Intercontinental Cos. is preparing to sell 343 Congress St. in Boston.
No time like the present. To a certain extent, that appears to be the outlook of the Intercontinental Cos. of Brighton, which is moving quickly to offer its latest reclamation project up for sale, despite uncertain economic waters ahead.
“Yes, we are preparing to formally market 343 Congress St.,” Intercontinental principal Paul Palandjian said last week of the 100,000-square-foot building, located in Boston’s Fort Point Channel district. The former garage and warehouse is hitting the blocks just a few months after Intercontinental completed an extensive overhaul of the property into modern office space. Palandjian said that CB Richard Ellis/Whittier Partners has been retained for the assignment, but declined to provide an asking price for the building.
“It’s not any more complicated than trying to maximize value and return for us and our investors,” said Palandjian of the motivation. In the case of 343 Congress St., he said, “We created the value, and now it makes strategic sense to market it and sell it.”
The building has undergone an unusual lease-up process since work began, with Intercontinental quickly inking a pair of technology companies last summer to take all of the space in the building. The subsequent crash of the high-tech sector late last year substantially cut back on those deals, however, with Context Integration backing out completely and Nextera reducing its space from 50,000 to 30,000 square feet.
Despite those setbacks, the building has rebounded quickly. Even with millions of square feet of sublease space pouring onto the Greater Boston market in a few months’ time, giving tenants a plethora of options, Intercontinental has successfully retenanted the space which became available. A good-credit tenant, CCBN Inc., will move into 46,000 square feet in mid-June, said Palandjian, filling virtually all of the Context Integration hole. Another deal for 21,000 square feet of excess Nextera space is on the verge of completion. And Intercontinental itself has taken 4,500 square feet as a sales and marketing office for its 90 Tremont St. hotel, a project underway near Boston Common.
“I think everybody breathed a sigh of relief that we were able to re-lease the space, and do so at essentially the same economics,” said Palandjian. The latest leases were reportedly done in the high- to mid-$40 per-square-foot range, certainly a healthy rate for the emerging Fort Point Channel market.
While relatively small for the Boston market, the 343 Congress St. offering could also be a barometer of how well the Hub is holding up as an investment target. Although pricing may very well have peaked in 2000, Palandjian insisted that the local office sector remains among the strongest in the country, and said he believes 343 Congress St. will attract a solid level of interest.
“I think there’s tremendous demand for Boston real estate,” said Palandjian. “The fundamental lack of substantial new supply in the Financial District and the central city has created a very solid investment market here … People are still very bullish.”
‘Credit and Location’
Cushman & Wakefield broker James Belli agreed with that outlook, in spite of the sluggish beginning to 2001. Belli said more deals have fallen apart midstream this year than in the past, while others – especially in the suburbs – have failed to meet initial pricing expectations. But he attributed that to a misreading of the market among some who still believed 2000 levels remained attainable.
“There have been instances where sellers were overaggressive or where brokers missed the mark a little bit,” he said. “There have been a few instances where the assessment wasn’t done correctly.”
Regardless, Belli said most investors recognize that Massachusetts remains in balance from a supply-and-demand standpoint. The key, he said, is that buyers are looking for stability in their acquisitions.
“Today, everybody is worried about credit and location,” he said. “If you have one or both, you’ll do fine.”
Some observers have questioned whether institutional investors will continue to pursue office properties, but Belli said he has seen no sign of a mass pullback from that investment class.
“They [investors] like the Boston market and they will continue to look for opportunities, both downtown and in the suburbs,” he said.
And office deals certainly are getting done, with Cornerstone Properties reportedly receiving numerous offers for its Needham Corporate Center complex in Needham and Lend Lease Real Estate Investments said to be on the verge of closing on the sale of One Liberty Square in Boston’s Financial District. The Hub’s 99 High St. has already traded, while the big deal of the year – One Federal St. – is also proceeding apace. German investment advisor Jamestown is said to be acquiring that 1.1 million-square-foot structure.
As for Intercontinental itself, the firm is not solely focused on property dispositions. Already working on two Boston hotels and a 12-story office/residential property at the Hub’s North Station, Intercontinental is spreading its wings outside New England. John Matteson, the firm’s director of acquisitions, said last week that the company is on the verge of buying a 125,000-square-foot office building in Chicago, as well as several properties in Austin, Texas.
“We’re very excited about it,” Matteson said of the pending purchase of 29 North Wacker Drive in the Windy City. The so-called “jewel box” building will be among the first acquisitions for Intercontinental’s third private investment fund, one expected to ultimately obtain upwards of $250 million worth of commercial real estate. Along with that deal, Intercontinental hopes to close this week on a 75,000-square-foot building in Austin for $13.2 million.
“It’s a neat little town,” Matteson said of the Texas capital, where the firm is targeting a mass of 350,000 square feet of properties.
Although it will be looking outside the region, Matteson said the company remains committed to New England. Between 50 percent and 75 percent of the company’s holdings will likely remain local, he said.
