Cathartes Investments had been pursuing the purchase of 160 North Washington St. in Boston for months before withdrawing from the negotiation process.

Proving light on its feet on both ends of the spectrum, Cathartes Investments has pulled out of plans to acquire 160 North Washington St. in Boston’s North Station district, industry sources told Banker & Tradesman last week. The company had been negotiating for several months with the building’s current owners, the Hoffman family, but that effort has reportedly ended without an agreement.

Calls to Cathartes and Hoffman were not returned by B&T’s press deadline, but one source following the deal insisted discussions have ceased and the property is again on the market. “They are gone from it,” the source said of Cathartes. Redevelopment challenges for the 91-year-old structure may have been too much for the Boston-based investment group to stomach, the source speculated, noting the age and condition of the hulking structure.

“It’s a tough building to tackle,” said the source. Adding to the complexity would be the need to work with an unusually high number of state and city agencies. Located at the confluence of the Charles River and Boston Harbor, 160 North Washington St. is subject to the state’s stringent Chapter 91 regulations which govern waterfront development, for example, while the Metropolitan District Commission and the Massachusetts Turnpike Authority would also have a voice in the renovation, according to the source.

Another investment specialist familiar with Cathartes said the company’s real estate strategy may have ultimately clashed with the project’s timetable as well. Since its inception in 1992, Cathartes has employed a shorter-term approach than traditional players, one aiming to secure quick upside through value creation and hitting a market at the right time. With substantial backing from AEW Capital Management, Cathartes is normally looking for an exit strategy that will quickly yield rates of return in the 20 percent to 25 percent range, said the investment specialist.

Explaining that “the deal has to fit the capital source,” the broker said there is a good chance AEW pulled the plug when it appeared a relationship with a potential tenant was not going to materialize. Sources had placed the likely selling price in the low $30 million range.

Heretofore, Cathartes has seemingly used the “buy low, sell high” mantra as well as anyone. In August 1998, for example, the company flipped the Boott Mills mixed-use complex in Lowell for $6 million exactly one year after purchasing the 700,000-square-foot development for $3.5 million. After buying 44 Stillings St. in Boston for $4.2 million in September 1997, Cathartes rehabbed and sold the facility for an amazing $15.3 million in November 1998. Similarly, it traded 225 Friend St. in North Station for $8.1 million in January 1999, nearly double the $4.2 million it paid for the Hub office building 14 months earlier.

One of the company’s best moves occurred last summer when it sold a permitted telecommunications project in Somerville for $24 million to TrizecHahn. A sudden slowdown in demand for such facilities just a few months later has put construction of that space on hold.

Brutal Reality
Cathartes is now taking a similar approach in South Boston, where it won hard-fought approval last September for a 710-unit residential project. Almost as quickly as it got the city’s blessing, Cathartes placed the upscale development on the market, hoping to reap solid gains from one of several national players currently scouring the Hub for multifamily opportunities. With CB Richard Ellis/Whittier Partners retained to sell the project, the development is reportedly already attracting widespread interest, and is expected to move through the pipeline quickly.

CB/Whitter broker Simon Butler declined comment on the matter, but other observers said they believe it is a prudent strategy. One source noted that Cathartes has traditionally focused on office development, while investment broker James Belli of Cushman & Wakefield said the approved site should fetch a solid return with relatively little risk.

“There is significant value in that site,” said Belli. “You don’t just march into the city and pull a building permit for 700 units.”

Trammell Crow broker John Boyle concurred with that outlook, especially given the supply limits of terra firma in the Bay State.

“There is a scarcity of land – that is the brutal reality of the Greater Boston market,” said Boyle. “And few states have the political hurdles that this one has.”

That situation may have been one reason Boston Properties was willing to shell out $13 million last month to acquire development rights for 77 Fourth Ave. in Waltham. Previously controlled by the Nelson Cos., the development calls for 200,000 square feet of Class A space overlooking Route 128. Boyle said having permits in place was also a key reason in last year’s acquisition of the Littleton Corporate Center in Littleton by Cisco Systems. The high-tech company did not want to get bogged down in a permitting quagmire, said Boyle, leading it to the Littleton deal, which will eventually yield 650,000 square feet of space.

Another factor, according to CB/Whitter principal Gary W. Lemire, is the nature of the current capital markets. With upwards of 40 percent equity needed to do a project, Lemire said many developers are finding it increasingly harder to bring a project from the drawing boards to the groundbreaking.

“It’s a sign of what has happened to the real estate industry,” Lemire said. “You no longer have banks willing to lend based on relationships, and that has limited the field of who can do a development to a very few firms who are well-capitalized.”

Calls to Nelson Cos. officials were not returned, but some sources said they believed the upside provided by Boston Properties was generous enough to warrant the disposition of the site, especially in a questionable economic climate.

“If you get a good price for the land, [selling it] is obviously a lot quicker and a lot cleaner,” said Boyle.

That was precisely the reason Frank King Assoc. sold its interest in the 33 Arch St. mixed-use development now being built in Boston by a local partnership that includes developer Dean Stratouly and Atlantic Retail Properties. In an interview from his New York City office last week, King principal Peter Krulewitch said his firm was approached by the partnership after King hired Trammell Crow to assess the value of the permitted site, which is located in the heart of the Hub’s Downtown Crossing district. The $215 million project includes 31 stories of office and retail space.

“We got an offer we felt was pretty good and we decided to take it,” said Krulewitch, who said his firm would have pushed ahead with the project had that bid not been made. Although he declined to discuss specifics, Suffolk County Registry of Deeds records indicate that Kingston bought the property in the 1980s for approximately $15 million and sold it for $60 million.

“We did very well on it,” was all Krulewitch would say on the pricing. He did acknowledge that the difficulties of developing from afar also played a role, but said Boston’s onerous approval process would not deter his company from looking at the city down the road.

“If I could find another site in Boston for the right price, I’d buy it in a minute,” he said.

North Station Site Sees Negotiations Head South

by Banker & Tradesman time to read: 5 min