| Startups and financial firms averse to following the crowd into Boston’s higher-priced Seaport District or Back Bay office space have turned to the Financial District’s discounted rental rates, in turn driving up the dollars on investment sales deals for properties.
The popularity of the Seaport and Back Bay, where office building vacancy rates have been at historical lows in recent months, has been a boon to the city’s traditionally staid, button-down financial center, where younger and tech-related firms have opened up shop.
That has caused the prices investors are willing to pay for those office buildings, particularly the Class B properties with exposed brick and beams or open floor plans, to spike 20 percent and more in the last 18 months, according to commercial real estate industry experts. And even the more traditional office space where the price is right, tenants are ripping down ceilings and exposing the ducts to create a funkier feel, said Frank Petz, managing director and head of investment sales for real estate advisory firm Jones Lang LaSalle in Boston.
He recently sold One Washington Mall near Boston’s City Hall to New York-based real estate investor The Georgetown Co. The firm paid $56.73 million for the 16-story Class B office building, a much stronger price than the $33.5 million seller Saracen Properties and joint venture partner AEW Capital Management paid in 2006.
That’s at least partially thanks to a new anchor tenant Saracen landed in the process of overhauling the property. Office supply giant Staples recently built a new two-story store in the former home of Newbury Comics at One Washington. The Framingham-based retailer occupies about half of the property’s first floor, shared by a Planet Fitness gym, and takes up the entire second floor as well.
Plus, Saracen leased more than 45,000 square feet of space to new tenants and increased the building’s occupancy to upwards of 80 percent. When Saracen bought the 156,000-square-foot property, it was just 60 percent leased and had not had a new tenant move-in in more than 24 months, according to Saracen’s website. Saracen then oversaw a $3 million capital improvement program for the building, including new elevators and a completely renovated main lobby.
‘A More 24-Hour Area’
Over the course of Saracen’s ownership, the company attracted a few high-tech or tech-related tenants to the building, more than owners had seen there in the past, said Travis Powell, principal at Saracen.
“That building was always the stomping grounds of small law firms and accounting firms, which it still is, but [there are now] New York Stock Exchange-traded firms in there, other high-tech firms,” Powell said.
“What you’ve seen is the historical relief valve markets – Back Bay, the Seaport – have now become so tight, and they’re the flavor of the day, that there aren’t many options and they’re pretty expensive, and that’s having tenants look again at the Financial District. It’s become a price alternative to other markets, especially now that there’s so much development activity downtown that [Millennium Partners] doing, the condo projects and apartments along Washington Street, making it a more 24-hour area.”
The investor interest is borne out in the prices of other recent deals as well. Earlier this fall, Beacon Cos. purchased the 152,000-square-foot 230 Congress St. in the Financial District for $49.7 million. Brickman, another New York real estate investor, paid $41.6 million for the building in 2007.
Then, Clarion Partners purchased One Liberty Square, a 13-story office asset in the city’s financial heart, from Invesco Real Estate for $54.4 million. Dallas-based Invesco purchased the 87-year-old property for $50.3 million in 2007.
“Candidly speaking, everything in Boston has risen in price 10 to 20 percent over the last 18 months due to consistently solid leasing fundamentals in the city … and the push of institutional capital into gateway markets like Boston,” said David Pergola, senior managing director and principal at Cassidy Turley.
Those solid fundamentals could also help the vacancy-plagued Interstate 495 commercial real estate submarket, Pergola said, where Cassidy Turley is marketing the 154,000-square-foot Ames Pond Corporate Center in Tewksbury. Leggat McCall Properties purchased the campus in 2009 for $10 million. Now, Pergola expects the property to sell for more than $15 million.
Email: jcronin@thewarrengroup.com
