After paying $68 million for the 370,000-square-foot property at 215 First St. last year, Capital Properties has seen the Cambridge market crumble virtually overnight.
When it comes to commercial real estate activity in Cambridge these days, it appears First is foremost – First Street, that is.
With the entire East Cambridge office market in a state of flux, owners of two significant properties on First Street are apparently pursuing alternative uses for their buildings, according to industry sources. Equity Office Properties is reportedly turning to a life sciences focus at 245 First St., while Capital Properties is said to be eyeing a luxury residential complex for the parking lot of its 215 First St. complex a few doors down.
Sources said Richards Barry Joyce & Partners beat out several top competitors to win the right to market 245 First St. as laboratory space. Among the companies said to be chasing the plum assignment were Spaulding & Slye Colliers, Trammell Crow, Meredith & Grew and Cushman & Wakefield. “All the stops were pulled out,” one source said of the bid among local firms, noting it represents a rare opportunity to represent Equity Office Properties in a leasing assignment. Efforts to contact officials at RBJ&P were unsuccessful, while Equity did not return phone calls by Banker & Tradesman’s press deadline, but sources insisted RBJ&P has been named as leasing agent.
The other initiative is part of an overall effort by Capital to recover from its ill-timed purchase of 215 First St. from Beacon Properties in 2001. After paying a hefty $68 million for the 370,000-square-foot property, Capital has seen the Cambridge market crumble virtually overnight, with a stable of promising technology companies in its tenant roster such as iXL Enterprises falling by the wayside.
Earlier this year, Capital retained Greenwich Group International to find a replacement for its impatient financial partner, Lehman Bros. Capital reportedly was seeking upward of $30 million in fresh equity to help buy out Lehman and pay for improvements for the aging asset, hopefully to allow the project to also pursue a life sciences tenant base. Calls to Greenwich and Capital last week were not returned by Banker & Tradesman’s press deadline, and most sources spoken with said it is unclear whether a replacement for Lehman has been found.
Equally sketchy is whether the new partner would participate in the residential undertaking, said to be in the neighborhood of 200 units, or if Capital would separate that portion out of the other deal. One potential concern is how much the plan would impact the marketability of 215 First St. itself, with a Cambridge leasing source maintaining the parking availability has been one of the building’s main draws. “That’s going to be a problem,” said the source. “Where are they going to go?”
‘Some Softness’
Meanwhile, the Greater Boston multifamily market has been going sideways in the teeth of the region’s economic woes, with the Bay State having lost an estimated 45,000 jobs in the past year alone, including a slew of layoffs in the once white-hot Cambridge market. That has led to vacancies at nearby residential developments well into double digits, and in some cases, upward of 20 percent.
“There has been some softness in Cambridge” on the apartment end, acknowledged Thomas Meagher of Northeast Apartment Advisors, who cited the economic malaise as well as a number of college dormitories that have opened at schools such as the adjacent Massachusetts Institute of Technology, reducing private demand. More college housing is planned, noted Meagher, while developers such as Lyme Properties and Charles E. Smith are already under way with projects that would add well over another 1,000 units to the East Cambridge market. An even more ambitious plan by Guilford Enterprises and Spaulding & Slye Colliers would develop another 2,000 units nearby Capital’s First Street parcel.
Meagher did stress, however, that Capital’s proposal is still in its infancy, making it likely that Cambridge will have recovered economically by the time the project opens its doors, especially given Cambridge’s onerous approval process. And while it does not command water views and is in a bit of “an urban canyon,” Meagher said he believes the concept could prove successful.
“It’s a great multifamily site,” Meagher said, citing nearby amenities such as public transportation and the CambridgeSide Galleria mall a few blocks away.
In the other situation at 245 First St., Equity Office Properties is joining a trend that has been under way in Cambridge for the past 12 months. Also known as Riverview, 245 First St. features 264,000 square feet in two buildings, about 150,000 square feet of which is available for lease. Equity took control of the property when it acquired Beacon Properties in 1997.
One source maintained RBJ&P has been hired initially to evaluate the feasibility of a laboratory conversion, but added it is likely that Equity will ultimately pursue that path. “It would work well” for lab, the source opined, while acknowledging a surge of competing buildings already in pursuit of such tenants.
In recent months, for example, several office buildings have been repositioned as lab space, including 320 Bent St., 301 Binney St. and Technology Square. After months of negotiations, Novartis AG recently scooped up all available space at the Necco Building on Massachusetts Avenue. Nonetheless, owing to a prime location and the experience of Equity as a landlord, one source predicted 245 First St. could become a viable destination for life science companies, which typically pay substantially more for space than office tenants.
Interestingly, while most observers believe Capital Properties paid excessively for 215 First St., even Cambridge’s recent struggles have apparently done little to dampen investor enthusiasm in the East Cambridge market. While the Capital investment cost about $183 per square foot, Dutch-based Ibus earlier this year shelled out more than $240 per square foot for 25 First St., purchasing that building from Paradigm Properties and Westbrook for $53 million.
