The Massachusetts Housing Finance Agency has extended its 121,000-square-foot lease at Boston’s One Beacon St. through 2015.
It is an entity that promotes affordable housing, but the Massachusetts Housing Finance Agency has provided a shot in the arm on the commercial real estate side as well, at least for the ownership of Boston’s One Beacon St.
In a deal that could help position the 34-story office tower for a sale, the MHFA has renegotiated its lease at One Beacon St., extending the agreement from a 2005 expiration out to 2015. “That is true,” MHFA spokesman Eric Gedstad told Banker & Tradesman last week, adding that the agency will continue to lease the same amount of space at One Beacon St., where it occupies about 121,000 square feet. The agency has occupied floors 26 through 29 since relocating to the tower in 1995.
Besides avoiding the headaches accompanied with moving from its current headquarters, Gedstad said the MHFA weighed the building’s strong location near several public transit options, offering a critical element for its estimated 300 employees. One Beacon St.’s proximity to the Massachusetts State House a few blocks away is another plus, Gedstad added, while the tower also allows MHFA to keep in touch with its “sister agency,” the state’s Department of Housing and Community Development, which is located nearby on Congress Street.
MHFA also reportedly benefited from a motivated landlord, with some sources claiming that an agreement to sell the tower earlier this year collapsed partly due to the uncertainty of the agency’s future in the tower. With rental rates continuing to drop throughout Greater Boston, investors are more interested in acquiring stabilized assets backed by strong-credit tenants than they are in properties with rental rosters rolling over in the near term. Whether the MHFA status at One Beacon St. was a true factor in the deal’s demise is unclear, with broker Cushman & Wakefield not returning calls to discuss the matter by press deadline. Regardless, the signing of the extension should certainly improve One Beacon St.’s marketability to investors.
After the previous sale to New York-based Broadway Partners cratered, owners Prudential Real Estate Investors and Westbrook Partners LLC temporarily took One Beacon St. off the market completely. According to one industry source, the culmination of the MHFA negotiations could result in the tower being offered up for sale once again, while some sources maintained that it already is being shopped to potential investors. The owners initially had been seeking as much as $335 million for the tower.
Tenants’ Time
As for the MHFA, Gedstad estimated that the rental rate averages out to about $40 per square foot. Even with more than two years left on the lease, Gedstad said it made sense to work out an extension now because landlords are increasingly amenable to retain tenants. “We felt the market was fairly advantageous from the rent side,” he said, adding, “It just seemed like the right time for us to begin the negotiations, and we do feel like we secured a very good deal.” Gedstad also praised the MHFA’s broker, Ronald Perry of Meredith & Grew, for playing a key role in the favorable outcome. Efforts to contact Perry by Banker & Tradesman’s press deadline were unsuccessful, while officials at CB Richard Ellis/Whittier Partners did not return phone calls to discuss their role in brokering the lease on behalf of the landlord.
Unlike other state operations, the MHFA is not required to rely on the Massachusetts Division of Capital Asset Management to handle its real estate requirements. As a quasi-state agency, MHFA’s lease was approved by its nine-member board of directors, Gedstad explained.
Whatever the process, the MHFA lease offered a glimmer of hope both for the 1.1 million-square-foot One Beacon St. and the downtown Boston office market in general. The building has been reeling ever since major tenant Palmer & Dodge opted to move to the new 111 Huntington Ave. in the Back Bay district, but the ownership has responded with a renovation of the 30-year-old tower and a willingness to get leases signed.
Whether renewals or new companies coming into a building, significant leases have been a rarity for Boston office landlords during the past year. The core legal and financial communities of the city’s Financial District have both been retrenching as a result of the lingering economic downturn that has gripped New England since the end of 2000. Among the handful of top leases for the year were the Mellon Financial deal at One Boston Place, which exceeded more than 100,000 square feet, while Loomis Sayles & Co. re-upped at One Financial Center for nearly 150,000 square feet. John Hancock Funds also opted to remain at 101 Huntington Ave. in the Back Bay, signing a 150,000-square-foot renewal in that building, which is owned by Boston Properties.
Even with those successes, Boston nonetheless suffered its second straight year of negative absorption in the office sector, a repeat that some observers maintain is unprecedented for the downtown office market. According to CB/Whittier, Boston posted negative net absorption of 1.12 million square feet in 2002, including negative net absorption of 907,000 square feet in the Financial District. Impacting those numbers was the relocation of Foley Hoag from downtown to the evolving Seaport District this summer, with the firm moving into the newest building at the World Trade Center.
