The four-building Bay Colony Corporate Center in Waltham is expected to sell for nearly $275 million.
The pending sale of Waltham’s Bay Colony Corporate Center to Beacon Capital Partners will obliterate the price paid for other suburban Boston office properties, many observers agreed last week after details of the mega-deal emerged.
Although officials involved in the Bay Colony negotiations remain mum, the four-building office park is expected to fetch close to $275 million, well above the $250 million asking price set last autumn when it was placed on the market for sale and easily eclipsing the record $260 per-square-foot rate paid in 2000 for the nearby Waltham Woods office park. Totaling 987,000 square feet, Bay Colony is expected to trade for just over $275 per square foot, according to sources.
“It’s really off the charts,” one investment broker tracking the sale said last week of the price. The 58-acre complex is being sold by the Shorenstein Co. of California and its pension fund partner, which retained Cushman & Wakefield of Massachusetts to market the asset. The agreement with Beacon Capital Partners was first announced last week on Banker & Tradesman’s Web site. Cushman President Robert E. Griffin Jr. and officials at Boston-based Beacon declined to comment on the status of the deal or provide details on pricing and other issues.
‘Intense’ Competition
According to sources, Beacon signed a purchase-and-sale agreement late last week to secure its control of Bay Colony, which had been pursued by some of the country’s leading real estate investment groups. As reported earlier last month by Banker & Tradesman, other well-known bidders who placed final offers on the park included Hines Interests, Boston Properties, Equity Office Properties, the RREEF Funds and Tishman Speyer Properties.
The disposition of Bay Colony comes just as suburban Boston strives to overcome the brutal recession that has gripped the region since the start of the new millennium, a downturn which has sent office vacancy rates skyward and killed an unprecedented run-up in suburban rental rates. After achieving rents well above $60 per square foot at the peak of the economic boom in 2000 and 2001, Bay Colony today is inking leases in the $30 per-square-foot range. That precipitous drop from the boom times has seemingly done little to curb investor interest in the property, however, as evidenced by the recent bidding war. “It was intense,” one broker said of the competition, which another source described as “a dogfight.”
Among Bay Colony’s various attractions, sources explained, is the stable cash flow generated by the park and the sense that Waltham and its premier office buildings will be the first to enjoy an uptick in rents when conditions do finally improve. The price expected to be paid by Beacon will be supported by rental rates that will eventually return to the $40 per-square-foot range, opined one source, who also maintained that the firm is purchasing the park at a substantial discount to replacement cost. Developed in stages beginning in the mid-1980s, Bay Colony currently sports an occupancy rate of 91 percent.
Beacon reportedly is buying Bay Colony via the $1 billion private investment fund it launched last year, a vehicle that has already secured high-grade properties in such markets as Chicago, Los Angeles, San Francisco and Seattle. Once the Waltham trophy is added to the inventory, about 40 percent of the $1 billion will have been committed, including the $77 million Beacon paid in late 2004 for Boston’s 116 Huntington Ave. That 14-story, 265,000-square-foot structure is the latest purchase by Beacon in the Hub’s Back Bay district, with the firm also owning the John Hancock Tower complex and 501 Boylston St.
Although the transaction will not be officially recorded until this year, the sale of Bay Colony was one of several major commercial real state deals launched in 2004 in Greater Boston, providing a needed measure of momentum for the battered industry. Properties with strong locations and healthy tenant rosters fared the best, including a slew of net-leased assets that proved particularly popular among buyers seeking stability in their investments. In Woburn, for example, a long-term lease to defense giant Raytheon Inc. helped National Development sell 225 and 235 Presidential Way for more than $80 million. Elsewhere, Harvard Pilgrim Health Care’s lease at the Wellesley Gateway office building in Waltham offered enough comfort to Hines Interests that the Texas-based firm paid $74 million for that 270,000-square-foot building from its developer, the Druker Co..
Some observers are also predicting a trickle-down effect will carry over from the Bay Colony negotiations, with those who failed to secure the property turning to other opportunities in the area. “They absolutely have to get their capital out the door,” one source maintained of the investors chasing the park. That rush of funds could prompt even more suburban property owners to put their buildings up for sale, some sources added, further increasing the chances for a robust investment market in the coming months.
Joe Clements may be reached at jclements@thewarrengroup.com.
