Lincoln Property Co. is planning to sell 10 and 24 School St. in downtown Boston, much of which is leased by Borders Books & Music. Some experts believe the building will fetch a price of more than $25 million.
Jumping into Boston’s hyperactive commercial real estate investment market from both sides, Lincoln Property Co. is selling one downtown asset and acquiring another, with sources maintaining that the firm has put 10 and 24 School St. on the block while simultaneously agreeing to buy Ten/10 Post Office Square, a 440,000-square-foot office building that has been the focus of a charged bidding war for much of 2005.
Efforts to contact Lincoln Property Co. officials by press deadline were unsuccessful, but Cushman & Wakefield of Massachusetts President Robert E. Griffin Jr. acceded last week that Ten/10 Post Office Square is under agreement. Griffin, whose firm is marketing the building for the seller, Walton Street Capital, would neither confirm nor deny that Lincoln Property Co. had emerged victorious, or offer any financial details. According to sources, however, Lincoln is teaming up with an Illinois pension fund to buy the 14-story building for close to $110 million. That would equate to approximately $250 per square foot, considered especially impressive for an older office building.
Griffin did say that Ten/10 Post Office Square garnered a number of high-level suitors, even though the property has some leasing risk and is not considered a premier Class A building. After paring the list a few weeks ago, Lincoln and Broadway Real Estate Partners reportedly went to the wire before Lincoln ultimately came out on top. Although he declined to provide names, Griffin did agree that the final contest came down to a pair of evenly matched combatants.
“They were two firms with strong interest in Boston and who were both highly qualified,” said Griffin, who cited Ten/10 Post Office Square’s location in the heart of Boston’s Financial District as a key selling point. “You make money just hanging around that building,” said Griffin. “It’s always going to be right in the middle of everything that’s happening in the city.” Broadway Real Estate Partners is not going away empty-handed, however, with the New York based firm said to be buying the Prospect Hills Office Park in Waltham, another sale being brokered by Cushman & Wakefield. That price is estimated in the $63 million range.
An Upbeat Attitude
As for downtown office buildings, the Hub’s office fundamentals also appear headed in the right direction, said Griffin, especially given the removal of nearly 2 million square feet of Class B office space from the inventory for conversion to other uses, mostly residential. Coupled with higher construction costs that should keep new space from being produced over the near term and the improving prospects for Boston during the remainder of the decade, Griffin said investors seem to have an upbeat attitude. Just last week, for example, ING Clarion acquired 101 Arch St. in Boston for $121 million, or nearly $300 per square foot.
The sale of that 21-story tower, which was actually Lincoln Property Cos.’ signature project in Boston, shows that investors are eager to buy properties below replacement cost, according to industry observers. The Ten/10 Post Office Square sale would certainly fit that pricing level. Owners Walton Street Capital purchased Ten/10 Post Office Square in 2000 for $105 million. The firm earlier this year sold 99 High St., another nearby office building divested in a $275 million deal also brokered by Cushman & Wakefield.
Griffin was unable to provide much information on 10 and 24 School St. except to acknowledge that the Capital Markets Group has indeed been selected as brokers for the development, which is largely leased to Borders Books & Music on a long-term basis. Some sources estimated that the building will trade for more than $25 million, which would be substantially above the $13.5 million paid by Lincoln for the conjoined buildings in 1996. Borders Books has close to 40,000 square feet in a multilevel retailing setting.
“It should do very well,” Griffin said of the property. “It is one of the highest foot-traffic areas in the city.” The buildings are situated in the city’s Downtown Crossing retail district, through which an estimated 100,000 people pour on a daily basis.
Overall, Boston’s investment market appears ready to enjoy one of its strongest years on record as the final month kicks in, with some estimates putting the sales velocity at between $3 billion and $4 billion when 2005 is completed. The interest in local office product seems to be mirroring a trend nationally, with recent investor surveys indicating that office buildings have again become the preferred target among investors. ING Clarion, for example, is said to be especially interested in the office universe, a notion underscored by the 101 Arch St. transaction.
As for Cushman & Wakefield, the company could very well exceed $2 billion in sales in 2005, although Griffin would not hazard a final figure when asked. The firm has already secured what is expected to be the biggest suburban office sale this year following the $272 million purchase of the Bay Colony Corporate Center in Waltham by Beacon Capital Partners, and several other major assets are still working through the company’s pipeline.
