After struggling to sublet much of the 280,000 square feet it leases at 99 High St. in Boston, Fidelity Investments reportedly is negotiating to buy its way out of the commitment.

It looks like Boston’s 99 High St. is about to get a reality check from Fidelity Investments – literally.

After struggling to sublet the bulk of its 280,000 square feet in the Financial District tower, the mutual fund giant is reportedly striking a deal with the building’s landlord that would allow Fidelity to buy out of the commitment at about 90 cents on the dollar. According to industry sources, Fidelity’s lease runs through November of 2004, apparently not enough time to make the space marketable, especially given the bloated inventory available at present.

“It’s just extremely difficult to sublease short-term space,” said one Boston broker familiar with the negotiations. “Sometimes it just makes sense to get out of the thing and move on.”

Fidelity real estate executive Fred Quinlan declined to discuss the rumor, as did the firm’s real estate advisor, Trammell Crow Co. principal Charles O’Connor, but industry sources insisted that the discussions are serious and appear to be nearing a conclusion. “They have struck a deal,” claimed one broker.

In a related situation, Fidelity is said to be working with Equity Office Properties to leave space at 100 Summer St. early, primarily to accommodate a pending lease with the Nixon Peabody law firm. In that scenario, it appears Fidelity would benefit because Equity would forgive the remaining term on the five floors if Nixon Peabody can claim title by June, according to a source.

Equity officials declined comment on the scenario, but sources said Fidelity is negotiating to vacate floors 24-27 and 29. Nixon Peabody is expected to lease 150,000 square feet in the new building, although it is unclear whether that deal has been finalized.

Although one source said that “Fidelity isn’t sure it can get its people out in time” to make the transaction work, the effort would reportedly save the firm nearly a half-year in rent. At even a low-ball rate of $30 per square foot, that would equate to a savings of more than $2.5 million for the estimated 180,000 square feet in question, not to mention taxes and operating expenses. Fidelity reportedly has about 500,000 square feet overall in the 32-story tower, with some leases said to run through 2005.

As for 99 High St., which is owned by Westbrook Partners and Walton Street Capital, Fidelity would pay virtually all of the net present value of the lease, providing the new ownership with the steady rental stream until late 2004 and a dual benefit of being able to repopulate it with new tenants. But Fidelity would be relieved of the carryover duties and the expense of marketing it as sublease.

Spaulding & Slye principal William Barrack, leasing agent for 99 High St., was unavailable for comment. If completed, the arrangement would yield several million dollars for Westbrook and Walton Street Capital through the end of the lease next November. The partnership acquired the 32-story tower two years ago for $213.5 million. Rounding the numbers to 250,000 square feet and a conservative rate of $30 per square foot, 90 percent of the annual lease term would be $6.7 million.

Exit Strategy

According to sources, the buyout approach is just one of several strategies Fidelity is employing in an attempt to reduce its massive real estate costs, both in the Bay State and nationally. The firm appears to be moving additional staff into properties it owns outright, such as 245 Summer St. in Boston, while also still pursuing sublease deals on other space. Fidelity has had considerable success at the Hub’s 260 Franklin St., for example, where it has leased about 100,000 square feet of the 175,000 square feet it has locked up there.

Ironically, one source said Fidelity had sought to buy out its space at 260 Franklin St., but claimed the institutional landlord was too rigid in its policies to accept terms similar to those being offered to 99 High St.’s ownership. “They just didn’t want to rock the boat,” said the source, who maintained it would have been “an excellent deal” for 260 Franklin St.

The climate certainly is dramatically different from what Fidelity experienced just over two years ago when Boston Properties acquired 265 Franklin St. with an institutional partner and bought Fidelity out of a 170,000-square-foot lease in that property. At the time, Hub office rents were headed for the stratosphere, and the new ownership deemed the $24 per-square-foot terms Fidelity had were blocking the tower’s upside. “They just paid them to go away,” noted one broker.

Now, the opposite situation is true, although the $24 per-square-foot rate would still be considered below market value for downtown Boston. That particular lease had been struck in the days when Fidelity was one of the few firms occupying space in Boston, allowing it to demand lease terms that few tenants would be able to barter. Now, even as the company continues to downsize its lease load, Fidelity still has a major presence in such properties as One Federal St. and 53 State St., aka Exchange Place.

Fidelity has 340,000 square feet at One Federal St., where its agreement runs through February 2007, and 170,000 square feet at Exchange Place. According to sources, the Exchange Place quarters could be attractive to subtenants, given not only the building’s prominence, but also a term extending through June 2006.

Joe Clements may be reached at jclements@thewarrengroup.com.