50 Milk St. in Boston was one of several office towers that traded for near-record prices in 2002.

Providing an immediate boost to the 2003 commercial real estate investment market, the Archon Group has reportedly found a buyer for its Westborough Office Park in Westborough, industry sources told Banker & Tradesman last week. The four-building complex will sell in the $60 million range, sources said.

“I think that’s a very good price in today’s market,” said one broker familiar with the sale. A carryover from 2002, the asset is said to be under agreement to the Windsor Fund, a private investment vehicle headed up by Boston-based General Investment & Development. When asked for comment last week, a GID spokesman said the company “can neither confirm nor deny” whether it has the property under agreement. James McCaffrey of Trammell Crow Co., which is brokering the deal, did not return a phone call by Banker & Tradesman’s press deadline.

Trammell Crow has been representing the current owners, the Archon Group, in peddling the property, which includes 375,000 square feet of existing space and rights to develop another 750,000 square feet. Archon had reportedly been seeking $65 million for the park when it was put on the block earlier last summer.

If the Westborough deal is completed, it would offer a bit of positive momentum for the suburban office sector, which has been battered by two straight years of negative absorption and continues to struggle to generate leasing interest. By some estimates, sales volume of office buildings was down by 30 percent in the suburbs last year. The few transactions that were completed either were done far below replacement cost, or offered a rare rent roster with a credit tenant.

Investment activity was considerably better for trophy assets in central markets such as Boston and Cambridge during 2002, with a plethora of institutional capital willing to chase deals as long as they featured prime assets with solid tenancies. But while several office towers did trade at or near historical highs, including 50 Milk St., One Boston Place and 101 Arch St., at least one building deal did not make it across the finish line by the stroke of midnight.

The unsuccessful transaction – the sale of One Beacon St. – may be put out for bid again in 2003, although it is unclear whether a decision has been made on that situation to date. Located between the Financial District and Government Center, One Beacon St. is owned by Prudential Real Estate Investors and Westbrook Partners. Brokers at Cushman & Wakefield did not return phone calls to discuss the status of that property.

A key question in the coming year is whether the institutional funds will remain as aggressive as they were in 2002, particularly as the office market continues to work through is problems. The disconnect between leasing performance and sales is rare, investment specialist Lisa J. Campoli acknowledged in a recent market presentation, but is being justified due to real estate’s relative strength compared to other investment options, such as the stock market.

One potential roadblock that did not come to fruition last year was the notion that pension funds would be restricted in their real estate dealings due to a diversity strategy. The concept was advanced because pension funds often limit their real estate allocations to a percentage of their investment portfolio, and the losses in the stock market had skewed that number upward. According to Campoli, however, the comfort level with real estate is causing many funds to alter their traditional approach. “They are setting that issue aside in search of a good deal,” Campoli explained.

Overseas Investors

One capital source that was decidedly more quiet locally in 2002 than in past years was the German-based investment vehicles and high-net-worth individuals. In recent years, such financing has targeted Boston to buy assets that include 125 High St., One Federal St. and Liberty Square, but few deals of note were accomplished by the Rhineland in Boston last year. Observers familiar with that sector insist that the Germans will be busy suitors for Hub assets again this year, aided partly by new rules which allow German funds and investors to buy increased amounts of foreign real estate. If that occurs, Boston is expected to see intense competition for the better assets.

Investment specialists also expect continued interest from Australian money, partly because that country has an aging population whose retirement funds are flush with cash and whose managers are adapting a global investment perspective. An Australian outfit known as Challenger pulled off one of the more encouraging sales in Boston during 2002, with the buyers paying more than $400 per square foot for 50 Milk St. As with other top sales in 2002, that agreement was helped by a strong credit tenant with an unusually long lease term.

The multifamily investment market is also forecast to be brisk in the coming year, although it will be difficult to match the momentum seen there in 2002. As with the office market, investors clamored to buy the best-quality multifamily assets, and the industry was blown away by the $500 million sale of the Flatley apartment portfolio during the summer. Several other major apartment complexes sold as well in 2002, including the 696-unit Gardencrest in Waltham and Mill Village in Randolph. Given the volume of deals last year and the relative lack of investment-grade apartment buildings in Massachusetts, some observers predict multifamily will not be able to repeat the robust pace of last year in the coming 12 months. On the flip side, those assets that do come to market are expected to garner widespread attention.

The same is true in the hospitality industry, according to David M. McElroy, a managing director with Insignia/ESG Hotel Partners in Boston. “There’s always money looking for hotels,” he said, while stressing that available opportunities are in short supply and adding that potential sellers remain unwilling to budge on pricing. It is, McElroy said, “the same dynamic” of a bid/ask gap which made office building sales harder to complete in 2002.

One reason owners have not been dropping their prices has been a result of lessons learned from the early 1990s. Whereas overleveraged properties prompted numerous foreclosures or desperation sales in the previous downturn, McElroy said such is no longer the case. “I don’t think we’ll have any distressed sales,” said McElroy, with loan-to-value ratios down in the 60 to 75 percent range, compared to 80 to 90 percent in the early 1990s.