Tishman Speyer Properties reportedly has agreed to buy the $625 million mortgage on the Chiofaro Co.’s International Place (pictured above) in Boston, likely purchasing the long-term note on the office complex at a discount from its face value.
In a scenario that one observer says could spark “absolute war” over one of Boston’s most recognized office assets, Tishman Speyer Properties has agreed to buy the mortgage on the Chiofaro Co.’s International Place, sources have told Banker & Tradesman. Held by Teachers Insurance and Annuity Association, the note is estimated at $625 million.
“I think it is true,” one source said of Tishman’s rumored purchase, which is reportedly being done with a capital partner. “I hear it’s going to move quickly,” seconded another. Several other industry observers provided similar accounts, each requesting anonymity.
New York-based Tishman will purchase the long-term debt on the twin-tower complex at a discount to the mortgage’s face value, although the exact price was not immediately available. Calls to the Chiofaro Co. and to Tishman Regional Director Thomas N. O’Brien were not returned by press deadline, while a TIAA official would not provide details on the negotiations.
“We have confirmed that [the mortgage] is on the market, but I can’t really comment beyond that,” spokesman Patrick Connor relayed Friday from TIAA’s New York City headquarters.
Sources could not say who else competed to buy the mortgage from TIAA, although well-known players such as Boston Properties, Shorenstein and Brookfield were regularly mentioned among the bevy of suitors. Several sources claimed the Chiofaro Co. itself made an aggressive bid. But while maintaining that “you can’t ever count [developer Donald] Chiofaro out,” one source insisted Tishman Speyer has been tabbed as the winning bidder.
“We’re on the same wavelength,” the source confirmed. “I’m hearing that [Tishman] has it tied up.”
Even so, observers warned that Tishman could be inviting legal action. One of Boston real estate’s most colorful and engaging characters, Chiofaro has never shied from lawyering up when necessary, as exemplified by the Belmont native’s current lawsuit against the developers of nearby One Lincoln St. There, Chiofaro claims a partnership improperly cut his firm out of a chance to construct the 36-story property, one which earlier this year sold for more than $670 per square foot.
While unable to say exactly what legal standing Chiofaro would use to block the sale of the TIAA mortgage, one colleague predicted that “whoever gets it is going to find themselves in a lawsuit.”
“I can’t believe Donny is going to go quietly,” said the source. “I think it’s going to be a loose end for a long time.”
“It’s going to mean an absolute war,” another source forecasted.
Best of Boston
TIAA last autumn acknowledged it was shopping the mortgage on International Place, a glitzy 1.8 million-square-foot complex developed by the Chiofaro Co. in the mid-1980s and early 1990s. The lender’s relationship with Donald Chiofaro and partner Ted Oatis soured just as the second tower prepared to come on line in 1993 sans tenants, prompting an effort by TIAA to pull the permanent financing on the project.
Chiofaro successfully thwarted the maneuver and then struck a deal with Massachusetts Financial Services to lease the lion’s share of Two International Place, ending the vacancy debacle in that 750,000-square-foot tower. The MFS deal helped end Boston’s prolonged office market slump which had ushered in the 1990s and cemented International Place’s position among the city’s elite office addresses.
As with Boston’s office market overall, International Place has seen its share of ups and downs during the intervening decade, riding the local boom as well as any location from 1999 through 2001 before witnessing more difficult times since that brief spurt. In an environment which caused record rent spikes, no Hub asset achieved rates higher than International Place during the boom, with reports of deals approaching the $90-per-square-foot range. The property has always featured a rostrum of top-rated tenants, both homegrown and international. Among them are Merrill Lynch, Barclays Global, PricewaterhouseCoopers and the Ropes & Gray law firm.
“It’s a wonderful building,” said local real estate icon William F. McCall Jr. “It’s certainly one of the finest in Boston.”
At the same time, McCall agreed that the city’s commercial real estate community faces rocky times ahead. A glut of empty space, coupled with anemic employment growth and the prospect of even more job losses from the pending FleetBoston/Bank of America merger does not bode well for landlords, said McCall, especially those contending with hefty mortgage payments.
“Now is a tough time to be making deals,” said the co-founder of McCall & Almy. Meredith & Grew places Boston’s direct office market vacancy rate at 12.3 percent, or at 15.5 percent when sublease space is included. Prior to the real estate crash in mid-2001, Boston’s office market had vacancy rates in the low single digits. International Place has recently lost several longtime tenants to emerging markets such as the Hub’s Seaport District, although new broker Cushman & Wakefield of Massachusetts is said to have nearly 300,000 square feet of lease deals in the works for Chiofaro’s complex.
Should Tishman prevail in its play on International Place, the firm will control a substantial portion of office space on the eastern end of the Financial District. Tishman also has a minority interest in International Place’s abutter, 125 High St. Tishman owns that twin-tower, 1.2 million-square-foot property with Jamestown, a German real estate investor.
O’Brien, a former director of the Boston Redevelopment Authority, has helped Tishman become a familiar name in Boston real estate of late, with the firm most recently angling to purchase several dozen aging office/warehouse buildings in the city’s Fort Point Channel district. That sale recently fell apart, for reasons neither side has revealed.
