99 High St., Boston
It isn’t easy having green in the current commercial real estate sales market. Typically able to pick and choose one’s investments with a reasonable level of control, buyers seeking properties throughout Massachusetts are having a difficult time securing deals in 2005, with a glut of capital driving pricing into the stratosphere. Forced to overpay or accept terms such as limited due diligence, many suitors are turning to off-market opportunities, chasing assets that are either not yet on the block or will be shopped to a limited cadre of prospects.
The latter scenario often occurs when an owner is publicity shy or has other reasons they do not want the world to know the property is in play. Such was the case several years ago when broker Joseph P. Plunkett helped the owners of 400 Crown Colony Drive in Quincy divest that office building for more than anticipated despite offering it up to only three prospects. Now a senior director at Cushman & Wakefield, Plunkett said he has been involved in other cases where the sale was not widely advertised, and maintained there are often solid reasons behind that approach.
Even so, Plunkett and other brokers spoken with stressed that the best plan for a building owner is to conduct a broad marketing campaign, allowing as many potential buyers as possible to be informed of the deal in order to create a brisk competition. “It always makes sense for the buyer to go off-market, but I would say that 98 times out of 100, the seller will get the optimum sales price by using the (traditional) sales process,” said Plunkett. “If you are selling a property, you have to be disciplined and patient, and usually that works best in the end.”
Mark A. Stevens of GVA Thompson Doyle Hennessey & Stevens concurs with that notion, adding the hot investment climate behooves owners even more to offer their properties to as broad an audience as possible. That is particularly true for Class A assets such as trophy office buildings, luxury apartment complexes or grocery anchored shopping centers, all of which are in such demand that record pricing has become a commonplace occurrence. Class B and C buildings are not enjoying the same level of interest, but Stevens said some of the cash waiting on the sidelines is beginning to trickle towards those properties as well.
Despite a dearth of off-market opportunities, buyers continue to buttonhole brokers in search of product available below the radar screen. Just last week, Plunkett was contacted by an out-of-town partnership eager to find deals in Greater Boston. The investors, whom he declined to identify, asked Plunkett to “shake some trees” and see whether owners might be interested in selling unadvertised properties. The group would even pay the commission on any sale, said Plunkett, who acknowledged enjoying the challenge of the assignment.
Known as “street deals,” brokers are always on the lookout for a wallflower property that could benefit from fresh capital infusion. In some instances, it might prompt a meeting with the owner to gauge their interest in selling, or first identifying an investor and coming in armed with a set proposal. “It’s fun to do,” said Plunkett, explaining that the process fosters the creative side of brokerage and can often help turn around a struggling or underused asset, helping improve the neighborhood or business district and settling the needs of both buyer and seller.
While professionally gratifying, such deals cannot be relied on as a steady stream of business, Plunkett advised. “If you roam the streets looking for a pie-in-the-sky, grand slam (opportunity), you’ll go hungry very quickly,” he said. “It will be a pretty short career.”
Plunkett points to his own company as an example of the benefits of mass marketing. The firm is on pace for its second straight year of selling more than $2 billion in commercial real estate, scoring impressive returns in such 2005 transactions as the $274 million disposition of the Bay Colony Corporate Center in Waltham, Boston’s 99 High St. office tower and Quarry Hills in Quincy, a 326-unit apartment complex being purchased by multi-family giant Archstone-Smith.
As opposed to capital seeking real estate as an investment prospect, users often get involved in off-market real estate sales because they have such specific property needs. As a result, many brokers in Greater Boston have developed an ability to identify buildings which might work for a specific company and assist them in bringing a sale to fruition. Scott Hughes, president of Framingham-based New Dover Associates, recalled one recent case in which a user came to him with a request to find an asset they could own and occupy.
In that case, Hughes determined that the client might benefit from an experienced real estate partner, leading him to first identify such a prospect and then find a building in Marlborough that the two groups could acquire. The initial client committed to occupy about half of the 100,000 square foot building and retain an ownership stake, giving the real estate operator/partner enough stability in the asset to make its renovation feasible. The remaining space is now being leased up, and an adjacent land parcel that came in the deal is under agreement to another buyer.
“Everybody won,” Hughes recalled in an interview last week, noting that the city of Marlborough was among the victors given the new taxes that will generate from the underused facility and via the new building slated for the land parcel.
Hughes helped craft another substantial off-market sale recently when he contacted the owners of 445 Simarano Drive in Marlborough with a prospective buyer, Maine-based Ram Management. The 175,000-square-foot industrial building was eventually purchased for $6.5 million, and Ram is in the midst of a leasing campaign for the property. As with other brokers, Hughes acknowledged the preferred method of marketing properties for sale to a wide berth, but said he could think of at least a half-dozen deals in the past year which were created from scratch.
