Paradigm Properties President Kevin McCall (left) and partners Stephen H. Allison (standing) and John T. Caldwell have been credited with helping Boston-based Paradigm establish relationships with such players as Westbrook Partners and Starwood Capital.
Paradigm Properties President Kevin McCall isn’t quite aghast, but he quickly dismisses the idea that Boston’s 99 Summer St. office tower would be more marketable should the tenant base be consolidated. After receiving a tepid response from potential buyers, Paradigm and its partner, the Carlyle Group, have pulled the 20-story office tower off the sales block, McCall said in an interview last week.
Some industry observers maintain that 99 Summer St. would garner more interest by having a few strong credit companies vs. the plethora of smaller firms currently populating the structure. The 280,000-square-foot building’s lead tenant is insurer AIG, which has just 42,000 square feet.
For reasons both physical and philosophical, McCall said 99 Summer St. will always cater to a smaller player, at least during Paradigm’s stewardship. With floorplates ranging from 8,500 to 16,000 square feet, 99 Summer St. does not lay out particularly well for big companies, he said, predicting that “this kind of building will always be heavily multitenanted.” But McCall insists that is a plus, providing a stable rental stream not dependent on one or a few users.
“It’s the kind of thing we actually love, and we think would be very attractive for an investor,” said McCall. Also, pursuing an anchor-tenant strategy “is not in our DNA,” he noted, with Paradigm having openly espoused its desire for multitenanted assets since its launch five years ago last week.
Founded by Spaulding & Slye alums McCall and partner Stephen H. Allison, with financial backing from the late Thomas Eastman, Paradigm has built a portfolio of office properties throughout Greater Boston that do cater to small and mid-sized companies. Its headquarters at 31 Milk St., for example, had nearly three dozen tenants occupying the 104,000 square feet when Paradigm acquired it in 1998 for $10 million.
Located in the Hub’s Financial District, 31 Milk St. has attained rents as high as $47 per square foot since then, providing some fiscal heft during the current slide. Having a broad tenant roster not only offers fiscal diversification, McCall said; the firm also believes it increases the opportunity to service a company whose space needs might expand dramatically over time.
Paradigm initially planned to buy properties throughout the Northeast corridor, and stretch out to the upper Midwest and Chicago. For the most part, however, the company’s holdings are all within Route 128, including assets in Newton, Cambridge and Boston. In the Hub, Paradigm owns 18 Tremont St., 45 Bromfield St. and 711 Atlantic Ave., while it controls two buildings between Central and Harvard squares in Cambridge, 955 and 1030 Massachusetts Ave. Overall, the portfolio is doing well in the downturn, said McCall, a view shared by others
“They are a focused group that has made great inroads into the Boston market in a short amount of time,” said broker Robert B. Richards, president of Richards Barry Joyce & Partners. “I’d say they’ve done very well here.”
‘A Good Target’
McCall said the company had not anticipated the roller coaster ride that commercial real estate would embark upon when it began buying buildings. But, in the end, “it’s not a whole lot different from what we expected,” he said. One of the most problematic assets has been 18 Tremont St., a well-located but aging office building acquired in September 1999 that has seen its occupancy dip into the 70 percent range. It was also taken off the market after briefly being offered for sale last autumn. McCall said the economic uncertainty late last year made it difficult for investors to accept the “moving parts” in the 12-story, 180,000-square-foot building’s tenancy, prompting Paradigm to pull it back and work to refill the building. Occupancy is now about 93 percent, he said.
As for 99 Summer St., McCall said it was never put on the open market, but rather offered up to a select number of potential investors “to see if we might hit a good target.” When the desired figure was not reached, Paradigm and Carlyle chose to retrench. One investment specialist following the activity maintained that Washington D.C.-based Carlyle made the decision to harvest the profits and simply failed to recognize how challenging Boston is at present.
“I think most people felt now was not a good time to be selling 99 Summer St.,” said the broker, adding, “That’s the downside of having big institutional partners. They call the shots.”
If that is the case, Paradigm is unlikely to complain, with Carlyle a well-heeled investor that has already done three deals with the Boston-based company. The 99 Summer St. acquisition in April 2002 was the largest at $66 million. Paradigm has also established relationships with such players as Westbrook Partners and Starwood Capital.
“They’ve been very successful at attracting good institutional partners,” said CB Richard Ellis/Whittier Partners principal Gary J. Lemire, attributing that to the experience of partners McCall, Allison and John T. Caldwell, another Spaulding & Slye veteran who now serves as managing director. “They are real professionals,” Lemire said.
Going forward, McCall said Paradigm actually plans to increase investments in riskier ventures, as long as the company can identify assets which provide a clear path to improving performance that make it worth taking a chance. The firm is looking at finding multifamily opportunities and deals in other parts of New England, he said, and will ultimately pursue its initial program of expanding into Washington, D.C. Paradigm has an office in Columbus, Ohio, where it manages several properties, and will ultimately open one in Washington, McCall said. Currently, the firm has just one building in that market, in Northern Virginia, and is in the process of selling that 85,000-square-foot office building, located in Tysons Corner.
Locally, Paradigm will continue working to fill vacancies, and reportedly is close to resigning AIG at 99 Summer St., a move that would provide upbeat news for that structure. Paradigm and Carlyle are happy to hold onto the property for now, McCall said, maintaining it will only improve in popularity as the adjacent One Lincoln St. office tower nears completion next year.
At 36-stories, One Lincoln St. will obliterate 99 Summer St.’s views to the southeast, but McCall said vistas to the south and southwest will remain open. Other observers, including Spaulding & Slye Colliers investment broker Michael G. Smith, add that One Lincoln will bolster 99 Summer St. because of the presence of State Street Corp. as anchor tenant. Financial, accounting and ancillary firms will see 99 Summer St. as a great location as they try to service State Street, said Smith, while McCall added the 4,000 State Street workers will only enhance 99 Summer St.
“We see One Lincoln as a real benefit to 99 Summer St.,” said McCall. “It will create a lot of traffic coming through, and that’s great. It creates a more vibrant feeling for the building.”
