Paradigm Properties recently sold its headquarters building at 31 Milk St. in Boston to Everest Partners, but the firm’s pending acquisition of an office building in Watertown indicates it is not withdrawing from the Greater Boston market.
The growing recognition of Watertown as a commercial real estate market is continuing with the pending acquisition of a multi-tenanted office building on Walnut Street. Paradigm Properties LLC of Boston reportedly will pay about $21 million for 101 Walnut St., a 98,000-square-foot property just outside Watertown Square.
Paradigm President Kevin McCall declined comment on the matter when contacted Friday, while the current owners, VHBMA LLC of Los Angeles, were unavailable to discuss the transaction. A closing is anticipated sometime in November, although an exact date was not determined. Owners of commercial buildings in several communities in the Greater Boston area, Paradigm will apparently be making its initial foray into Watertown with the purchase of 101 Walnut St.
The pending deal suggests that the recent sell-off of various Paradigm Properties buildings does not signal an exit from the region. After divesting 18 Tremont St. in Boston for $37 million this spring, Paradigm recently sold its headquarters building at 31 Milk St. in the Hub to Everest Partners, and supposedly is pursuing the sale of its 313 Washington St. in Newton Corner as well.
Common Occurrence
Company officials did not offer any details regarding the Newton transaction, but sources maintained last week that a buyer may already be on board for that 85,000-square-foot building, which Paradigm acquired in May 1999.
Another issue surrounding the Walnut Street deal is whether Paradigm would consider pursuing a so-called “tenant-in-common” (TIC) ownership structure. While Paradigm offers more traditional ownership models in its portfolio, the firm also has embraced the TIC concept, in which individual investors are allowed to put proceeds from a prior real estate sale into joint ownership of a given asset. The process enables buyers to take advantage of lower capital gains taxes through the 1031 Exchange provision in the Internal Revenue Service code.
In a previous Banker & Tradesman article, Paradigm principal Stephen Allison said an affiliate, Ashforth Paradigm Capital Advisors, would seek to acquire as much as $200 million worth of real estate annually with TIC capital. APCA is credited with making one of the first TIC investments in the region, buying 212 Elm St. in Somerville last year.
Even with that expertise in TICs, one source claimed last week that Paradigm is buying 101 Walnut St. as part of its own 1031 Exchange following the sale of 31 Milk St. for $18.7 million. The timing would certainly comply with regulations that mandate the purchase of the second asset be done within a prescribed time period. “I think that’s the [reason]” 101 Walnut St. is being purchased, the source maintained, although that notion could not be confirmed.
At the same time, the source also maintained that 101 Walnut St. makes for a solid investment in its own right, particularly given such well-known tenants as Vanasse Hangen Brustlin Inc., a leading engineering and transportation planning company whose parent company owns the property. The building is also just a few blocks away from the Arsenal on the Charles, a 700,000-square-foot retail/office complex owned by Harvard University. The renovation of a former Army installation into the upscale commercial development helped put Watertown on the map in the late 1990s, with other investors flocking into the market in recent years.
After being shunned during the worst years of the recent millennium, suburban Boston’s office market does appear to be enjoying a solid resurgence of investment interest for local properties, particularly those sporting a measure of stability. In its recent third quarter market overview, Lincoln Property Co. cited a Property & Portfolio Research study showing Greater Boston as one of just six markets nationally in which the average sales price of an office building exceeded 100 percent of the replacement cost. If the $21 million figure is accurate for 101 Walnut St., the asset would trade for just over $215 per square foot.
