An Australian investment group known as Challenger has reportedly agreed to pay about $400 per square foot for 50 Milk St. in Boston’s Financial District.

An Australian investment group has won a spirited competition to acquire Boston’s 50 Milk St., industry sources told Banker & Tradesman last week. The prospective buyer, known as Challenger, reportedly will pay in excess of $400 per square foot for the 21-story building.

“That’s who’s got it,” maintained one real estate investment source, who has been following the negotiations. “It is under agreement to them.”

Located in the heart of Boston’s Financial District, 50 Milk St. is owned by a state of Florida pension fund being advised by Lend Lease Real Estate Investments, which itself is based in Australia. The building is considered particularly attractive to investors because of a long-term lease on most of the space to Brown Brothers Harriman, considered one of the Hub’s most credit-worthy companies.

“I think they’ll be able to pay their rent for a while,” quipped one Boston investment specialist, adding, “It’s a very solid deal for [Challenger].”

Efforts to contact Challenger officials were not successful, while Lend Lease principal Scott Oren declined to comment on the matter. “Unfortunately, I cannot say anything about anything,” Oren told Banker & Tradesman, referring inquiries to Lend Lease’s office in New York City. Calls to that office were not returned by press deadline.

Banker & Tradesman reported two weeks ago that Lend Lease had narrowed its selection down to three candidates, with a mix of domestic and overseas investors said to be in the running. If the deal ultimately is consummated, the Australian capital will represent one of that country’s few forays into the Boston real estate market, with Lend Lease previously providing the most investment from that country.

The Netherlands and Germany have been the primary overseas investors into the Hub’s office sector in recent years. Among the Boston office towers currently owned by German investors are 125 High St. and One Federal St., while Dutch-based Ibus Co. is said to be focused on Boston as well, having earlier this year purchased the Davenport Building in Cambridge.

If the Milk Street sale does go through, Lend Lease will certainly have returned a healthy profit for its client, which purchased the 258,000-square-foot building in 1997 for $55 million. At $400 per square foot, the building would fetch $104 million.

“It’s worth every penny,” opined one Boston investment broker of the potential sales price. “They’ll basically be buying a bond.” One perceived downside would be the ability to capture rent appreciation down the road, with Brown Brothers said to have well over a decade remaining on its lease. The firm occupies about 80 percent of the building.

In any event, the 50 Milk St. opportunity does appear to be the sort of asset garnering attention in the current environment, especially for pension funds and other institutional capital. Spooked by the shaky stock market, a flood of money has been chasing commercial real estate during 2002, but much of that funding does not have the entrepreneurial spirit to buy properties with vacancies or so-called value-added deals – properties that need substantial improvements. Instead, buildings featuring long-term leases backed by strong tenants have been among the most popular targets to date this year.

Downtown Boston has been especially popular in recent months, even though the city has seen its share of upheaval in market fundamentals. Despite a trend toward higher vacancies and declining rents, the Boston buildings are still seen as much more resilient than properties in the suburbs, where availability rates are already in the 20 percent range in some submarkets and continue to be rise.

Time to Sell?

Overall, investment in real estate has been through a series of ups and downs in 2002, with a slow beginning eventually giving way to an increased level of activity following the mid-year mark. Brokers such as CB Richard Ellis/Whittier Partners principal Gary J. Lemire say the pace of sales is still not where it should be. The main reason, according to Lemire, is that property owners have been reluctant to put their assets on the block in the depressed market, but he and others report that resistance appears to be softening.

“There’s so much capital out there trying to buy real estate that sellers have to look at [marketing their properties],” said Lemire. “A lot of times, they are better off selling now than going through the down times. I think that message is beginning to get through.”

In recent weeks, for example, American Tower Corp. opted to place 116 Huntington Ave. in the Back Bay up for sale, with Trammell Crow Corp. retained to broker that 15-story property at an asking price estimated in the $75 million range. Meanwhile, Paradigm Properties and the Carlyle Group have agreed to put their successful 955 Massachusetts Ave. office building in Cambridge on the market.

“We’re already getting a fair amount of interest,” Paradigm Properties President Kevin McCall said last week. “It’s a great little building.”

One bonus for investors is that 955 Massachusetts Ave. has seen substantial leasing in recent months, allowing a potential buyer to adequately underwrite the asset. Although Cambridge has seen its share of difficulties during the past year, 955 Massachusetts Ave.’s proximity between Harvard and Central Squares has been a bonus in finding companies to occupy the eight-story, 93,000-square-foot building.

Paradigm and Carlyle acquired 955 Massachusetts Ave. in December 1999. McCall would not disclose the asking price, but said he believes the rent rollover will provide buyers with both the stability needed in the current market and a potential for solid upside as leases roll over in the coming years.

In other leasing activity, a deal has yet to be struck for One Beacon St., the 41-story office tower being offered for sale by Prudential Real Estate and Westbrook Partners. According to some sources, Lend Lease remains among several firms vying for the asset, although the company reportedly is part of a larger group angling to buy the tower vs. taking it on themselves.