The $213 million sale of 101 Main St. in Cambridge, also known as Riverfront Office Park, placed third on Trammell Crow’s list of the 25 largest commercial transactions last year in Massachusetts.
Bigger is certainly not always better, but no matter how one looks at the formula, heft was the dominant theme of the 2000 commercial real estate investment market in Massachusetts. According to Trammell Crow’s annual overview of the top 25 commercial sales, office towers attracted the lion’s share of capital in the Bay State last year, especially those in core locations such as downtown Boston and Cambridge’s Kendall Square.
Only six of the leading 25 sales were anything other than a Boston or Cambridge office property, while the top five deals were all Boston towers or Cambridge office complexes. The largest transaction was the $685 million infusion by Deutsche Bank into 53 and 75 State St., an investment that gave the German financial institution a 49 percent interest in the abutting towers. Meanwhile, Westbrook Partners paid substantially less for a 50 percent share in One Beacon St., shelling out $265 million to Prudential Real Estate Investors for the 29-year-old, 34-story building.
Trammell Crow will present its complete findings at a special program this Friday. The event at Faneuil Hall will be the second annual “Top O’ the Market” overview held by Crow’s Investment Services Group, a team which itself was responsible for handling $1.3 billion worth of commercial sales in 2000, marking the fourth year it has exceeded $1 billion in property transactions.
The $3.14 billion in activity for the top 25 deals in 2000 represented a 6 percent increase over the total volume for 1999, and the figure could have been even higher. Most observers agreed that investors would have eagerly grabbed a full stake in the State Street and Beacon Street towers had it been offered.
That notion was underscored by the rush among investors to acquire other urban office properties, including the $213 million purchase of Cambridge’s Riverfront Office Park by Hines Interests and a California state pension fund. The Riverfront property at 101 Main St. in Cambridge placed third in the top 25 for 2000, followed closely by the $192 million sale of One Kendall Square in the same city. The latter property barely made the 2000 deadline, but various stumbling blocks were cleared up in time for the sale by Beacon Capital Partners to a joint venture of J.E. Robert and Lincoln Property Co.
In many respects, the One Kendall Square deal was indicative of the unusual nature of the 2000 investment campaign. A sluggish start was replaced by a flurry of activity in the second and third quarters, with pension funds and private investors locked in a bidding war caused partly by a record run-up of office rents throughout Greater Boston. By the time the fourth quarter began, however, problems in the technology sector and signs of a cooling economy put the brakes on many deals as investors feared the market had reached its peak. One Kendall Square was declared “dead in the water” at one point by a participant in the sale, but the sale was salvaged just before the year struck midnight.
Other core office sales which made the top 25 included One Boston Place, a 31-year-old downtown Boston tower acquired by Blackstone Real Estate Advisors and Walton Street Capital for $188.3 million. Another Hub tower, the 32-story 99 High St., was purchased by Boston Capital for $168.5 million, while Walton Street Capital also purchased 10/Ten Post Office Square in Boston, paying Leggat McCall Properties $107 million for the 410,000-square-foot complex.
Slower in Suburbs
By comparison, the suburban office market was decidedly slower in 2000, at least in the upper echelon. Only four of the top 25 sales were from that sector, representing just 8 percent of the overall volume. Activity was much stronger at the start of the year, as witnessed by the record $267 per square foot paid in April for the Waltham Woods Corporate Center in Waltham. Clarion Partners purchased the complex from Leggat McCall Properties for $104.5 million.
Armed with money from the Netherlands, Clarion Partners was one of several overseas buyers seeking Massachusetts properties last year. In the top 25, for example, 27 percent of the buyers were foreign, compared to just 8 percent in 1999. Germany remained busy in the Hub, but the struggles of the euro and other factors slowed the influx of capital from that country by year’s end. Direct investment by Dutch firms was slower, while Asian buyers also remained largely on the sidelines.
After leading the charge in 1999 with 40 percent of the top 25 sales, domestic pension funds were less of a force in 2000, capturing just 15 percent of the pie. Indeed, many of their dealings came on the lower end of the spectrum, with competition for trophy properties forcing funds to chase deals typically reserved for private investment groups. In Boston, for example, Lend Lease Real Estate Investments paid $47.2 million for 855 Boylston St. on behalf of a pension client, while SSR Realty Advisors successfully bid on 100 Franklin St. for $25.8 million.
Interestingly, private opportunity funds were the leading invetment story in 2000, both on the sales and acquisition side. Beacon Capital Partners did a bit of both, selling not only One Kendall Square, but also 215 First St in Cambridge. The company subsequently paid $44 million for an 800,000-square-foot swath of old factory buildings in South Boston, property it is now planning to develop into 1.5 million square feet of mixed-use space.
New Boston Fund expanded into other markets in 2000, but the local firm also acquired its share of Massachusetts properties last year, including Watermill Center in Waltham, which cost the company $35.6 million. Paradigm Properties and the Carlyle Group paid $66 million for 99 Summer St. in Boston, while the Bulfinch Cos. acquired Acorn Park in Cambridge for $60 million.
