Meritage Properties recently paid $37.5 million for the 12-story, 202,000-square-foot 18 Tremont St. in Boston, marking its first foray into the city.
Many people are worried about Boston’s office market. Andrew Nathan is not among them.
“We are long-term, very bullish on Boston,” said the founder of New York-based Meritage Properties, the new owner of 18 Tremont St. “There are some cities in the country that may have their ups and downs but never go away, and that’s where we like to be, and that is how we view [Boston].”
While the 12-story, 202,000-square-foot 18 Tremont St. represents Meritage’s first foray into the city, Nathan is well versed in the Hub’s office scene, having helped Tishman Speyer Properties gain its local foothold in the 1990s through the purchase of 125 High St. After being hit hard by the latest economic slowdown, Boston’s office market has essentially bottomed out, according to Nathan, who also said 18 Tremont St. itself has performed better than other assets, something he attributed to an aggressive leasing campaign by Spaulding & Slye Colliers and hands-on approach by former owners Paradigm Properties and Westbrook Partners.
“We think it is in very good shape,” Nathan said of 18 Tremont St., which underwent an extensive renovation after being acquired by Paradigm and Westbrook in 1999 for $30.9 million. A restored facade, refurbished common areas and upgraded tenant spaces have helped boost occupancy at 18 Tremont St., a 103-year-old building that Nathan said “reflects the best of old and new Boston.” Following its $37.5 million deal to buy the building, Meritage has retained Paradigm as property manager and Spaulding & Slye for leasing duties. Paradigm principal John Caldwell said his firm is “excited” to be continuing its relationship with the asset.
“We really like the building,” he said. “It’s well positioned and in good condition and is a very attractive property that has always leased well.” Another benefit, he said, is the chance to work with Meritage, while Nathan was equally upbeat about the prospects of establishing a relationship with Paradigm. “The experience Paradigm brings to the table, combined with our philosophy as an owner, will allow us to compete for tenants going forward,” he said, stressing that Meritage delivers a Class A level of service, even though 18 Tremont St. is considered a Class B building.
‘Unusual’ Purchase
On the subject of Paradigm and Westbrook’s tenure, Caldwell said he believes the investment worked out favorably for the partnership, which included surviving the loss of its lead tenant to bankruptcy. “We did well on it,’ said Caldwell, whose firm is also about ready to sell its headquarters building at nearby 31 Milk St. and last week closed on the sale of 45 Bromfield St. to a private investor for $3.7 million. The sale of 18 Tremont St. equates to about $187 per square foot. “I think it met everybody’s expectations on both sides,” said Spaulding & Slye Colliers sales specialist Cappy Daume.
Spaulding & Slye Colliers brokered the sale of 18 Tremont St., with the Investment Sales Team of Daume, Michael Smith and Scott Jamieson representing the sellers and procuring the buyer. Daume said she believes the new owners have acquired a building with strong upside going forward. “It’s got the wind at its back at this point,” she said, particularly considering above-average performance for properties in the immediate area around Government Center and Boston’s Downtown Crossing district. Small tenants have been driving the leasing in the area for some time, said Daume, with 18 Tremont St. catering to such users.
As for Meritage, Nathan said his company is looking at other investment opportunities in Greater Boston, with the firm typically trying to acquire multiple assets in any market it is interested in, including Washington, D.C., and New Jersey. The company’s plan, he said, is to pursue multi-tenanted buildings that have traditionally led their market niche. Having been with a firm that concentrated on the upper end of the office market, Nathan said he does believe the added level of service will be welcomed for tenants who are used to more cost-conscious leasing decisions. That should carry over to other investments, he said, of which there could soon be more locally.
“It is unusual for us to buy [just one] property” in a given market, said Nathan, whose firm now has seven buildings in its portfolio following the Boston acquisition. Besides a solid capital backing, Nathan said Meritage offers sellers the opportunity to do business with a buyer who has a tradition of following through on deals and not attempting to re-trade on pricing once negotiations are underway.
The sale of 18 Tremont St. is just the latest transaction brokered this year by Spaulding & Slye Colliers, with the firm also recently trading 2 Liberty Square on behalf of an Atlanta investment group and two Cambridge office buildings for nearly $120 million. In addition, the firm has just been retained to sell 40 Broad St. in Boston’s Financial District. That 11-story, 282,000-square-foot building is currently owned by Prudential Real Estate Investors. According to Smith, the hulking structure could be attractive for conversion to hotel or residential space, or could remain as an office building. “It has a lot of possibilities,” he said. The building was purchased by TMW Real Estate Investors in 2000 for $63.8 million. TMW was recently acquired by Prudential.
Joe Clements may be reached at jclements@thewarrengroup.com.
