The 200,000-square-foot development at 77 Fourth Ave. in Waltham has already been guided through the design and permitting phases.
Continuing to grow its portfolio through new construction, Boston Properties is purchasing the development rights for an eight-story office building to be erected overlooking Route 128 in Waltham. Known as 77 Fourth Ave., the 200,000-square-foot project had been guided through the design and permitting process by the Nelson Cos.
“Boston Properties has bought the property from us and, I believe, is going to fairly expeditiously put a building up,” Nelson Cos. President William R. Hassett told Banker & Tradesman on Friday. He was unable to elaborate further, but industry sources placed the purchase price at $13 million.
The sale signifies continued interest in core suburban office markets, even in light of a slowdown in demand fueled by recent difficulties in the high-tech sector. Along with the Boston Properties endeavor, sources maintained that an investor affiliated with Trammell Crow of Texas has placed the Totten Pond Office Center in Waltham under agreement, beating out a slew of suitors who had lined up to buy the three-building complex.
“We have selected a buyer, and we are negotiating a purchase-and-sale contract,” acknowledged Robert E. Griffin Jr. of Trammell Crow, whose firm is brokering the sale of the park. Griffin would not elaborate on who the buyer is, but sources said it is a pension fund advisor connected to Trammell Crow. The purchase price for the 290,000-square-foot park reportedly is in the $58 million range, but Griffin would not comment on that aspect of the sale. Built between 1969 and 1972 and renovated in 1996, the park’s buildings run from 75,000 square feet to 135,000 square feet.
If both the Nelson and Totten Pond deals are completed, they could help alleviate concerns that interest in office properties is on the wane in the wake of the recent economic turmoil. Waltham offers a host of investment opportunities at present, with Cabot Cabot & Forbes and Polaroid Corp. also offering properties up for sale there. Elizabeth Thomas, an investment specialist with Jones Lang LaSalle in Boston, said last week that the so-called Watch City has traditionally weathered downturns better than less-centralized communities.
“Waltham has always been one of the stronger submarkets in metropolitan Boston and will continue to be,” said Thomas, who cited its proximity to downtown Boston and the western suburbs as key attractions, as well as a modern road network and access to plentiful labor.
Thomas also downplayed the notion that investors are shying away from suburban office deals due to fears that the sector is overbuilt, and because pension funds are supposedly already over-committed to that property type. According to Thomas, “they haven’t shut the spigot off completely,” adding that she believes activity will be even busier once such investors begin to execute their 2001 investment strategies in earnest.
“Metro Boston is still one of the top markets in the United States, and for the right opportunity, you will see pension funds and other investors continuing to pursue office buildings,” said Thomas.
Griffin agreed with that assessment, adding that several pension funds were represented in the 13 bidders who chased after the Totten Pond property. “There are plenty of pension funds out there who have money left [for office buildings],” he said.
Leggat McCall Properties Chairman J. Brad Griffith, whose firm currently owns the Totton Pond property, agreed that Waltham continues to hold its own. Griffith declined comment on the Trammell Crow rumors, but noted that the city has always proven resilient no matter what the economic climate.
“Your 100 percent locations will always do well, and the locations that aren’t 100 percent won’t do as well” in a downturn, said Griffith. LMP is well aware of just how attractive Waltham can be from an investment standpoint, with the firm last year selling its Waltham Woods Corporate Center for a suburban record of $268 per square foot.
Although most observers do seem confident that market conditions will improve as the year goes on, many say that activity has slowed significantly from the frenetic pace seen for the first nine months of 2000, a time when demand collided with restrained supply to create a feeding frenzy among office tenants. In Waltham, rents that had struggled to break the $30 per-square-foot barrier prior to 2000 quickly surged past $40 per square foot and up into the $50 and $60 per-square-foot range. According to Cushman & Wakefield, for example, rental rates for the Route 128 market now average $38.75 per square foot, while Class A space is fetching an average of $44.33 per square foot.
C&W broker Mark Roth said he believes the suburban sector is still solid, but did say rental rates for the Waltham region are down some 12 percent over their peak of 2000. The vacancy rate, meanwhile, has shot up from 3.6 percent at the end of 2000 to a current mark of 6.9 percent.
“It is quieter now,” Roth said. “There’s still demand, but people are nervous and they are being more conservative.”
Efforts to contact Boston Properties officials by press deadline were unsuccessful, but sources estimated that the REIT would have to achieve per-square-foot rental rates in the mid-$40s to make the 77 Fourth Ave. venture successful. Along with an estimated $63 per square foot for the development rights, the company must add structured parking that could raise the cost by another $30 to $35 per square foot.
Scott Hughes, president of Hughes Property Corp., noted that Boston Properties has the capital wherewithal that would allow it to move ahead with construction, even if it does not secure a tenant in advance. But while Hughes called the deal “a perfect fit” for the real estate investment trust, he did add that flattening rents throw an element of uncertainty into the mix.
“Waltham is a very good corporate address, but the question is, where are we going to be [on rental rates] when it comes on line?” Hughes said.
Boston Properties is certainly familiar with the market, having last summer begun work on the 300,000-square-foot Waltham Weston Corporate Center, and also tying up the so-called Broken Stone development parcel across the street. The company is reportedly seeking a tenant before it kicks off the Broken Stone project.
Acquisition of the Nelson property further accentuates Boston Properties’ strategy of building its portfolio through new construction, with President Edward H. Linde recently estimating that the firm has 5.7 million square feet of office space under construction nationally, properties that will represent an investment of $2 billion upon completion. The company is one of a handful of REITs which delve into development activity.
