Boston may be well into 2000, but in more ways than one, 99 is still playing a significant role in the city’s commercial real estate market.
Two major tower sales left over from the past year – 99 High St. and 99 Summer St. – are finally crystallizing, with Boston Capital acknowledging last week that it has closed on the 52-story High Street property and Lend Lease Real Estate Investments reportedly making a second charge at purchasing 99 Summer St. after its initial effort failed.
From what I hear, Lend Lease is back in the fold on that deal, one Hub investment specialist told Banker & Tradesman last week. They are chasing it pretty hard.
Calls to Lend Lease officials were not returned by Banker & Tradesman’s press deadline, while Michael G. Smith of Spaulding & Slye Colliers’ Capital Markets Group declined comment on the matter. His firm is marketing the property on behalf of the owners, the Archon Group of Texas.
According to the source, Lend Lease had bid on the building last year with a capital fund that was unable to move quickly enough to make a commitment. The 20-story tower was then pursued by a joint venture between Paradigm Properties and the Carlyle Group of Washington, D.C., but that group ultimately pulled back as well when Archon supposedly resisted efforts to drop the price. The collapse of that deal then opened the door for Lend Lease to return with a different capital partner, the source said.
Both 99 Summer St. and 99 High St. have taken longer to sell than has been typical in recent years, with the market now defined by stricter underwriting and a less-competitive atmosphere than was found when real estate investment trusts ruled the roost in the middle part of the decade. Despite Boston’s solid office market, which boasts record-low vacancies and average rents nearing $50 per square foot, buyers are seen as increasingly wary about where they invest their money, according to industry observers.
Investors are looking at things much more diligently now, agreed James P. Kirby of Commercial Construction Consulting, a Boston-based firm that helps inspect buildings prior to a sale. The prices are just so high now, if you make a mistake with the purchase price, you’re dead.
In the case of 99 High St., Boston Capital actually appears to have struck a healthy agreement for itself, buying the 700,000-square-foot property for $168.5 million after it was initially offered in the $185 million range. Whereas other Boston towers have fetched more than $300 per square foot, 99 High St. traded at about $230 per square foot.
Boston Capital official Samuel Byrne said he believes the sellers accepted a lower price because they felt comfortable that the company would be able to obtain its financing without the difficulties others have experienced of late.
We moved extremely quickly and decisively, said Byrne, who handled the sale with colleague William Kremer. I think that definitely was a factor.
Trammell Crow principal Edward Maher Jr. said his group felt comfortable working with Boston Capital, which he noted has become a big player in commercial real estate during the past year. Besides the firm’s ability to put the deal together, Boston Capital also benefited by what Maher terms a hiccup in the investment cycle last autumn. Besides the absent REIT players, many pension funds and insurers had already used up their capital allocations for the year, while overseas investors also slowed their activity later in the year.
In any event, the sale marks a successful repositioning of 99 High St. by P&O Properties and erstwhile owner Rose Assoc. After beginning the 1990s with the loss of several major tenants, the landlords embarked on a major overhaul of the tower that modernized the mechanical systems, refurbished the lobby and upgraded the office space. Today, the tower is almost completely full to such tenants as Fidelity Investments, KPMG and John Hancock.
They took it from a property with serious physical and leasing issues and turned it completely around, said Maher, who brokered the sale with colleagues Robert E. Griffin Jr. and Marci B. Griffith It’s a beautiful building, and I think [Boston Capital] is going to do real well with it.
Byrne concurred with that optimism, calling 99 High St. an extremely high-quality asset. The firm sees it as a medium-term hold, he said, adding that, for the moment, we’re just going to sit back and enjoy the stability of the cash flow.
It’s a core real estate asset for us, said Byrne, whose firm also wowed the local market last spring when it acquired more than $400 million worth of real estate assets from MGI Properties. Boston Capital traditionally has been known as a syndicator of low-income tax credits, but appears to be changing its image in an aggressive way.
