per-square-foot. The building should also be attractive to those who bristle at the high rents in Boston. The project is being financed by a construction and permanent loan of approximately $25 million from East Boston Savings Bank.

“Everything will be 100% new except for the concrete frame and some of the brick,” Nardi says. He notes that the building is already 100% gutted except for the concrete shell and masonry.

The renovations will be finished to LEED certifiable standards with all new windows and a glass façade, new roof, the installation of state-of-the-art mechanical/electrical systems and a complete redesign of the exterior grounds and parking areas. The plan for the interior is to reflect creative office space trends including high ceilings, tulip columns, and glass curtain walls, according to CBRE/NE's Robert Fitzgerald, who is the exclusive leasing agent for the property. In addition, the renovation will also include the construction of a new three-story 300-car parking garage.

“In order to take full advantage of the building's concrete frame and generous floor to floor heights, we decided to introduce a glass curtain wall in lieu of the masonry exterior to highlight the potential for exposed ceilings with incredible light and air,” says Nardi. “We've also created a higher parking ratio with a new parking structure, which in turn allows us to provide significant landscaping features—a benefit to both tenants and abutters.”

Cresset could have undertaken a much less intensive capital improvement program of several million dollars that would have likely been successful, Nardi relates. However, the company decided to significantly ramp up its capital program in order to attract a new Class A tenant roster.

“We made the decision that we will spend significant dollars gutting it and bringing it up to Class A standards, but hopefully that in the long run will serve us well,” Nardi says. “If you are going to do it, you are going to do it right the first time and you are going to appeal to that Class A market, which is a better tenancy and better credit.”