Barely two years after beating out several local players for the right to redevelop the Watertown Arsenal, a Philadelphia firm is placing the sprawling mixed-use complex on the market for sale. According to observers, the 30-acre parcel could fetch upwards of $200 million.
O’Neill Properties has retained Trammell Crow’s Investment Services Group to sell the property, Trammell Crow principal Edward C. Maher Jr. acknowledged last week. While Maher declined to discuss potential pricing, he predicted what is now being called the Arsenal on the Charles will receive a warm welcome from investors when it hits the streets later this month.
“We think its going to go fairly quick,” said Maher. “There’s going to be a lot of interest for it.”
Calls to O’Neill officials were not returned by press deadline, but Maher noted that the property has enjoyed brisk leasing since O’Neill began work on it in early 1999. The company had come out of nowhere to win a spirited bidding competition the previous March, following its selection up in December with a $20.1 million agreement with the Watertown Arsenal Development Corp. That entity had been set up by the town to control the property after it was deeded over to the community in August 1998.
The arsenal project attracted attention almost immediately once O’Neill hired Cushman & Wakefield as exclusive leasing agent in early 1999, with the biggest coup occurring that spring when Arthur D. Little Corp. agreed to take 350,000 square feet in one of the renovated army facilities, or basically half of the available office space. In addition, Harvard Business School’s publishing division signed on for space at the development, which also features a variety of restaurants and retail uses.
A change in strategy prompted Arthur D. Little to opt later last year to remain at its current home in Cambridge, but a subleasing program run by Trammell Crow subsequently reinforced tenant interest in the complex, with nearly all of the space spoken for in a few short months. Maher said he believes the site has done well due to a combination of a strong location near downtown Boston and Cambridge, the tight office space market and the quality of the renovation program. The dearth of office supply in Cambridge, which is pushing out companies on a weekly basis, has been another factor, Maher added.
“We are right next door,” he said. “It’s easy to relocate out there, grow and not lose any employees in the process.”
From an investment standpoint, Maher said the proximity to the core office market and the solid tenant roster should attract a mix of domestic and overseas buyers, maintaining it could garner similar interest to the Cross Point office development in Lowell that was sold by Trammell Crow in 1998. Another rehabbed office complex, Cross Point had 17 offers, with Yale Properties USA ultimately winning the bidding with a $108 million purchase.
Community Benefits
Maher said he is unsure whether O’Neill’s normal strategy is to quickly turn over an asset once it has matured on the development end, but Watertown Planning Director Mark E. Boyle said the town is not surprised by the decision. While the WADC has not been officially informed of the sale, Boyle said he doubts there will be any opposition to it, as long as various covenants previously agreed to are fulfilled by the new owner.
Watertown will also benefit from a sale via a stipulation awarding it 1.5 percent of the gross sales price of the property. If the $200 million mark is achieved, that would be a $2.5 million bonus for the community, which already has the added benefit of having the parcel placed on the tax rolls after more than 200 years as an army installation.
Boyle estimated that the Arsenal on the Charles is about 75 percent built out, and thus far, he said the town has been pleased with O’Neill’s work on the complex. Along with adding jobs and helping local businesses, the project has also generated creation of an arts center, for which O’Neill donated $1 million. In addition, the firm provided $2 million for local charities and an educational foundation, plus another $1 million to restore the historic commander’s mansion. The mansion is located in a seven-acre tract retained by the town, and is being used for public and private functions.
“It has worked out well for the town,” Boyle said of the Arsenal’s redevelopment.
Launched by J. Brian O’Neill in 1988, O’Neill Properties has since developed more than 10 million square feet of office and industrial space in the Philadelphia, Washington, D.C., and Boston markets, having raised $1.5 billion in debt and equity during that time. The firm also owns Acorn Park in Cambridge, which it bought from Arthur D. Little when the lease agreement for Watertown was inked. ADL has since signed a long-term lease for the Cambridge complex, which will undergo an extensive renovation itself.
As for the motivation to sell, Maher said he believes O’Neill felt the timing was right.
“They just saw they had a great asset with a lot of momentum,” Maher said. “It really makes a lot of sense to do it now.”
