399 Boylston St., a 13-story, 228,000-square-foot office/retail building in Boston’s Back Bay, has been purchased by Abbey Road Investors and Rockwood Capital, a Connecticut-based joint-venture team.
Summer vacation is in full force, but the commercial real estate sales market does not appear ready for a break, with two prominent office buildings among the latest assets to change hands. In Boston’s Back Bay, 399 Boylston St. was purchased last week by a Connecticut-based joint venture, while Equity Office Properties completed its $54.7 million acquisition of 25 Mall Road in Burlington.
A 13-story, 228,000-square-foot office/retail building, 399 Boylston St. was purchased by Abbey Road Investors and Rockwood Capital for $55.5 million, although one source maintained that other financial considerations were also negotiated by the seller, including assumption of the property’s existing debt and certain renovation costs. Reached at his firm’s headquarters in Westport, Conn., Abbey Road principal Alan Bates declined to discuss details of the sale, but acknowledged closing on the property last week.
“We’re very excited to have done so, and are looking forward to owning and operating the building,” said Bates. “It’s a great asset, and we’ve put a terrific team together.”
The building is Abbey Road’s first foray into the Hub, although financial backer Rockwood Capital has previously invested in the area. Despite the city’s lingering economic woes and the threat of new office sublease space being put onto the market, Bates expressed optimism about the Hub going forward. “We like Boston in general, and the Back Bay in particular,” he said. “That market is leading us out of the slump we have been in Â… and we think [399 Boylston St.] is the right asset for us there. It’s a great address.”
The investment community apparently seemed to think so, according to Trammell Crow Co. principal Peter Joseph, whose firm brokered the deal on behalf of the seller, Boylston 399 LP, and also procured the buyer. More than 15 suitors from an array of capital sources pursued the building, said Joseph, including institutional funds, private opportunity buyers, two real estate investment trusts and even some foreign bidders. Joseph brokered the sale with Trammell Crow colleagues James McCaffrey, Christopher Phaneuf and Jordan Berns.
“People do believe the market is getting better, and everyone loves the Back Bay,” said Joseph. The location and quality of 399 Boylston St. also played a role attracting prospects, he said, especially given the opportunity to buy below replacement cost.
Although an aggressive leasing campaign by Trammell Crow has brought 399 Boylston St. to about 95 percent occupancy, the building does present a measure of risk, according to observers, given that the lead tenant’s lease is set to expire in 2007. COC IXIS Asset reportedly occupies close to 90,000 square feet in the building. Some sources claimed other locations are already being eyed by the firm, which certainly would seem to have rival landlord appeal in the current competitive leasing climate. It is unclear whether the firm has retained a leasing broker.
As Bates noted, the Back Bay has enjoyed a solid beginning to 2005, aided by the leasing of more than 500,000 square feet by Investors Bank & Trust, plus another six-figure piece secured by Pearson Education at 501 Boylston St. According to midyear figures compiled by Spauldng & Slye Colliers, the Back Bay has enjoyed net absorption of 432,000 square feet this year, dropping the direct vacancy rate to an impressive 6.4 percent.
In any event, Joseph said he believes the sale of 399 Boylston St. provided benefits for both sides. The property was acquired in 2000 by Boylston 399 LP for $52 million. As for any leasing threat, Joseph said he believes Abbey Road and Rockwood have the expertise in-house to meet any challenges and maintained that an expected chunk of sublease space from the Gillette Corp.’s merger with Procter & Gamble is unlikely to meet the needs of the typical 399 Boylston St. tenant. “I think they will do very well with it,” said Joseph of the building’s new owners.
Bates also confirmed that Spaulding & Slye Colliers has been retained as leasing and property manager of 399 Boylston St. William Motley and William Collins will handle leasing duties, while Laura Rogan is the new property manager. Coupled with Rockwood’s knowledge of the Hub and its own interest in securing additional assets locally, Bates said he believes the new building will prove fruitful. “We’re off to a good start and look forward to a long run with it,” he said.
‘Best in Burlington’
Sited a good 10 miles to the north, 25 Mall Road in Burlington was also purchased for a combination of location and quality, according to Equity Office Properties Vice President Joseph Gorin. As reported first on Banker & Tradesman’s Web site (www.BankerandTradesman.com) last week, the Chicago-based REIT paid close to $200 per square foot for 25 Mall Road, a six-story, 277,000-square-foot building overlooking Route 128. That sale was negotiated by Meredith & Grew Oncor of Boston and a New York brokerage firm.
“It’s the best asset in Burlington,” Gorin said of 25 Mall Road. And even with that submarket having been through one of its worst stretches ever, Gorin also predicted good times ahead for the firm’s latest conquest, both due to an improving economy and the flight-to-quality trend that has given Class A suburban buildings a greater outcome than older or outmoded properties.
“We think [25 Mall Road] will outperform the market, and we think the market is going in the right direction,” said Gorin. That seems to be the case in the midyear leasing data, with Spaulding & Slye reporting 257,000 square feet of net absorption in the Burlington submarket during the first six months. That brings the vacancy rate there down to 15.6 percent.
The deal also seems to fit in with EOP’s recent strategy to replace older assets with newer product. According to company estimates, EOP hopes to sell as much as $3 billion worth of properties this year, but including 25 Mall Road, the REIT bought nearly $800 million worth of assets in the second quarter alone, much of it on the high end of the inventory scale. Although Gorin could not provide a precise number, at least 20 percent of 25 Mall Road is vacant, but given its experienced leasing team and the improving office fundamentals, he insisted that risk is manageable. “I like the bet of having the best building in the market,” he said. “It’s core quality and a core location.”
