Cornerstone Real Estate Advisors, a Connecticut real estate firm, reportedly is buying 3 Post Office Square, a 140,000-square-foot property in the heart of Boston’s Financial District, from Archon Atlantic.
Demonstrating long-range confidence in the Hub’s battered economy, a Connecticut real estate firm has agreed to buy Boston’s 3 Post Office Square, a well-located office building situated in the heart of the city’s Financial District. According to industry sources, Cornerstone Real Estate Advisors is purchasing the structure from Archon Atlantic, with price estimates ranging between $31 million and $35 million.
Catherine F. Daume, a Spaulding & Slye Colliers principal who is brokering the transaction with colleague Michael G. Smith, declined to discuss details of the deal. Daume did, however, confirm that a buyer has been selected. “The money is hard, and we’re inching our way to the end line,” Daume told Banker & Tradesman last week. Calls to Cornerstone and Archon Atlantic officials were not returned by press deadline, but several sources insisted the advisory firm is the suitor for the building.
Daume said there was considerable interest in 3 Post Office Square – a pair of office buildings totaling 140,000 square feet that were renovated into Class A property space several years ago by Wellsford Properties Trust – indicating that investors have not been deterred by the city’s recent troubles in leasing office space. Spaulding & Slye recently reported that Boston suffered its ninth straight quarter of negative net absorption of office space in the first three months of 2003, while Richards Barry Joyce & Partners estimates that Boston’s overall office vacancy rate is now at 11.1 percent. The Financial District is slightly better, posting a 10.5 percent vacancy rate for the quarter, but that number is up substantially from when the office market peaked in mid-2000.
Although conditions have worsened dramatically of late, landlord Michael Grill of Fairlane Properties insists Boston has not reached a crisis stage by any means. “The market is still pretty strong downtown,” Grill said. “Rents are starting to hold up, which [suggests] there won’t be price declines anywhere near what we saw in the early 1990s.”
‘Time to Sell’
Grill also is upbeat about the prospect that his own company has placed its three Financial District office properties on the market for sale. Daume and Spaulding & Slye broker Scott J. Jamieson have been retained by Fairlane to sell the package, which has an overall asking price of $26 million. Totaling 134,000 square feet, the buildings are 15 and 33 Broad St. and the nearby 112 Water St.
“We just felt it was time,” said Grill, whose firm purchased 112 Water St. in July 1997, followed by 33 Broad St. in October of that year and 15 Broad St. in May 1999. Fairlane has conducted an aggressive renovation and leasing program at the buildings under its stewardship, and has also helped enliven Broad Street with the addition of new retail space such as a Banknorth branch.
Investors “want stabilized rent rolls in the Financial District, so we thought it would be a good time to sell,” said Grill, explaining that the leasing strategy focused on old-line companies and professional practitioners rather than pursuing the bevy of high-tech tenants who briefly dominated the Boston office scene in the late 1990s and early 2000.
Daume said she is optimistic about the prospects for selling the package, although she added that the buildings can be sold separately as well. Foreign buyers, pension funds and even local opportunity investors are all likely candidates for the buildings, said Daume, who cited their location and the tenant roster as top drawing cards.
“I feel very confident,” Daume said of the new marketing campaign, which began in earnest last week. “They are solid assets, well-positioned for the market, and Michael has done a great job with them.”
A former Boston Redevelopment Authority official who also owns 98 North Washington St. in the North Station submarket, Grill said the disposition plan does not mean he is getting out of real estate investment. “We’ll be back in the market buying properties where we can add value,” he said, including seeking out potential opportunities in the suburbs. The key, he said, is to ensure that any risk undertaken can be managed sufficiently to ride out the current downturn, with most observers anticipating that the suburbs will be hard-pressed to recover anytime before late in 2004.
As for 3 Post Office Square, some sources expressed surprise that Archon Atlantic was apparently able to garner a price north of $200 per square foot given that the building does have substantial vacancy. Originally renovated by W/P Commercial before it merged with the Archon Group, 3 Post Office Square had convinced several high-tech tenants to lease space in the building until the investor group became skittish about over-committing to that sector. Spaulding & Slye subsequently pursued more traditional tenants, but the effort ran head on into the market downturn that has gripped the city during the past 18 months.
“It was probably the right strategy [to eschew the high-tech industry], but the market just didn’t hold up long enough for the strategy to work,” said one Boston leasing broker familiar with W/P’s program. “It’s an excellent building that just had very poor timing.”
Joe Clements may be reached at jclements@thewarrengroup.com.
