116 Huntington Ave., Boston

Risky business, it was not.

Sales of commercial real estate properties may have been unexpectedly high in 2002 considering the market’s lingering woes, but a closer look indicates that activity was decidedly tipped towards stability and income-producing assets, with investors shunning product types and opportunities sporting any troubling question marks.

“There’s a lot of capital, but its nervous about making the wrong decision,” said Insignia/ESG investment specialist Lisa J. Campoli. “Buyers want it just right.”

Boston certainly saw its share of blockbuster deals in 2002, led by the $500 million purchase of the Flatley Co.’s New England apartment complex, opening up the region overnight to Denver-based Apartment Investment & Management Co. The mid-summer coup by AIMCO not only spotlighted Flatley’s unmatched acumen for real estate, it also underscored investor appetite for multifamily product, with several significant apartment sales made during the year. Longwood Towers in Brookline fetched $80.1 million, for example, or nearly $300,000 per unit.

Several prime Boston office properties also changed hands last year, including the $267 million sale of One Boston Place and an $89 million play for 101 Arch St. by CB Richard Ellis Investors. Meanwhile, an Australian investment group paid more than $400 per square foot for the Hub’s 50 Milk St. office tower, a lofty price fueled largely by a long-term lease to a credit tenant which occupies most of the space.

On the flip side, buildings with substantial vacancy or rent rollover in the near term were not as warmly greeted last year, as witnessed by the collapse of a sale of One Beacon St. because of concerns that a lead tenant’s lease would be up in a few years. Such trepidation has made due diligence a protracted process, with investors scoping out every potential foundation crack and financial flaw in a building prior to making a commitment. As a result, efforts to reprice deals were up substantially in 2002, according to Cushman & Wakefield New England President Robert E. Griffin Jr., often leading to the sale collapsing if the buyers proved too demanding or the sellers too inflexible.

Indeed, one of the enduring stories of 2002 was the so-called bid/ask gap that kept commercial real estate sales volume well below where it has been in recent years. Better positioned than in the real estate crash of the early 1990s, and also offered the refinancing option given the record low interest rates, property owners refused to budge on asking prices even as buyers demanded a discount to reflect deteriorating market fundamentals, particularly in the office sector.

“By the end of 2002, the bid/ask gap had dropped substantially, and that’s what we were waiting for,” said Rosalind Gorin, whose H.N. Gorin Co. wrapped up a last-minute acquisition with the purchase of 955 Massachusetts Ave. in Cambridge. The Boston-based real estate firm paid $22.5 million for the 93,000-square-foot building, which is located between Harvard and Central Squares.

Gorin said her firm had pursued several potential deals in the region last year, but felt the numbers did not work. “We buy when we see an opportunity to create value and a good return for our investors,” said Gorin, explaining the 955 Massachusetts Ave. transaction fit those criteria. While normally interested in larger assets, Gorin said she was impressed not only by the building’s design and its stewardship under the former ownership of Paradigm Properties and the Carlyle Group, but also a rent roster of stable, academia-based tenants that should provide a solid income stream.

“We think there’s nothing like buying good real estate in a great location during a bad market,” added Gorin, whose company also owns One Bowdoin Square and 101 Merrimac St. in Boston.

Another homegrown investment firm which made a strategic purchase in 2002 is the New Boston Fund, which paid $68 million for 116 Huntington Ave. in Boston’s Back Bay district. The purchase of the 14-story tower was made in a partnership of two NBF investment vehicles, Fund V and the recently formed Fund VI. According to NBF President Jerome Rappaport Jr., the sale offered a chance to buy a fairly new office tower in an improving section of town, and to do so substantially below replacement cost. By some estimates, it would cost between $350 and $400 to replicate 116 Huntington Ave. today, while NBF paid just $253 per square foot.

While acknowledging that Greater Boston has seen its share of problems since the economy peaked in mid-2000, Rappaport argued that the office market is not as decimated as it may appear, at least for Class A space. In addition, 116 Huntington Ave. has strong internal numbers, with 94 percent occupancy and a lease with lead tenant IDX Corp. that runs until 2012.

“This is a nice, steady cash-flowing investment in an improving neighborhood,” said Rappaport. Designed by Childs Bertman Tseckares, the distinctive building is considered a core asset for NBF, said Rappaport. NBF is aiming for a mix of risk and property type in the $350 million Fund VI, which is already 20 percent committed and should be half-invested by the end of the first quarter, according to Rappaport. Along with more warehouse and distribution facilities, Fund VI will also pursue a higher residential mix and more development deals than previous funds, with 116 Huntington Ave. providing a healthy balance.

The Boston deal was also made possible by a realistic seller and a solid presentation by its broker, Trammell Crow Co., said Rappaport. “Trammell Crow did a very good job of providing accurate and thorough information,” said Rappaport, adding he believes the seller was confident in NBF’s ability to close the deal in a quick time frame.

The 116 Huntington Ave. sale was definitely a boost for Trammell Crow, which had to rebuild its investment sales team from scratch after Griffin and his group departed in the fall of 2001 for Cushman & Wakefield. And while Griffin’s team was again the market leader in investment sales volume again in 2002, with an estimated $650 million traded, Trammell Crow did make a solid comeback with the addition of such professionals as James McCaffrey and Peter Joseph.

Along with the plum 116 Huntington Ave. assignment, Trammell Crow brokered the 955 Massachusetts Ave. sale to Gorin. The firm also negotiated the purchase of the Lake Williams Corporate Center in Marlborough by Great Point Investors, and ended the year by securing a buyer for the Westborough Office Park in Westborough, with a real estate investment fund said to be paying $60 million for the four-building complex.

