Boston’s 501 Boylston St., located in the city’s Back Bay section, has been described as the “odds-on favorite” to sign Arnold Worldwide to a new lease agreement. The firm currently is located at the Prudential Center.
It seemed like a done deal months ago, but Arnold Worldwide has yet to cement its lease agreement at 501 Boylston St. in Boston’s Back Bay, the broker for the giant advertising firm acknowledged last week.
“We’re still looking at our options,” John F. Hennessey told Banker & Tradesman on Friday, although he did stress that a final decision is in the offing. The likelihood of Arnold taking an estimated 200,000 square feet in the building was considered a major catalyst in Beacon Capital Partners buying 501 Boylston St. in December, and sources said it does appear Arnold remains interested in the property, even with the prolonged negotiations that have taken place during the past two months.
“That still seems to be the odds-on favorite,” one Back Bay broker said last week, despite reports that Beacon received a recent surge of competition from several other nearby properties, including the Prudential Center where Arnold is currently located. “I do think they made a big run at them,” one source said of Prudential’s owners, Boston Properties. “In a [depressed] market like this, you’re not going to let a tenant as prominent as Arnold go [without] trying to reach out to them.”
Boston Properties officials did not return phone calls to discuss the matter, while Beacon Capital officials declined to comment on the matter when contacted by Banker & Tradesman on Friday. According to one source, although Beacon’s new asset remains the lead prospect for Arnold, the Boston-based real estate owner is confident it can make the 501 Boylston St. deal work even if the firm chooses another property for its headquarters. That comfort level was increased when the building’s former owners, MetLife, agreed to lease a significant portion of the building for several years.
Along with the Prudential Center, other properties which reportedly have tried to lure Arnold to join their tenant roster have included Copley Place and 131 Dartmouth St. The latter building is still seeking tenants for a good portion of the 365,000-square-foot structure, although it scored a major coup in the signing of Bain & Co. as its anchor tenant.
Dominant Player
Beacon Capital became a dominant player in the Back Bay virtually overnight, first by purchasing 501 Boylston St. for $122 million, then following up that deal with its blockbuster purchase of the John Hancock Tower and several adjacent assets for $910 million. The company’s principals had previously been best known for their stewardship of Beacon Properties Corp., the real estate investment trust that was absorbed in the mid-1990s by Equity Office Properties.
Formed shortly after the Beacon Properties Corp. sale to Equity, Beacon Capital Partners quickly rose to prominence. Led by principals Alan Leventhal and Lionel Fortin, the company skillfully accomplished several successful purchases and sales of properties in Cambridge, as well as its pursuit of a massive mixed-use complex in the Hub’s Seaport District. Now, however, the firm appears to be basing much of its future on the Back Bay.
Once primarily known for its retail and residential offerings, the Back Bay itself has emerged as a prime office destination during the past 15 years. According to Spaulding & Slye Colliers, the 13.2 million-square-foot office market is now second only to the Financial District, which sports 31.7 million square feet. As with other parts of the Hub, the Back Bay has seen its share of ups and downs with office space in the past three years, but does appear to have righted itself in recent months.
First-quarter 2003 figures from Spaulding & Slye place the Back Bay office vacancy rate at 9.9 percent, while the availability rate is 17.2 percent. The vacancy is up significantly from the first quarter of 2002, when it stood at 5.4 percent, but the rate actually has dipped since it reached 10.2 percent at the end of 2002. The Back Bay also had positive absorption of 48,000 square feet in the first quarter, substantially better than the 228,000 square feet of negative absorption seen there in the first three months of 2002.
Richards Barry Joyce & Partners estimates that the current Back Bay vacancy rate is 9.3 percent, with available sublet space of 245,000 square feet. Only the tiny Longwood Medical Area has a lower vacancy rate than the Back Bay, according to RBJ&P, with the Financial District at 10.5 percent, Midtown at 11.8 percent and the Seaport District at 19.6 percent.
In some respects, the Arnold Worldwide lease will not have any beneficiary impact on the Back Bay leasing fundamentals, given that it will leave behind a substantial block of space if it departs from the Prudential Center’s 101 Huntington Ave. The same is true with Bain & Co., which will leave space behind at Copley Place when it relocates to 131 Dartmouth St.
As for the final destination, Hennessey declined to offer any direction, but sources said they do believe 501 Boylston St. will emerge victorious in luring Arnold, with one source predicting a final decision could come during the next one to two weeks.
Joe Clements may be reached at jclements@thewarrengroup.com.
