Griffith Properties may lose control of its Burlington Woods office properties. Its lender, GE Capital, is close to striking a deal to bring new ownership into the 291,000-square-foot portfolio, several industry sources have told Banker & Tradesman.
Boston developer Berkeley Investments is expected to displace Griffith as the Burlington park’s majority owner. Neither Berkeley nor GE could comment because the deal has not closed yet.
Griffith purchased the office properties at 1, 2 and 3 Burlington Woods in June 2007 for $66.5 million, or approximately $230 per square foot. GE Capital supplied Griffith with a $55.6 million loan. At the time, the properties were 92 percent leased. The buildings sit just off Route 128, near the Burlington Mall and Equity Office’s New England Executive Park.
Griffith planned to use tenant turnover to force rents skyward. The firm projected rents around $32 per square foot, going so far as to reject deals with rents in the high $20s, multiple sources said. Now the three buildings are only 55 percent leased, and market rents have fallen into the low $20s. That pushed Griffith’s debt into default. Griffith’s equity partner, Urdang Capital Management, found its equity position far underwater and walked away from the deal.
"They’ve got the same problems as everybody," said one industry source. "Vacancies are up, rents are down, and values are dropping."
Another source estimated the properties’ current market value at approximately $27 million, or half the value of GE’s debt. "Griffith still technically owns it, but it’s a technicality," they said.
Reportedly, GE believes Burlington Woods is a core asset that will recover substantial value over time. By taking on new equity in the property, GE will be able to minimize any loss.
That stands in sharp contrast to the liquidation strategies that are being pursued by UBS and Midland Loan Services, two organizations currently looking to sell underperforming commercial real estate portfolios to the north of Boston.
UBS is shopping a seven-building portfolio that includes 300, 600 and 800 Federal St. in Andover; 7 and 8 Oak Park Drive in Bedford; and 3 and 8 Federal St. in Billerica. Midland Loan Services is marketing a KS portfolio of seven buildings that includes 847 Rogers St., in Lowell; 255, 261 and 265 Ballardvale St. and 5-10 Cornell Place in Wilmington; and 700 and 900 Tech Park Drive in Billerica.
