Renovated from a warehouse into 365,000 square feet of office space, 470 Atlantic Ave. in Boston, also known as Independence Wharf, is owned by Modern Continental.

It has become the poster child for the region’s troubled office market, but there are apparently plenty of investors more than willing to adopt 470 Atlantic Ave. in downtown Boston as their own.

According to industry sources, a pension fund controlled by General Electric Corp. has beaten out a half-dozen suitors aggressively chasing after the 365,000-square-foot office building. The 14-story structure was recently put up for sale after developer Modern Continental struggled to find tenants following an expensive overhaul of the one-time warehouse. More commonly known as Independence Wharf, the building is currently about 70 percent vacant.

The Independence Wharf deal is just one of several office building transactions in the works, with Banker & Tradesman reporting last week that Teachers Insurance and Annuity Association is angling to purchase One Boston Place, a 41-story tower in the heart of the Hub’s Financial District. Outside of town, an investment fund has tied up 301 and 401 Edgewater Place in Wakefield, while another buyer has placed two buildings at Lake Williams Corporate Center in Marlborough under agreement as well.

Calls to GE officials were not returned by Banker & Tradesman’s press deadline, while officials at Cushman & Wakefield’s investment services group were unavailable to discuss the Independence Wharf sale. C&W is brokering the deal on behalf of Modern Continental. Several sources identified GE as the buyer, however, with one broker insisting that “they are the ones.”

“It’s true,” said the source, while several others concurred with that notion. Other players who supposedly made a run at the asset were Taurus New England Investments and Tischman Speyer. Taurus principal Peter Merrigan acknowledged that his group had taken a run at the property, but were outbid. One option Taurus had considered was a hotel, Merrigan said, although he defended the building’s potential as an office building.

“It’s good real estate,” he said. “People believe in the city long-term, but they are just having a hard time figuring out when the rent declines are going to stop.”

Considering the building’s inability to attract tenants, some observers expressed surprise that the winning bid for Independence Wharf reportedly exceeds $80 million. Tenant improvements for nearly 300,000 square feet of empty space and leasing commissions could cost another $15 million to $17 million to get the building leased. By some estimates, the eventual tab for buying and leasing the building could be well above $300 per square foot.

“That’s a lot for a rehab,” opined one source. “No way does [$80 million] make sense, at least not in this market.”

‘Pluses and Minuses’

Others were more upbeat about the building’s prospects, with one source maintaining that Modern Continental’s inexperience in office development was one reason Independence Wharf was unable to cement leases. The owners were supposedly slow in completing deals when Boston’s office market was on fire in 2000 and early 2001, ultimately losing out on a bevy of prospective tenants. A more sophisticated owner might have better success in that regard, according to some leasing specialists. Owned by Lelio Marino, Modern Continental is better known as a heavy contractor for such major public works jobs as the $14.5 billion Big Dig.

“It really depends on your crystal ball,” one broker said of Independence Wharf’s potential. “If you think the world is going to improve and you think a different sponsor is going to be able to fill it up, [$80 million] might be [reasonable].”

The building’s presence on the edge of both the Financial District and the emerging Seaport District is one solid plus, brokers said, and the building also provides impressive views of Boston Harbor and downtown. On the flip side, column spacing makes for a less efficient structure than some competing buildings, some brokers maintain.

“It’s really a play on location,” said one investment broker familiar with the building. “The physical building has its pluses and minuses, but it is right in the middle of everything.”

Beyond its inexperience in leasing, many believe Modern Continental was also hurt by the $50 million shelled out to buy 470 Atlantic Ave. in 1999. While considered a strong play when the office market was moving upward, some said the number proved too much when rental rates began reversing themselves last year. “There’s a saying in golf that most matches are won or lost on the first tee,” one source noted, adding, “It’s the same in real estate. If you overpay for something, it’s hard to get past that.” Even if Modern Continental is able to secure more than $80 million, it still stands to lose millions of dollars in the process once its renovation expenses are taken into consideration.

Boston’s office market certainly has taken a turn for the worse since Modern Continental began overhauling the building. After peaking at $51.89 per square foot a year ago, the average rental rate for Boston today has fallen back to $43.43 per square foot, according to figures from Meredith & Grew, with the best pricing reserved for Boston’s office towers. The Hub’s vacancy rate has climbed steadily over the past year, and now stands at 12.3 percent. There is 6.4 million square feet of available space. Subleasing has been a significant factor in the equation; according to Meredith & Grew, there are 218 sublease opportunities in Boston at present, although 80 percent of that pool have 20,000 square feet or less.

In the suburban investment deals, TA Assoc. of Boston is said to be acquiring the Edgewater Place buildings on behalf of the estate of James Campbell, a real estate investment and management group named after a successful Hawaiian developer. It will be the company’s first foray into Massachusetts, according to sources. The buildings are currently owned by Clarion Partners, which did not return a phone call to discuss the deal. Sources estimate that sales price at about $160 per square foot, which would put the deal in the $55 million range. Clarion did not return phone calls, while efforts to contact TA Assoc. officials were also unsuccessful.

As for Lake Williams, a 61-acre office complex that features Fidelty Investments among its lead tenants, Taurus New England and partner National Development reportedly have agreed to sell two buildings they own there to Great Point Investors. Merrigan confirmed the buildings, totaling 213,000 square feet, are under agreement, but would not disclose the buyer or the price. Efforts to contact Great Point were unsuccessful, but sources insisted the Boston-based company is buying the properties.

General Electric to Acquire Hub’s Independence Wharf

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