There are some assets investors consider hot, the must-have core properties that have the market buzzing. And there are the properties that are just right, in a good location with solid occupancy rates and reasonable pricing.
But this article isn’t about those.
It’s about the ones that, for lack of a better term, have gone cold.
It happens to the best of owners trying to sell buildings. They see core properties selling for record prices – Boston’s Hancock Tower and 33 Arch St. come to mind – and think, “Hey, my building is in good condition, it’s in a decent market, and there’s strong occupancy. Why can’t the price reflect my lofty expectations?”
But the hard truth is that sometimes it just can’t. And that’s especially true these days, when the majority of investment dollars are being thrown at core assets in Boston and Cambridge.
Take 1432 and 1440 Main St. in Waltham as an example. The two properties, acquired by a joint venture of Crosspoint Assoc. and Charles River Realty Investors, total 126,920 square feet. They had expected a sales price of about $22 million, according to industry insiders. While one investor had agreed to pay about $20 million, in the end, no one would pay more than $18 million, sources told Banker & Tradesman.
The problem with the properties, for at least one potential investor, is the location.
“I’ve looked at those two buildings for a long time,” said Kambiz Shahbazi, president of KS Partners, which has offices in Woburn and New York. “Waltham is a good place to be, but the big issue with those two buildings is access. They were presented to us, and we decided to pass because we heard the pricing expectations and were a bit uncomfortable with the challenges. They’re good, solid buildings, but combined with what we felt was the high expectation of the ownership, coupled with the access problem, it wasn’t the right fit.”
There are a number of other suburban properties that have been taken off the market in recent months because their expected sales prices were too much for investors, including King Street Properties’ 225,000-square-foot, eight-building Bear Hill Business Park, also in Waltham. “There have been some sales in the suburbs, but by and large the most aggressive investment capital is still keenly focused on downtown Boston and Cambridge,” offered Scott Jamieson, managing director at Jones Lang LaSalle.
Big Numbers
But sometimes, even the most stereotypically desirable properties, the core at the core, aren’t spared from the ‘failed to sale’ category.
The most glaring of those is arguably One Lincoln Street in Boston. Cushman & Wakefield had marketed the 36-story State Street Financial Center early last year with an asking price of about $1.15 billion. It is owned by New York-based Fortis Properties, which bought the asset from American Financial Realty Trust for $889 million in early 2007. But several industry executives have called that “just way too high of a price.”
Another more recent deal that fell out of bed was the potential sale of the Boston Herald’s new home, Seaport Center at 70 Fargo St. in South Boston. The owners, a partnership of Boston-based Beal Cos. and Rockpoint Group, had the property under contract with New York firm Rabina Properties for upwards of $115 million, according to industry insiders.
Then, the deal fell apart.
It seems Rabina didn’t want to pay what they had initially offered for the property, which is now about 95 percent leased, according to sources. Is could be speculated that Rabina representatives likely felt they needed to be out ahead of the pack in the bidding process, and so offered top dollar to be Beal’s top pick – as is often the case in the bidding wars over properties.
Beal representatives declined to comment for this article and Rabina did not return calls seeking comment.
“They had it under agreement for a big number, and Rockpoint was pretty darn happy about it, but we thought the number was fairly high,” said one investor who had considered bidding on the property early on in the process.
Another real estate executive familiar with the deal told Banker & Tradesman that the deal’s failure may have to do with assumptions made by the bidder. Rabina’s lender might have decided not to give the investor as much as they had asked for – anecdotally, financiers are conducting more highly detailed reviews of deal proposals as the recessions effects continue to be felt on commercial real estate.
‘Tough Luck’
But deals don’t always fall through because expectations are too high.
In the case of 265 Franklin St., which Clarendon Properties brought to market in the fall, the failure wasn’t because of pricing. It was because Clarendon wanted to retain a 50 percent stake in the property, and investors weren’t willing to accept that from the Irish owner, which has close ties to Anglo-Irish Bank, industry insiders told Banker & Tradesman.
Sometimes bidders simply aren’t willing to face the fact that an area is so hot – with elevated leasing activity or increased development and job growth, like the Seaport – that it’s often better for the owner to thumb their nose at bidders, take the property off the market to wait for a higher price, and say, essentially ‘tough luck.’
“There is a divide that still persists between the outlook of owners and where capital wants to come in,” Shahbazi said. “If I own the [70Fargo St.] building, I’m looking at that landscape and potential future development coming that way, and I’d also be bullish about the outlook. But a buyer coming in looking at the yields still wants to be compensated for the tough times we all just went through. You have challenges in certain listings, and unless that gap narrows, you won’t have transactions. If I were the [Beal Cos.], I would continue to ride the progress the whole Seaport area will see in the long-term, and I’d wait it out, too.”
It is unclear if Beal will attempt to procure another buyer for the 293,000-square-foot building, at least in the near-term.
