Beacon Capital Partners acknowledged last week that Spaulding & Slye Colliers has been retained as leasing agent for 200 State St. in Boston, a 16-story office tower acquired by Beacon earlier this year for $141 million.
After nearly a year of suspense, the final chapter in the Houghton Mifflin Co.’s office space search appears to offer a happy ending for the owners of the publisher’s current home at 222 Berkeley St. in Boston’s Back Bay. According to industry sources, Houghton Mifflin has agreed to extend its lease in the 22-story tower, at which the firm occupies approximately 250,000 square feet in a deal expiring in 2007.
“It looks like they are staying,” concurred a Boston broker tracking the negotiations, which reportedly had Houghton Mifflin mulling options throughout the Back Bay and Financial District. In recent weeks, some had claimed the firm was headed for nearby Copley Place, but sources said 222 Berkeley St.’s ownership team of Hines Interests and Equity Office Properties has since overcome that competitive challenge.
Calls to the landlords and their listing agents at Meredith & Grew Oncor were not returned by Banker & Tradesman’s press deadline, while Houghton Mifflin broker David Richardson of McCall & Almy also did not respond to inquiries. One Back Bay broker said Hougton Mifflin’s space is no longer being advertised as available, bolstering reports of a commitment to stay on by the current occupant.
The Houghton Mifflin situation comes amid a changing landscape for the city’s office market, with Beacon Capital Partners acknowledging last week that Spaulding & Slye Colliers has been retained as leasing agent for 200 State St. Abutting Faneuil Hall Marketplace, the 16-story, Class A office tower was purchased by Beacon this spring for $141 million, after which the firm spun the retail portion of the complex off to Anglo Irish Bank. Richards Barry Joyce & Partners had represented the previous owners, Sullivan Properties LLC, which developed 200 State St. in the mid-1980s.
Beacon and Spaulding & Slye officials would not discuss the 200 State St. relationship in detail. Given the city’s difficult office market, Beacon is expected to encounter considerable competition for tenants in the core Financial District, particularly as landlords address a bump in sublease space being generated by an ongoing slate of corporate mergers and downsizings. Bank of America is peddling space at 100 Federal St. in the wake of its acquisition of FleetBoston Financial, for example, while State Street Bank is shopping a sizeable block of space at One Lincoln St. At International Place, Deutsche Bank has as much as of 300,000 square feet of space available, giving the Financial District alone close to 1.8 million square feet of sublease opportunities, according to the Codman Co.
“It is going to have a real drag on the market,” one broker said of the sublease aspect, adding that the biggest glut of such offerings appears to be in the low-rise sector of the market. Along with the prospect of additional space coming to the Back Bay from the pending acquisition of Gillette Corp. by Procter & Gamble, one observer suggested the increase in low-rise supply might have spurred the landlords of 222 Berkeley St. to court Houghton Mifflin aggressively enough to keep the tenant on the building’s roster. “It would be a tough hole to fill,” the broker said of Houghton’s space, which is concentrated on the lower levels of the 520,000-square-foot building.
Given the lack of response from the principals involved, it is unclear whether Houghton Mifflin has signed the extension at 222 Berkeley St. Also unavailable were the terms of any such pact, including the length of the renewal or whether the landlords agreed to discount the tenant’s rental rate, as is often the case in so-called “blend-and-extend” negotiations. Some reports have suggested Houghton Mifflin was trying to reduce its occupancy levels to as little as 200,000 square feet. The firm also subleases about 50,000 square feet of space in the adjacent 500 Boylston St.
‘Big Target’
Across town in the Financial District, one of Spaulding & Slye’s initial assignments at 200 State St. will likely be trying to retain the building’s biggest tenant, Wellington Management Co., which sources said is also looking to consolidate its downtown operations. Besides occupying four floors at 200 State St., Wellington leases portions of 28 and 75 State St., and reportedly has hired Trammell Crow Co. as leasing representative for a space analysis of the downtown holdings. Trammell officials were unavailable for comment on that situation.
Wellington will be a “big target” of Beacon Capital, one source close to the firm agreed, adding that Beacon is already moving to stabilize the tenant roster at the property, which some estimates had at 40 percent vacant when it was acquired. Even with that difficult starting point, the source predicted a solid outcome for the 365,000-square-foot building, with some deals reportedly already struck. “Beacon is confident the building can be fully leased by the end of the year,” said the source. Others claimed that Spaulding & Slye itself might be considering a move to the tower, although neither the landlord nor Spaulding & Slye officials would say whether that option is on the table. Boston’s Financial District had 137,000 square feet of positive absorption in the first quarter of 2005, according to Spaulding & Slye, putting the vacancy rate there at 11.5 percent.
