Barrington Capital Partners principals Jeffrey J. Miller (left) and James H. Patterson II helped guide the recent sale of Boston’s 50 Milk St. to Australia-based Challenger America Inc. The pair formed Boston-based BCP five months ago.
It might have been one of the shortest long-term holds ever in Boston’s Financial District, but the $123 million disposition of 50 Milk St. by Australia-based Challenger America Inc. does not signal a sudden retreat Down Under, according to an advisor who negotiated the blockbuster sale to a private investment group.
“Demand for U.S. properties by Australian investors remains strong and is growing,” insisted Barrington Capital Partners LLC principal Jeffrey J. Miller, who helped Challenger buy 50 Milk St. for $109 million in late 2002 and guided the recent sale of the 21-story office tower with BCP partner James H. Patterson II. The building’s purchase by The Estate of James Campbell, initially reported on Banker & Tradesman’s Web site last week, came after Challenger announced plans to divest its U.S. portfolio and focus on homegrown real estate. Challenger adopted the approach of many life insurers by eschewing direct ownership of properties, explained Miller, who had been hired by the financial services company in 2002 to acquire high-grade U.S. assets such as 50 Milk St.
Emboldened by a long-term lease to 50 Milk St.’s anchor tenant, Brown Brothers Harriman, Challenger America paid approximately $423 per square foot for the 275,000-square-foot building, among the highest rates ever at the time for a Hub office tower. And while Challenger’s philosophy of owning properties for a lengthy period did not pan out, the escalating interest for core assets has apparently produced a lucrative outcome. At $123 million, this month’s sale equates to about $447 per square foot.
“I think Challenger did very well,” acknowledged Miller, declining to offer specifics beyond that available at the Suffolk County Registry of Deeds, where the all-cash deal has been recorded. The sale was brokered directly between the two parties, with TA Realty of Boston advising The Estate of James Campbell. Headed up by Michael A. Ruane, TA Realty assisted the same Hawaii-based group in its acquisition of two Wakefield properties in 2002 for $51.2 million. TA officials did not respond to inquiries regarding the purchase of 50 Milk St. The Wakefield properties at 301 and 401 Edgewater Place encompass 330,000 square feet.
‘A Great Deal’
Miller and Patterson were initially charged with selling 50 Milk St. last spring before the company decided against the move, but after Challenger ultimately decided to pull out of the United States completely, it made little sense to continue paying asset management fees for the few existing holdings, said Miller, leading to last autumn’s sale of a Texas property and this month’s relinquishment of 50 Milk St. The final asset, an office complex in Denver, is about to go on the block, said Miller. BCP will oversee that marketing process as well.
Sporting extensive real estate investment expertise, with Miller previously working for CB Richard Ellis and Patterson at AEW, the pair formed Boston-based BCP five months ago and already have lined up another well-heeled Australian client. Besides assisting several domestic funds seeking a foray into the northeast, BCP is steering Mariner Financial Ltd. as it begins to target retail and office opportunities stateside. The firm is preparing an initial public offer, or IPO, on the Australian stock exchange to establish a limited property trust, or LPT, while simultaneously forming a private real estate investment trust in the United States that it will be majority owner of and will have Miller and Patterson as directors.
The IPO will not be filed until June and the private REIT has also not been officially established, but BCP is already pursuing U.S. opportunities for Mariner that will be rolled into the REIT. Chasing deals typically between $20 million and $200 million, Mariner is slated to close this week on a retail shopping center in Derry, N.H. The $32 million acquisition of Derry Meadows will give Mariner a stake in one of New England’s few areas seeing population growth, according to Miller.
“It’s a great deal,” he said of the 188,000-square-foot property, which includes restaurant sites that could generate income via ground leases. Mariner narrowly missed out on a West Coast shopping center that sold for $237 million, exemplifying the financial heft of not only BCP’s client, but also Australian investors in general. Limited property trusts similar to Mariner have become prevalent in the United States during the new millennium, according to James A. Fetgatter, chief executive of the Association of Foreign Investors in Real Estate in Washington, D.C.
“It’s really a situation specific to Australia,” Fetgatter said of the heavy use of REITs and other security vehicles to own U.S. real estate. The activity has been driven largely by the country’s novel pension laws, which include a requirement that companies contribute substantially to employee pension plans. The law has led to huge pools of capital needing to produce yields, said Fetgatter. Major Australian firms include Westfield Ltd., now among the largest owners of U.S. mall properties, as well as Macquarie Countrywide Trust, which recently announced a $2.8 billion purchase of a California pension fund’s retail portfolio of 101 shopping centers.
“They are looking for product very actively,” said Fetgatter, adding that the use of the REIT model makes it difficult to determine just how much investment in the U.S. real estate the Australian firms have at present. As with Miller, however, Fetgatter opined that the departure of players such as Challenger and Lend Lease Real Estate Investments are not the norm. Mariner will even pursue such deals as recapitalizations of assets and portfolio purchases, said Miller, offering a broader approach than that ventured by Challenger.
As BCP prepares to help Challenger trade the Denver property, the firm is doing battle daily on the other side of the aisle, helping the domestic funds seek out real estate including multifamily properties. As with most of the investment sector, buying apartment properties has become difficult in the charged environment, Miller noted, as condominium converters continue to drive asking prices upward. “That’s not part of our strategy,” Miller said of the conversion approach, describing the bidding situation as “very competitive,” and requiring discipline to not overpay for an asset despite the anxious capital.
