Boston-based AEW Capital Management, in partnership with Cathartes Investments, purchased 451 D St. in South Boston in 1997 and sold the property in 2000. AEW has not invested in property in its home city in more than a year.

From a commercial real estate investment perspective, AEW Capital Management feasted on Greater Boston’s recent past, and principal Robert J. Plumb is equally optimistic about the region’s future. It is the present that Plumb has concerns about.

Right now, we’re pretty neutral on Boston, Plumb said last week, adding, It’s hard to underwrite a market that is still going the wrong way.

AEW is just one of several investment entities taking a measured approach toward the Hub for the coming year, even as several opportunity funds and private groups compile new war chests in hopes of finding real estate deals across the nation. Along with AEW, which reportedly is raising $400 million for one fund, other local players said to be raising substantial sums of cash include Beacon Capital Partners and the New Boston Fund.

With the sudden reversal of fortune hammering industry fundamentals in recent months, Boston could have trouble retaining its traditional share of those monies. Office vacancy rates have jumped in virtually all markets throughout Eastern Massachusetts, while a torrent of sublease space from downsizing technology firms caused nearly 10 million square feet of negative absorption in the office market during 2001.

Although he maintains the long-term outlook for the Boston area is solid, Lend Lease Real Estate Investments principal Charles Burd agreed that the recent slide has caused an abrupt halt in investment activity. The big question is, ‘When does the economy turn?’ said Burd. I don’t think anyone has any idea of that yet. Burd said it would be difficult to make a play if an investor is looking to cash in during the next 18 months. I just don’t think you could make the numbers work, he said.

One of Boston’s most prolific buyers in the past few years has been Walton Street Capital, a Chicago opportunity fund whose founders were responsible for development of Copley Place and 116 Huntington Ave. in Boston’s Back Bay district during the 1980s and early 1990s. Because of that knowledge, principal Perry Pinto said last week that his group has a keen interest in the region, as evidenced by the purchase of both One Boston Place and 10/Ten Post Office Square in 2000 and the $213 million acquisition of 99 High St. last year.

Currently, however, Pinto said it is difficult to underwrite office deals in Boston because there has been limited leasing activity. Right now, no one knows where the floor is, said Pinto, with buyers claiming one rent level while sellers remain firm that the actual rates are higher.

Although he sees little chance of making a deal in suburban Boston, Pinto did stress that Walton Street would consider buying in the Financial District if the right tower property came along. But, he said, the bid/ask gap remains so wide that it is unlikely there would be a meeting of the financial minds on a large property in the current environment. That has made the market suddenly bereft of the larger, $40 million-plus opportunities that Walton Street typically prefers.

It has been extremely quiet, Pinto said, noting that the sale of One Federal Street in early 2001 marked the last time a tower traded in the Hub after several years of multiple deals. The massive International Place office complex was put on the block last summer, with New York-based Secured Capital retained to sell the 1.7 million-square-foot complex. Even though the owners were close to a deal at one point, the sales effort was apparently put on hold after the recession hardened and the nation reeled from the Sept. 11 terrorist attacks.

‘Ready to Pounce’
Meredith & Grew Vice President Anthony W. Biette predicts there will be little investment activity locally during the first half, while the rest of the year will depend on whether leasing demand improves. Most property owners are on solid ground in the current market, he said, and low interest rates have made refinancing a viable option as opposed to lowering their expectations in terms of sales prices.

Without the distress, that group is not going to sell, Biette said.

If commercial property does come on the market, it will be well received, Biette said. There’s a lot of money out there, he said. Investors are waiting on the sidelines ready to pounce.

New Boston Fund, for example, reportedly is in the midst of raising $400 million for its sixth investment fund, while Beacon Capital Partners is said to be pursuing a similar path. Calls to both companies were not returned by Banker & Tradesman’s press deadline, but sources insisted the companies are out seeking investors. Although expectations may have to be ratcheted down from the 25 percent to 30 percent returns some funds enjoyed at the peak of the market, Biette said he believes real estate funds will remain attractive to many investors, especially given the solid track record such companies as NBF and Beacon Capital have enjoyed.

The market has made a lot of champions out of people in the past few years … and the quality groups are still going to do well, Biette said.

Plumb concurred that AEW is in a buy mode, although that is not surprising given the company’s stable of investment clients, which run the gamut of pension plans, university endowments and international investors. As a national firm, we are scouring everything, said Plumb.

In partnership with Cathartes Investments, AEW made some of the savvier real estate plays seen in Boston during the past five years, including the purchase and sale of such assets as 451 D St. in South Boston, 185 Devonshire St. in Boston and Innerbelt Road in Somerville. But AEW has not invested locally in more than a year, Plumb noted, adding he is unsure when the company might return to its home base.

Our underwriting is much more conservative, he said. As for product type, AEW is concentrating on multifamily properties and grocery-anchored retail complexes, followed by suburban office and industrial buildings. Although its prime interest would be in central business districts, Plumb said AEW would consider the suburbs as long as a property was secured by long-term leases to strong-credit tenants.

Lend Lease, meanwhile, is more focused on the right opportunity vs. identifying a particular asset class, Burd said. Lend Lease will continue to pursue deals in all so-called 24/7 cities, although Burd added the bid/ask gap appears to be a national phenomenon, and Lend Lease is remaining firm in its projections.

We are actively looking and in discussions on several different transactions, he said. But there is still a gap between what the sellers want and what we are willing to pay.