March 1, 2002 -- Network services provider Level 3 Communications will terminate a lease for data center properties totaling 166,000 square feet in Fremont, Calif. after reaching agreement with landlord Catellus Development Corporation, the two companies said yesterday.
Level 3's departure from the Pacific Commons business park in Silicon Valley is one of the largest lease terminations to be publicly disclosed in the current downturn for the data center industry. Catellus is a publicly-held company.
But Level 3 is hardly alone, as numerous colocation and network service providers are consolidating facilities to cut costs after a wave of overbuilding.
As growing numbers of facility owners seek to "hand back the keys," landlords of carrier hotels and technology parks are left to decide whether to settle or sue. Negotiated termination agreements can allow the tenant to escape a long-term financial obligation, and the landlord to remarket the space.
Level 3 signed a 20-year deal in December 2000 for the site at the Pacific Commons, and completed its data center buildout last summer. Industry sources say the facility was placed on the market shortly after completion.
Under the agreement, Catellus will receive 26 months rent and keep the tenant improvements, and Level 3 will be relieved of its rent obligations for the remaining 19 years of the lease term.
Catellus said it hopes to reposition the sites as warehouse/distribution or research and development facilities.
"While we are disappointed to lose Level 3 as a tenant, I am very pleased that we were able to reach an agreement that meets both of our needs," said Nelson C. Rising, Chairman and Chief Executive Officer of Catellus. "Level 3 will be relieved of its obligations and we will retain the flexibility to re-lease the buildings to other tenants and to continue the development of Pacific Commons.''
Catellus Development Corporation owns a portfolio of rental properties totaling 30.9 million square feet and one of the largest supplies of land in the Western United States capable of supporting over 42 million square feet of new commercial development and an estimated 10,200 residential lots and units.
Denver-based Level 3 offers bandwidth services in North America, Europe and Asia, providing services in 50 data centers..