Commercial real estate sales activity at the mid-year point is “more of the same,” according to broker Lisa Campoli, with emphasis on the “more” part.
“There’s a lot of volume,” the Meredith & Grew Oncor executive vice president observed last week, estimating that her own firm has completed close to $200 million in transactions to date. Although a record-breaking 2004 will be difficult to beat, especially given the lack of a mega-deal such as last year’s $705 million disposition of Boston’s One Lincoln St., Campoli and other investment sales specialists say capital has continued to aggressively pursue Massachusetts real estate in pursuit of income yield and stability. Campoli said she is intrigued by the willingness of institutional money to target suburban office buildings, as occurred in the landmark $272 million sale of the Bay Colony Corporate Center in Waltham to open the year, and accentuated by the just-completed purchase of 25 Mall Road in Burlington to Equity Office Properties for $54.7 million.
“That’s news,” said Campoli. “That didn’t happen here last year.” Institutional sources also seem to be garnering more victories overall than in recent years, she said, citing Teachers Investment and Annuity Association’s purchase of a downtown Boston office tower as one prime example. Private opportunity money employing leveraged debt has been on top of many prominent building competitions in past years, Campoli noted, but that tide appears to be turning. The rising cost of debt is one threat to such players, she said, although a pent-up need to find investments by institutional sources could also be playing a role.
Whatever the reason, most real estate investment sales teams report interest for nearly every product type, from office and industrial to the ever-popular residential and retail sectors. Even hotel sales have been on the rise, as the return of corporate travel invigorates a long-suffering hospitality industry. An Irish company paid $15 million for a downtown Boston building permitted for hotel use from Intercontinental Real Estate Corp. earlier this year, then set about developing the property at One Court St. The luxury Onyx Hotel in Boston’s North Station was acquired by LaSalle Hotel Properties from developer David Leatherwood for $28 million, while a Holiday Inn Express in Lexington sold for $6.4 million in March.
Retail assets continue to top the wish list of most investors, and brokers have seen a stream of such properties added to the trading block this year. The $64 million disposition of the promising Assembly Square Mall complex in Somerville garnered substantial attention in February, but deals were plentiful throughout the region in the first six months, including the $12.3 million sale of the Stow Shopping Center in Stow to Linear Retail Properties of Burlington, which has teamed up with Principal Financial Group of Iowa to acquire convenience-oriented retail throughout New England. Veteran retail broker James Koury of Spaulding & Slye said his team has already negotiated agreements for 15 retail assets this year, representing some two million square feet of space.
“It’s a feeding frenzy,” said Koury, estimating that the volume of retail transactions is up at least 25 percent over the same stretch in 2004, even with the most aggressive capitalization rates he has seen in nearly two decades of selling retail properties. “We’re having twice our best year ever,” added Koury, who counts the $23 million sale of Cottage Plaza in Pawtucket, Rhode Island among the completed assignments. At $306 per square foot, it proved to be the highest price per square foot ever paid for a grocery-anchored shopping center in New England, said Koury, who acted for the seller, CB/KRC Cottage Plaza LLC.
The purchase of that 75,000-square-foot asset represents two trends, said Koury, one being the interest for newly constructed retail properties, and also the presence of real estate investment trusts in the retail arena. About 70 percent of the deals seen in the region this year have involved REITs as the buyers, Koury estimated, quickly taking over a market once dominated by private capital.
The demand for retail is luring some owners to consider selling, said Koury, who maintains that now may be the best time to peddle one’s property. “I don’t think this is a new paradigm,” Koury said of the notion that retail values will escalate endlessly. “For sellers, there is a window of opportunity, but that window is closing,” he said. Buyers should beware as well, he said, particularly as one’s investment criteria is stripped thin by competitive juices.
Already, Koury said, he has seen evidence of “irrational exuberance” from some capital sources “where their return requirements don’t have a rational relationship to the risk of the investment.”
Stability of retail has been a key driver of its popularity, but Koury said many investors today are willing to take on vacancy as a way to increase returns on their property. Although land parcels are most popular for retail investors, the improving economy is also making existing vacancy an acceptable condition for buying office buildings, sales brokers reported. “Most people feel there is some positive traction in the market and are excited about it,” said Spaulding & Slye Colliers principal Michael Smith, especially for well-located properties being offered at below-replacement cost.
Smith and colleagues Scott Jamieson and Catherine Daume have brokered several suburban assets this year, but the firm has seen its greatest successes in the urban market. Besides negotiating the $15.2 million sale of Two Liberty Square in February and the $115 million sale of a Class A Cambridge office property, Spaulding & Slye represented both sides in Meritage Properties’ $37.5 million purchase of 18 Tremont St., a 202,000-square-foot office building near the Hub’s Government Center.
“It has been a very good year, and we’ve got quite a bit left,” said Smith, whose team was recently named broker for 959 Boylston St. and 29 Commonwealth Ave. in the Back Bay, and is expected to assist Prudential Real Estate Investors in the sale of 40 Broad St., a 293,000-square-foot office building near Faneuil Hall.
Other local real estate firms have completed major sales this year throughout Greater Boston. Trammell Crow Co. negotiated the $15 million sale of 2 Technology Drive in Westborough and Berwind Property Group’s acquisition of the Highwood Office Park in Tewksbury for $24 million, plus last week completed the sale of 399 Boylston St. in the Back Bay to a Connecticut joint venture. The team of James McCaffrey, Peter Joseph, Chris Phaneuf and Jordan Berns also sold 31 Milk St. in the first half of the year to Everest Partners LLC, which paid $18.7 million for the 102,000-square-foot building. Meredith & Grew principal David L. Pergola negotiated the disposition of 25 Mall Road for the sellers, Prudential Real Estate Investors.
Industrial real estate also continues to attract interest, both from investors and value-added developers such as Leggat McCall Properties, which paid $29 million recently for nine buildings at the Shawmut Industrial Park in Canton. The firm is planning to convert some of the space to industrial and high-end flex condominiums. Other industrial product of note that sold in the first six months was 55 Lyman St. in Northborough. Just completed by the Gutierrez Cos. of Burlington, the 260,000-square-foot industrial facility was purchased by Invesco Realty of Texas for $15.7 million.
