Wellsford/Whitehall Properties is being supplanted by Rockpoint Group as co-owner of several suburban Boston properties, including the Stony Brook Office Park in Waltham, which reportedly total nearly 900,000 square feet.
In what might be termed a New York minute, one Big Apple investment group has replaced another as capital partner of the struggling Stony Brook Office Park in Waltham and several suburban Boston assets held jointly with the Saracen Cos. of Newton. Wellsford/Whitehall Properties is being supplanted by Rockpoint Group as co-owner of the assets, which reportedly total nearly 900,000 square feet.
The Rockpoint Group is an offshoot of New York-based Westbrook Partners. Launched last year by five managing members of Westbrook, the new fund was created with an eye toward a wide spectrum of assets, including office buildings located in what the company describes as “moderately distressed” markets.
“They are going to be a force,” predicted Cushman & Wakefield of Massachusetts Executive Director Mark Winters, whose firm has reportedly been retained to market at least one of the buildings in the shared portfolio, 7-57 Wells Ave. in Newton. Beyond praising both ownership groups, Winters referred additional questions to Saracen principal Kurt W. “Ted” Saraceno, who did not respond to phone calls by press deadline. Rockpoint Group principal John Stonestreet acknowledged that “there is a transaction that has taken place,” but also deferred to Saraceno for specific details.
Move Seen as Boon
The departure by Wellsford/Whitehall represents the latest maneuver by New York financial backer Goldman Sachs & Co. to extricate itself from the Massachusetts office market, one particularly hard hit by the economic slump that has enveloped the region for the past three years. Among other steps, Goldman Sachs real estate vehicle Archon Atlantic returned a North Reading building back to its lender last autumn, then helped stabilize two Billerica assets this spring prior to selling those properties.
As for Stony Brook, Wellsford had become involved in 1998 when it acquired 1 million square feet of space in 13 buildings owned along Boston’s Route 128 corridor by Saracen, which was then issued $27 million of “operating partnership units.” Wellsford also agreed to assume $69 million of existing debt and borrowed $35 million to complete the acquisition. At the time, the portfolio was 99 percent leased, but the subsequent woes of the commercial real estate market dealt a difficult hand for landlords throughout the region. By Wellsford’s estimates, Saracen had a 7.45 percent equity stake in the partnership.
It is unclear how many of the original buildings have been taken over by Rockpoint, with some having already changed hands through separate investment sales. Wellsford/Whitehall did detail in its recent second-quarter report a plan to hand over six Massachusetts properties to a new entity that appears to involve Saracen. The properties, according to the report, were subject to a mortgage debt of $64.2 million, along with related restricted cash balances aggregating $6.42 million. The report also seemed to confirm recent rumors that Wellsford was behind on its securitized loan to Nomura, with the firm acknowledging that Wellsford/Whitehall had not paid its monthly debt service on the note since March. The report also seemed to indicate that its transfer to Rockpoint/Saracen would result in a loss of $5 million for Wellsford/Whitehall.
Observers familiar with the move said they believe it will prove a boon for the affected properties, with the heavy debt reportedly having had a negative impact on the leasing activity, particularly for the 270,000-square-foot Stony Brook campus that has been essentially empty for nearly two years. According to one source, a plan to lease the bulk of the three-building complex to Pearson Education fell apart several months ago when Goldman nixed the lease because the rental rate was deemed too low to support the debt. The tenant ultimately opted to move into downtown Boston.
“The adjustments are being made,” one source said of the process of moving properties that investors overpaid for in the frenzy of the late 1990s and through the start of the new millennium. The source predicted that Rockpoint and Saracen will fare well, particularly in what appears to be an improving economic climate.
According to midyear figures released by Lincoln Property Group Director of Research Emily Schwartz, suburban Boston’s direct vacancy rate has dropped to 18.8 percent, down from 20.3 percent in the first quarter. The suburbs have seen an impressive 1.8 million square feet of space absorbed thus far in 2004, Lincoln estimates, offering further evidence of a sustained rebound. “There has been a slow, steady tickdown” of vacancy rates, concurred Winters, who said he is encouraged by the pace of leasing, particularly during the normally slow summer months.
“It has been a very busy August,” Winters said. “It’s very unusual.”
As for Rockpoint’s investment, the recapitalized program would also seem to offer hope for the Saracen Cos., which had to relinquish another Waltham building last year to its lender, UBS Warburg. The firm had purchased the former Raytheon Inc. property in 1999 along with a Texas firm, them moved quickly to convert it to a telecommunications facility, but the imploding technology market kept that project from realizing its anticipated potential. Despite those struggles, one broker familiar with Saracen predicted good times ahead for the firm and its new partnership.
“They will make a great team,” said the broker, characterizing the failed iPark project as indicative of the technology meltdown and not the developer’s normal performance. “I know if I was representing a tenant in that market, I’d feel very comfortable bringing them” to a Rockpoint/Saracen building, said the broker.
