According to industry sources, a pending sale of the Davenport Building at 25 First St. in Cambridge will fetch a price of between $235 and $240 per square foot.
In a deal that could breathe a bit of life into Cambridge’s stagnant commercial real estate market, Paradigm Properties and partner Westbrook Properties have reportedly found a buyer for 25 First St., a one-time furniture factory now occupied as first-class office space.
They are closing on it, one Boston real estate source insisted last week, maintaining that a private Dutch real estate group, Ibus Management and Development, is the buyer of the structure, which is commonly known as the Davenport Building. The source said the purchase price is between $235 and $240 per square foot, which would put the total for the 220,000-square-foot building in the $51 million to $53 million range.
That’s a pretty big price, said the source, who requested anonymity. While maintaining that it’s a great building, and voicing long-term optimism for the Cambridge office market, the source nonetheless expressed surprise that the asset would fetch such a lofty amount in the currently depressed environment. Of particular concern, said the source, are several technology tenants in the building with questionable credit.
Calls to Paradigm Properties and to Cushman & Wakefield, which is brokering the property, were not returned by Banker & Tradesman’s press deadline. Also unavailable was Kees Bruggen, chief operating officer for Ibus, who did not return a call to his office in Washington, D.C.
Constructed in 1860, the Davenport Building is located in Kendall Square, Cambridge’s largest office submarket. The market contains just over 9 million square feet of space and has a current vacancy rate of 9.8 percent.
Paradigm and Westbrook purchased the Davenport Building in early 2000 for $49.9 million from the Archon Group. Ironically, one of the last building sales in Cambridge during 2001 occurred in December when Westbrook sold 1030 Massachusetts Ave., a 65,000-square-foot office building, to Paradigm for $17 million. Paradigm also has purchased properties in Boston with another partner, the Carlyle Group of Washington, D.C. Those two firms are owners of 99 Summer St., a 20-story office tower in Boston’s Downtown Crossing district.
Biotech Ticket
Across the river in Boston, meanwhile, Paradigm and Westbrook are reportedly having a more difficult time disposing of 18 Tremont St., a Class B office building the two companies purchased in 1999 for $30.9 million. Sources said it appears the building has been pulled off the market after the pricing goals were not reached, most likely because the 181,000-square-foot building has a substantial amount of leasing vacancy at present. One source said the 12-story building would probably be put out to bid again once the vacant space is leased.
As for Cambridge, there were a few deals of note in 2001, including the $98 million purchase of two Alewife properties by J.P. Morgan, but for the most part, the sudden demise of the office market curbed virtually all leasing and investment activity. After being one of the nation’s hottest office markets through the end of 2000, Cambridge was brutalized by the problems in the technology sector, a key driver of the city’s economic boom in the late 1990s.
According to Spaulding & Slye Colliers, for example, vacancy in Cambridge went from virtually zero at the start of last year to 9.4 percent by year’s end for direct space. Factoring in the flood of sublease deals and availability for the city is now above 20 percent, with 870,000 square feet of negative absorption for the year.
One potential savior for Cambridge could be the biotechnology market, with pharmaceutical companies and biotechnology firms continuing to pour into the city, lured by the presence of Harvard University and the Massachusetts Institute of Technology. Meredith & Grew predicts that the city could see more than 1 million square feet of demand for lab and research space in Cambridge this year, with activity so brisk that some office space has even been targeted for a conversion.
Beyond being a boost for Cambridge itself, the agreement to purchase 25 First St. by Ibus displays continued overseas interest in Massachusetts real estate. Dutch firms have previously invested in such assets as 75-101 Federal St. in Boston’s Financial District, while Germany has had a substantial presence in the area as well. One German syndicator, Jamestown, has an ownership in two Boston office towers, 125 High St. and One Federal St., with the investment group purchasing the Federal Street building last spring for $375 million.
Even with the recent difficulties in the office market, Boston placed third in a recent survey by the Association of Foreign Investors in Real Estate, with only Washington, D.C., and New York City faring better in international investment interest. Others that received good marks were Chicago, San Francisco and Los Angeles. Ibus, which also has an office in Connecticut, is a member of AFIRE. The firm apparently has an investment strategy similar to that found in the survey, having also targeted Washington to invest funds into its real estate market.
