Developers last year rushed to renovate some of the Hub’s aging properties into modern office, as was the case with 470 Atlantic Ave. in the Seaport District.
It is the computer crash that no one foresaw. The potential Y2K crisis that had the nation on edge at the start of the 2000 proved little more than a tempest in a teapot, but it increasingly appears that the flagging fiscal health of the high-tech industry could create a more lasting difficulty in the coming months.
Certainly there appears to be uncertainty in the commercial real estate arena, with dot-com start-ups, telecommunications providers and other self-described New Age technology companies leading the charge early on, but then retrenching at an alarming rate more recently. The Codman Co., for example, estimates that more than 200,000 square feet of subleasing space has surfaced in Boston during the past few months, with new opportunities being added on a daily basis.
“The market has definitely cooled down in the fourth quarter as a result of the [stock market] meltdown,” acknowledged Codman principal Ted Wheatley, quipping that “the proof of that is in the number of foosball tables up for sale.”
While the downtown Boston leasing broker delivered the latter comment with tongue firmly in cheek, in some respects Wheatley could be right on track with his assessment. Flush with cash from wide-eyed venture capital firms and successful public offerings, high-tech companies went on a spending spree for much of 2000, investing not only in kitschy furnishings to attract employees, but also scooping up office space with little regard to whether they actually needed it all or what rental rate it was commanding.
The result of what some might term “irrational exuberence” was a record run-up in rents the likes of which even veteran brokers had never before seen. In 2000, Equity Office Properties brazenly advertised space at One Post Office Square for $100 per square foot even though the Class A average was barely half that at the beginning of the year. Similar trends were found in Cambridge and suburban communities, with demand so strong that landlords began holding auctions for available quarters.
Although most agree that the $100 plateau is safe for the moment, achieved deals were reported in the mid- to high $80 per-square-foot level in downtown Boston, and up to $70 per square foot in Waltham.
Several office projects finally got underway in 2000 after overcoming a skittish lending community. In the Back Bay, a cadre of local developers including the Sullivan Cos. and Ed Fish began construction on the 367,000-square-foot 131 Dartmouth St., while the 17-story, 525,000-square-foot World Trade Center West office tower broke ground in South Boston. Also in South Boston, Hunneman is well underway with 303 Congress St., a 70,000-square-foot building that will replace a similar structure that collapsed into Fort Point Channel in 1995.
Along with the continued overhaul of numerous Fort Point Channel warehouses into brick-and-beam space, Modern Continental Enterprises moved forward with 470 Atlantic Ave., aka Independence Wharf. Located at the gateway to the city’s burgeoning Seaport District, the 14-story, 335,000-square-foot building is slated to open later this summer, with rents anticipated into the $50 per-square-foot range.
In North Station, the Intercontinental Cos. took over Kenmore Realty’s plan to rehab the former Stop & Shop bakery, and has repositioned the project to include 200,000 square feet of office space on the bottom six floors, plus the addition of six floors of residential units. Kenmore, which had struggled to get its venture off the ground, had planned an all-residential use for the hulking structure.
Luxury Living
The multifamily market, meanwhile, continued to prosper in 2000, with several national players rushing in to take advantage of the region’s tight residential sector. AvalonBay Communities remained active, beginning 2000 with a long-fought victory to redevelop the former Hall Estate in Hull into 162 units of upscale residential housing. In Marlborough, Texas-based JPI broke ground on a $30 million apartment community, and neared completion on a 240-unit complex in North Andover. JPI is now pursuing other projects in Woburn and Salem.
A plethora of high-end residential projects are at various stages of completion. Millennium Partners made significant strides in construction of its residential/hotel complex near Boston Common, while the luxury 104-unit Trinity Place condo tower in the Back Bay opened to rave reviews and strong pre-selling. Developer Ronald M. Druker finally cleared the way for his 99-unit Residences at the Colonnade on Huntington Avenue, while Charles E. Smith Residential Properties struck an agreement with Boston landlord W. Kevin Fitzgerald to transform a key block near Chinatown into luxury apartments.
The hotel sector was not quite as productive in 2000, however. Even the hotel planned alongside the new Boston Convention Center struggled to find financial backing. Starwood Enterprises, designated developers for the $270 million convention center hotel, had such a difficult time that it almost lost its position before trimming back the scope of the 1,120-room facility.
On the investment front, the big focus in 2000 was on office properties, although many brokers said multifamily would have led the way had there been adequate product available. Among the big towers to change hands over the past 12 months was the Riverfront Office Park in Cambridge, purchased by Hines Interests and a California pension fund for $213 million. Capital Properties paid $68 million for 215 First St. in Cambridge, while the year ended with Beacon Capital Partners trying to strike a deal to sell One Kendall Square to a partnership including JE Robert Co. and Lincoln Property Co.
In Boston, several towers found new owners, with Blackstone Real Estate Advisors and Walton Street Capital buying One Boston Place for $188 million, followed by Walton’s $108 million purchase of 10/Ten Post Office Square, located just around the corner from the 41-story, 770,000-square-foot One Boston Place. Boston Capital paid $68 million for 99 High St., while a partnership of Paradigm Properties and the Carlyle Group acquired 99 Summer St. for $66 million.
In the suburbs, New Boston Fund remained active, buying up Watermill Center in Waltham and 33 Boston Post Road in Marlborough. The Davis Cos. was another active local investor, purchasing several properties in the suburbs and downtown Boston, including the 230,000-square-foot Charles River Plaza near the Hub’s Government Center. Davis paid $76.2 million for that retail/office complex. Local private investment groups remained among the most active buyers of commercial real estate in 2000, although pension funds led the way for properties in deals exceeding $100 million.
On the retail end, Spaulding & Slye Colliers brokered the sale of 19 New England shopping centers for $177 million. The retail market was dealt a blow this autumn, however, when a planned Ikea superstore slated for Somerville was shot down by local officials. Target Department Stores and Home Depot were among the most active retailers in opening new stores.
Land sales rebounded strongly in 2000, with several huge deals consummated in that arena. Cisco Systems bought 580 acres Northwest of Boston, while the Gutierrez Cos. of Burlington shelled out an estimated $14 million to buy 560 acres in Marlborough and Northborough from MetLife. In another deal that was all but completed by year’s end, EMC Corp. is buying 280 acres from the Flatley Co., property upon which the company hopes to build 1.6 million square feet of office and manufacturing space.
