Cushman & Wakefield was recently retained to trade One Beacon St., a 36-story tower owned jointly by Westbrook Partners and the Prudential Insurance Co.
After a slow beginning, the prospect of a solid year for Boston’s commercial real estate investment market appears to be improving, with yet another downtown tower reportedly going on the trading block. According to industry sources, the Hub’s 99 Summer St. is being put up for sale by Paradigm Properties and the Carlyle Group. Several sources maintained that Spaulding & Slye Colliers has been hired to sell the 20-story, red-roofed tower. “That’s what I’m hearing,” said one Boston investment broker who requested anonymity. Calls to Paradigm Properties President Kevin McCall and to Spaulding & Slye’s investment sales group were not returned by Banker & Tradesman’s press deadline.
Although some question the marketability of 99 Summer St. due to leasing vacancies and the building’s physical composition, others insist interest in downtown Boston will be strong enough to garner investor attention for just about any asset offered for sale. After several record-breaking years, the Hub has seen a dearth of office buildings trading in recent months, a slowdown partly attributed to the Sept. 11 terrorist attacks, as well as the effects of the lingering recession.
Suddenly, however, there has been a surge of towers coming on the Boston market, including One Boston Place and One Beacon St. Although officials continue to keep mum on the issue, Banker & Tradesman previously has reported that Teachers Insurance and Annuity Association has tied up the 41-story One Boston Place. Meanwhile, Cushman & Wakefield was recently retained to trade One Beacon St., a 36-story tower owned jointly by Westbrook Partners and the Prudential Insurance Co.
Some observers suggest that TIAA may also be angling to make a bid on One Beacon St., but Cushman New England President Robert E. Griffin Jr. downplayed that notion, suggesting last week that the purchase of One Boston Place might be enough for the New York-based pension fund to swallow locally. Others, however, said it appears TIAA has a renewed appetite for the Bay State nearly five years after selling off most of its Massachusetts holdings in a bulk portfolio sale to the Archon Group.
“Teachers told us they are having a real problem getting money out, and [One Beacon St.] is in their sights,” said a Hub investment specialist in regular contact with the pension fund. TIAA did not respond to an inquiry regarding its intentions. But while questioning the pension plan’s focus on One Beacon St., Griffin concurred that TIAA is among several national funds eager to buy properties, particularly stable opportunities that offer solid cash flow as well as needed investment diversity.
“It is more difficult to get deals done, but there’s more money chasing real estate right now than there has ever been,” Griffin said. “There’s billions of dollars waiting on the sidelines for a home.”
‘Active’ Market
Indeed, in one of the quicker deals consummated in recent memory, General Electric Corp. was reportedly slated to close on Boston’s 470 Atlantic Ave. last week, acquiring the property from Modern Continental Enterprises for an estimated $83 million. Struggling to lease the 14-story Class A office building after a gut renovation, MCE only placed the building up for sale earlier this year, with Banker & Tradesman first reporting in late April that General Electric had committed to the deal. In so doing, GE beat out a flurry of competition lining up to buy the property.
Along with national pension capital, Boston is also garnering continued attention from overseas buyers, with Germany continuing to lead the pack. A recent change in German law has allowed open-ended real estate funds to significantly increase their investment in U.S. real estate. As has been the case traditionally, Boston is a popular destination for such investment, joining New York City and Washington, D.C., on the top cities on the German A list. Among the local towers owned by German investors are 125 High St. and One Federal St.
“There are still only three or four active markets in the country, and maybe 10 in the world, and [Boston] is one of them,” said Griffin.
Among the biggest challenges to date has been convincing owners to sell in the down market. Conditions continued to deteriorate in the first quarter, with Trammell Crow Co. reporting that Boston saw negative absorption of 772,000 square feet, bringing the vacancy rate up 1.5 percent to 14.4 percent. The weighted average for downtown office rents dropped from $45.07 per square foot at year end 2001 to $42.63 per square foot three months into 2002.
Even as the market continues to struggle, however, many investment experts think owners will become increasingly motivated to put their buildings up for sale, largely due to the clamor among investors. “The [Central Business District] has been so hot, it’s ridiculous,” said Griffin. “It’s just really strong right now.”
If so, that would seem to bode well for 99 Summer St., which Paradigm and Washington, D.C.-based Carlyle purchased in the spring of 2000 for $66 million. At the time, it was seen as one of the better plays in the market, with other Hub towers trading at substantially higher rates. But despite several upgrades to the property, some maintain that 99 Summer St. has certain shortcomings that could give potential investors pause.
Among other trouble spots, one of the building’s top tenants, AIG, is reportedly angling to move out of the building. Some brokers maintain that the building does not have efficient floorplates, while construction of the adjacent One Lincoln St. is also expected to compromise 99 Summer St.’s views.
“That building has a lot of issues,” said one Boston broker. “They could have a tough time [selling] that one.”
