Providing a strange kickoff to the 2000 commercial real estate investment campaign, Beacon Capital Partners has decided against selling its massive Technology Square complex in Cambridge, company officials acknowledged last week. The move comes nine months after Beacon offered the 1.4-million-square-foot portfolio to invest-ors, with an initial asking price of $285.7 million.
The property has been taken off the market for strategic reasons, Beacon spokesman Alex McCallum told Banker & Tradesman on Friday. The company is currently investigating the alternative of refinancing the properties.
Beacon’s retrenchment comes at an interesting juncture in the investment cycle. A hangover of deals from 1999 continues to occupy the plate of many brokerage houses, even as a slew of new properties are lining up for attention. Not only is Leggat McCall Properties offering its opulent Waltham Woods office complex in Waltham, for example, sources said last week that Boston Capital is selling its One Brattle Square retail development in the heart of Harvard Square.
Meanwhile, Boston Capital could close as early as this week on 99 High St., a 32-story tower in the Hub’s Financial District that it began negotiating on last autumn. The future of other Hub sales is more clouded, as Hines Interests has backed out of its purchase of One Boston Place and efforts to sell the 99 Summer St. tower in Downtown Crossing are plodding along slower than anticipated.
According to observers, the delays in getting deals done reflect a return to more normal conditions. During the years when the investment market was recovering from the crash of the early 1990s, asking prices were low enough that buyers were willing to take more risk when acquiring a property, but with the improving situation of the past two years, owner expectations are apparently not as easy to accept.
When the numbers don’t leave much margin for error, you’ve got to be extra careful, one investor said of the increased difficulty of consummating deals. You have to work hard and do your homework now more than ever.
In the case of 99 Summer St., for example, one investor who had looked at the property questioned its location away from the Financial District and maintained that there are some physical issues with the building that need to be considered in assessing the overall bid price. But the bigger reason for the holdup, he said, was that Archon has been unwilling to budge on its end.
They are smart guys who have a good idea of the market, the investor said of Archon. They aren’t going to leave any money on the table.
Efforts to contact Spaulding & Slye, which is brokering the building, were unsuccessful by press time. Among the firms that had supposedly looked at the property before backing off was the Carlyle Group of Washington, D.C., although calls to company officials to discuss that situation were not returned by press time.
Rising Prices
Trammell Crow principal Robert E. Griffin Jr., whose firm is handling the 99 High St. sale, also said he believes the rising prices are affecting the pace of completing deals. That is especially true, he said, as both sides try to decipher whether the market is nearing its peak after several strong years. Due diligence is more stringent now, he said, adding to the time frame.
People want things in better condition, Griffin said. They want it to be perfect.
Thus far, it appears that sellers are holding firm. In the case of One Boston Place, for example, Hines Interests reportedly decided the asking price was too high and sought a discount, one which Lend Lease Real Estate Investments declined to provide.
The Beacon situation would seem to bolster that trend to the extreme, with the firm having supposedly found bidders willing to pay the initial asking price but ultimately deciding to hold onto the property. Some sources maintained that Beacon had initially sought to raise the asking price before taking it off completely, but McCallum declined to discuss the firm’s strategy in detail.
Certainly it would seem that Cambridge is as good a place as any to hold firm. The market has one of the country’s smallest vacancy rates at present, with Spaulding & Slye estimating that just 0.3 percent is available for space-starved tenants. Beacon last year was among the most active landlords in the market, signing several deals above one hundred thousand square feet. More space is expected to become available in the near term, while strict zoning against new development is also likely to have given Beacon reason to stand pat.
Located next to the Massachusetts Institute of Technology, the Technology Square portfolio represents 15 percent of the Cambridge office market and 23 percent of the dominant East Cambridge market. It consists of One Kendall Square, the Draper Laboratory Building and 215 First St., as well as nearly 3,000 parking spaces. Beacon owns the complex – which includes a fine arts cinema – along with PW Realty Partners, an affiliate of PaineWebber Inc.
