Boston’s 131 Dartmouth St., an 11-story office building nearing completion in the Back Bay, may be the new home of Bain Capital when that financial services firm’s lease expires at Copley Place.
In a deal that would provide a badly needed charge for Boston’s 131 Dartmouth St., Bain Capital is reportedly zeroing in on the 365,000-square-foot office building dangerously nearing completion in the Back Bay, with some sources claiming the financial services company has already agreed to become its anchor tenant.
Bain has been rumored to be targeting the 11-story property for months to satisfy a 125,000-square-foot requirement, one of several options the firm has been weighing, including staying put at nearby Copley Place. Calls to Bain leasing broker Michael Flynn at Meredith and Grew and to CB Richard Ellis, listing agents for the building, were not returned by Banker & Tradesman’s press deadline, but sources insist an agreement is in the works. “It looks like they are headed there,” one Hub broker maintained last week.
The Back Bay has been looking over its shoulder at 131 Dartmouth St.’s arrival for months, with the market already saturated by a slew of sublease opportunities and other holes opened up by the region’s lingering economic woes. And while preliminary third-quarter figures from Meredith & Grew indicate that the market may finally be bottoming out, some question whether that is the case.
“I just don’t believe it,” said Meredith & Grew Vice President Robert B. Cleary Jr. “I think it’s going to be some time before we make our way out of this.”
Cleary, 2002 president of the Greater Boston Real Estate Board’s Commercial Brokers Association, noted that Boston is heading for an unprecedented second straight year of negative absorption, and there remain plenty of lease options that will be unfilled going into the new year. “I think we could be looking at another 18 months” of laggard activity, said Cleary, who would not comment on the Bain Capital situation given his firm’s affiliation with the deal.
The problem with the current environment, according to Cleary, is that any leasing completed is being driven more by expirations than the need for additional space by growing companies. As such, Bain’s relocation to 131 Dartmouth St. would only open up a hole at Copley Place, which has upward of 200,000 square feet up for grabs, much of it sublease deals.
One issue regarding Bain might be the amount of space left on its lease, which reportedly runs out in 2004. According to Richards Barry Joyce & Partners principal John Barry, many landlords are eager to chase prospective tenants if their terms are nearing completion, but are not as eager to take on lease obligations simply in order to retain or land a company. The same is true when opting to stay put, he said.
“Good credit tenants are, in some cases, able to accelerate a deal,” Barry said, but added that for the most part, Boston landlords and developers with new space coming due have been reluctant to budge. “Tenants with leases two to three years out that want to do a deal today are having trouble getting landlords to [negotiate],” Barry said.
Ironically, the companies with the most clout are those with leases coming due, but Barry said some of those may be overplaying their hand by delaying a decision as long as possible. “Tenants mistakenly are thinking that if they wait, [rents] will be less tomorrow than they are today,” Barry said, explaining that has resulted in very few deals taking place in the past few months.
Silent Summer
Cleary concurred, calling it “an extremely quiet summer.”
“Nothing happened,” said Cleary, who did manage to cement a 54,000-square-foot lease with the Harvard School of Public Health, which assumed the remaining eight years of a lease at Landmark Center in Boston’s Fenway, a deal first inked by fading Agency.com.
Activity in the Back Bay was mostly driven by smaller tenants of 20,000 square feet or less, said Cleary. “It was a fairly non-descript quarter,” he said, with the only good news appearing to be an evening out of the absorption levels and vacancy rate. According to Spaulding & Slye Colliers, the 12.3 million-square-foot Back Bay market saw vacancies drop from 6 percent at midyear to 5.5 percent after the third quarter, while the availability mark dipped from 15.1 percent to 14.7 percent. Net absorption was actually positive for the quarter by 42,000 square feet.
“There was some activity and some leasing, but we’re still looking at negative absorption of about 150,000 square feet for the year,” said Cleary.
That downward pull has continued to impact rental rates, with Cleary pegging most deals at or below $30 per square foot. In the Back Bay’s heyday in the summer of 2000, leases were being signed well into the $60 per-square-foot range for tower space and even into the $50s for low-rise buildings or those in less central locations.
One building that reportedly has fared well in the current environment is the John Hancock Tower, with the financial services owner having downsized during the past year to open up space for outside tenants. Although calls to the tower’s broker, Trammell Crow Co., were not returned, Cleary said it appears the landmark property has secured several encouraging leases in recent months. “They have been selective as to the size of the deal and the credit of the tenant,” said Cleary, adding that the building is so well-regarded that “they can steal any deal they want.”
Sullivan Properties, the lead developers of 131 Dartmouth St., may not be in such an enviable position in securing a tenant for their building. Despite several pluses, including efficient floorplates, access to the commuter rail and subway next door at the Back Bay Station and several hundred parking spaces, the building has been unable to secure any meaningful tenants in the current environment. That may have led to the agreement with Bain, sources said, with both sides motivated to negotiate and close what some see as a bid/ask gap on the leasing side.