McCaffrey’s former firm, Meredith & Grew, also had an impressive year in brokering sales, including the landmark Flatley portfolio sale and David J. Pergola Sr.’s successful negotiations at the Gardencrest, a 696-unit apartment complex in Waltham. Even in the face of falling apartment rents and increasing vacancies, Gardencrest ultimately traded for a healthy $85 million, a number many believed was unattainable.

Other independent Boston real estate firms also made their mark on the investment front in 2002, with Spaulding & Slye Colliers’ Capital Markets Group brokering the purchase of One Boston Place by Teachers Insurance and Annuity Association. The $267 million transaction proved to be the largest single-asset sale in Boston in 2002, with Spaulding & Slye principals Jeffrey B. Swartz, Michael G. Smith and Senior Vice President Cappy F. Daume leading the negotiations. “There are only 23 office towers in the entire city over 25 stories,” noted Swartz. “There just aren’t that many opportunities to buy a first-class office tower in Boston Â… The buyer acquired an outstanding asset.”

Another major sale was brokered by GVA Thompson Doyle Hennessey & Stevens, which oversaw the acquisition of 501 Boylston St. in Boston’s Back Bay to Beacon Capital Partners. The deal, estimated at $130 million, was handled by John Hennessey and Donald Hause. Beacon Capital acquired the 10-story building from Metropolitan Life Insurance Co., with plans to convert it to a multi-tenanted office property.

As for Cushman & Wakefield, Griffin estimated that activity was off by about 35 percent from what his team has traditionally brokered, with the firm topping $1 billion for the past several years. Nonetheless, Griffin described 2002 as “a decent year” for investment sales, with his own group retained for a number of high-profile assignments. “We had a good year, relatively speaking,” said Griffin, with Cushman & Wakefield brokering such Boston deals as 101 Arch St., the $82.2 million sale of 470 Atlantic Ave. (in conjunction with Holliday Fenoglio Fowler) and Lafayette Corporate Center, a 607,000-square-foot office/retail facility acquired by the Abbey Group for $133.5 million.

Cushman & Wakefield also completed a major multifamily sale, in which Teachers Insurance and Annuity Association paid $80.2 million for the Longwood Towers to AvalonBay Communities. While nowhere near as large as the Flatley deal, Longwood Towers sold at more than double the per-unit price in the AIMCO transaction, which amounted to just over $115,000 per unit. As with buying well-leased office properties, multifamily’s relative stability was a key reason investors flocked to that asset class, Campoli said.

The biggest challenge for multifamily is finding suitable product for investors, said Campoli, whose group has been active selling apartments in other markets for Lend Lease Real Estate Investments. Boston has a lack of institutional-grade assets, she said, keeping the deal volume depressed. Other sales of note last year include SSR Realty Advisors’ $31.8 million purchase of Mill Village in Randolph, the Nordblom Co.’s disposition of the Park Place Apartments in Malden and the $8.3 million sale of Wood’s Edge in Attleboro to the Mount Vernon Co.

CB Richard Ellis/Whittier Partners brokered the sale of Mill Village and Wood’s Edge, with Simon Butler overseeing those deals. The 311-unit Randolph property had been owned by Equity Residential Trust, which purchased the complex in 1998 for $19.2 million.

Far less desirable than multifamily was suburban office product, with CB/Whittier principal Gary J. Lemire estimating that the pace of sales activity was down by about 30 percent outside of downtown Boston. Notable exceptions included the sale of the Raytheon headquarters in Lexington, a complicated transaction brokered by Steve Murphy of Insignia/ESG. The 95-acre complex was acquired by a joint venture partnership which plans to convert the property into multi-tenanted commercial space.

Other suburban sales included the $27.5 million purchase of 55 Fairbanks Blvd. in Marlborough, a value-added play by local investors Ian Gillespie and Denison Hall. The purchase last summer at well below replacement cost demonstrated long-term faith in the MetroWest market, and was followed by the sale of the 3Com corporate campus in Marlborough to Berwind Property Group of Pennsylvania. In that deal, the largest suburban office deal of the year, Kevin P. Malloy of Lincoln Property Group represented the buyer. Cushman and Wakefield represented the seller, 3Com Corp.

One sale that helped sum up the suburban market involved Insignia/ESG’s brokerage of 80 and 90 Central St. in Boxborough, a pair of nearly identical office properties previously owned by Koll Bren Schreiber. Fully leased to a solid tenant, 90 Central St. sold for $35 million, or about $200 per square foot, while 80 Central St. went for $13.1 million, or about $86 per square foot. Insignia/ESG initially tried to trade both buildings as a package, but Campoli said the buyer profile proved too specific. Whereas Wells was looking for a solid asset, Lend Lease Real Estate Investments was willing to take a risk at repositioning 80 Central St., albeit at a steep discount.

“Some people don’t want a lot of long-term risk,” said Campoli, making it critical for brokers to identify investor needs early on in the commercial property sales process.

Among the property types which saw virtually zero activity in 2002 were hotels, telecommunications facilities and undeveloped land. Warehouse and distribution buildings were near the top of investor wish lists, but Boston saw relatively little activity in that area because the opportunities are limited, especially for investment-grade product. Retail proved to be popular among investors in 2002, led by the sale of the Konover retail portfolio throughout New England, including four assets in Massachusetts. Other than that 36-property deal, portfolio sales of retail assets were not prevalent in 2002, according to retail investment specialist James Koury of Spaulding & Slye Colliers.